Analysis of Medicare and Commercial Insurer-Paid Total Knee Replacement Reveals Opportunities for Cost Reduction

This issue brief from the Health Care Incentives Improvement Institute (HCI3) analyzes insurance claims for total knee replacements (TKR) using the PROMETHEUS Payment® engine and reveals significant opportunities for cost reduction and quality improvement with a bundled payment program.

Analyzing two and a half years of payment data for TKR, the authors identified estimated savings of 20 percent for Medicare patients and 10 percent for the commercially insured population, or $84 million and $90 million, respectively. The authors conclude that these savings could come from a bundled, episode-of-care payment system such as PROMETHEUS, which allows for identifying and reducing potentially avoidable complications (PAC) from the surgery.

PAC costs are defined as those that arise from avoidable complications during various phases of a surgical episode. The majority of increased costs for procedures above the average were associated with PACs, which represent failures in the quality of care being delivered.

In an introduction to the brief, James C. Robinson, PhD, MPH, director of the Berkeley Center for Health Technology in the School of Public Health at the University of California at Berkeley, notes that the findings advance the debate over improving quality and reducing costs. The waste and inappropriate use of procedures common in the U.S. health care system can be measured, he says, and what can be measured should be managed.

The Robert Wood Johnson Foundation was one of the original funders for the development of the PROMETHEUS Payment® methodology and continues to work with the project as a payment reform technical assistance provider to Aligning Forces for Quality, its signature effort to improve the quality of care in the United States.