Is It Time to Reconsider Capitated Constructs To Address Runaway Implant Costs?

When procedural capitated cost models were first introduced as a strategy to reduce the expense for total hip and knee arthroplasty cases, the strategy proved to have its merits. Matrices, categories, and price points were developed based on levels of technology and cost with the end goal of setting a fixed price that suppliers would meet for the most common procedures. These constructs were viewed as a simple way to establish a fixed price while allowing surgeons the preference to use the best implant for the patient.

However, in practice, the promise of this strategy often went unrealized as the complexities of physician preference and the work of crafty implant vendor representatives who would find ways to break the cap significantly eroded savings and made the management of capitated constructs unwieldy.

What Capitated Constructs Were Meant to Solve

Surgical costs where implants were used were exponentially increasing. Clinical variability, sometimes at the expense of cost, was prevalent. Supplier reps forged strong bonds with surgeons and promoted their newest products, many times at a higher cost. The result was higher costs with a lack of control over product introduction and the use of items which were not contracted.

The approach was logical: the hospital pays a fixed amount for a total knee procedure to control costs, but allows the surgeon to use any combination of clinically appropriate implants and supplies to achieve the best patient outcome. Components like drill bits and temporary fixation pins would no longer be billed on a line-item basis as they were covered under the cap.

Why Capitated Constructs Failed (And Why Reverting Seemed Right)

The implant vendor representatives easily found ways to make the administration of cap constructs untenable. Surgeries using revision and premium components became more prevalent and more expensive. New items were introduced into the operating room at greater frequency, and Cap-plus as a pricing scheme became the new normal. Suppliers had a playbook filled with ways to break the cap and offset cost controls so that they could meet their sales targets. Many hospitals found the approach impossible to administer.

Hospital buyers were placed in an unwinnable position. The implant category, products, and procedures are nuanced and complex, making the surgeon and the vendor representative the only two people with a true grasp on their intricacies. How could non-clinical buyers be expected to enforce cap compliance, compare each case to contracting details, and push back on clinical validity of new items or incessant Cap-plus billing?

How Purpose-Built Technology Changes the Equation

Like speed limits, cap constructs require a degree of enforcement to ensure compliance. The problem is that the highway patrol is being asked to write speeding tickets without a radar gun. Purpose-built PPI software is that radar gun, a technology solution designed to identify and correct pricing issues and billing non-compliance instantly. The success of your program is no longer dependent on your staff to enforce subtle and sometimes unwritten rules for capitated and line-item pricing.

What effective cap construct enforcement looks like

• Clinical expertise not required: The software knows when a cap should be applied and monitors for the ways a vendor rep tries to break it.
• Off-contract items and revision components are flagged automatically: Caps stay clean and the terms and conditions of supplier agreements are precisely executed.
• Common line-item and Cap-Plus procedures are reassembled into caps: Cost and utilization trends are monitored to identify exploits.
• Charge entry made easy: Total cap construct costs can be automatically allocated across individual line items to support streamlined patient billing.
• EHR compatibility addressed: System-specific issues with Epic and Cerner are understood and managed.

The Renewed Opportunity

Not only can cap pricing be managed for orthopedic reconstruction surgery, but enterprising supply chain teams are using the same tools to negotiate leveraged supplier agreements using cap constructs in other high-cost categories such as spine, trauma, and sports medicine. With Genesis Savings processing tens of thousands of vendor bill sheets for implantable surgical encounters annually, cap construct enforcement has been mastered across nearly two dozen implant categories.