The Cost of Joint Replacements

Sticker shock is something we are all familiar with.  For most of us it happens when we pull into a gas station.  Unfortunately, it is not just the price of fuel that is continually increasing.  Medical procedures are also costly, and while increases may not be as noticeable on a weekly basis as are those for gasoline, both appear to be following the same trend. 

There is one key difference between the rising price at the gas pump and the increased amount charged to an insurance company for a medical procedure such as a total hip or knee replacement. At the gas station every driver pulling in is going to pay the same price.  With total knee or hip replacements, different patients may be charged different amounts. 

Looking at ICD-9 procedure facility codes, charges billed to a consortium of insurance companies (HIPAA-compliant information on file in the PearlDiver database) show that the average charge for a total knee replacement increased more than 19% from 2004 through June 30, 2007. The charge for a total hip replacement increased at a rate only slightly less, 15.7%.   In dollar amounts the increases equate to an average per procedure of just over $7,500 for a total knee replacement and $6,700 for a total hip.  And that is only over a three-and-a-half-year period.  

On a yearly basis the charges for total knee replacements never increased less than 4.6% ―the increase which took place between 2004 and 2005.  From 2005 to 2006 and 2006 to June 30, 2007, average charges increased 7.4% and 6.5%, respectively.  In comparison, the rate of inflation for the U.S. dollar over the same period never reached an annual level higher than 3.39%.  From a monetary standpoint these are real increases and not simply adjustments due to the decreased value of the dollar. 

These increases reflect the average for all patients.  But in almost every case different patients were charged a different amount, which makes the process of replacing a hip or knee somewhat akin to purchasing an airline ticket―the person sitting next to you on the plane may have paid less for his seat than you paid for yours.  This raises the question: Who is most affected by increases in charges for joint replacements?

Focusing on total knee replacements (which, of the two procedures, have seen the most dramatic increases in cost), the numbers reveal who, when, and by how much different segments of the population have been affected by these increases. Patients diagnosed with a comorbidity prior to a total knee replacement faced higher charges.  Patients diagnosed with hypertension, obesity, diabetes, or tobacco use disorders have seen average charges for a total knee replacement increase a total of 22.8% from 2004 to June 30, 2007.  As shown below in Table 1, by June 30, 2007 the charges for these patients was over $1,000 more than was the average total knee replacement patient.

Table 1: Breakdown of Charges for Total Knee Replacement

The overall charges are only part of the story.  The PearlDiver database reveals which groups being charged more than others. A sample of 32,846 patients from the PearlDiver database, who underwent a total knee replacement, was separated into groups based upon age in five-year increments.

In 2004, the average charges for total knee replacements for patients ranging in age from 30 to 49 and from 60 to 74 were more than the average charges for patient age 50 to 59. However, one year later in 2005, the charges for patients age 55 to 59, which had on average been the least the previous year of all patients under 75, were now the highest.  This trend reversed again in both 2006 and the first half of 2007 as can be seen in Table 2 below.  The figures highlighted in blue represent those patient groups whose average charges were higher than the overall yearly average. 

Table 2: Average Charge Distribution for Total Knee Replacement  
Source: PearlDiver Patient Records Database, 2004-2007

Along with distinguishing which groups are charged more than the average amount, one common thread is apparent among all groups.  Within the time-span of either 2004 to 2006 or from 2005 to June 30, 2007, there is no age group that has not experienced a price increase.  This eliminates the possibility that any specific age group or set of age groups is driving the increase in the overall average charges of a total knee replacement.

Looking deeper into patient charges, we selected those patients diagnosed with obesity, diabetes, hypertension, or tobacco use disorders prior to their total knee replacement.  These patients exhibited distinguishable differences from the overall sample set.   As shown below in Table 3, the age groups diagnosed with comorbidities were charged above-average rates and thus exhibit a significantly different pattern from the overall average.

Table 3: Charge Distribution With Comorbidity for Total Knee Replacement
 
Source: PearlDiver Patient Records Database, 2004-2007

The story these numbers tell is that as of 2006, charges for patients with comorbidities 55 years of age and older are consistently higher than are the charges for the average patient.  The one exception to this was in the 70 to 74 age group in 2007.  The charges for these patients were on average about $400 less than the charges for the average patient.  However, it is becoming more common, across all age groups, for charges to be higher in patients diagnosed with a comorbidity than the average total knee replacement patient.

Comparing the two distribution tables, by 2007 the trend of age groups experiencing above-average charges become near polar opposites.  The charges for younger patients with comorbidities were more likely to be lower than those for the average patient with a total knee replacement.  However, charges for middle-aged patients diagnosed with comorbidities more were likely to higher. While this trend may not be surprising, it is interesting to note that it was not occurring in 2004 or 2005.

Another difference between those patients who have been diagnosed with a comorbidity prior to their total knee replacement and those who have not is the level of charge increase over a two-year period.  Table 3 above exhibits four instances where charges after a two-year period did not exceed the original charge level. (This does not include a fifth instance that did not have enough data to be statistically significant.)  While the charges for a total knee replacement procedure can vary on a case-by-case basis, one key contributor to this discrepancy is the level of complications associated with comorbidities, which can significantly increase the charges for a procedure. 

From the comparisons made thus far, there is one more component to the increase in charges.  Which gender, on average, is charged more―men or women?  Through 2005 and 2006 the answer was clear: men.  This held true for both the average patients and for those patients diagnosed with comorbidities prior to the procedure.  The difference between the genders was statistically significant but not dramatic.  In 2005 men, on average, were charged 2.26% more than women. In 2006 the charges for male patients were 3.18% higher on average.  These percentages equate to $919 and $1,396, respectively.

The most recent data, ending June 30, 2007, indicates that the trend of higher charges for men with a total knee replacement has changed.  The average charge for a male patient as of June 30, 2007 was $45,798, 0.05% lower than the average charge for a woman of $45,823.  The difference between the genders for the average patient has virtually disappeared, with charges for women now slightly higher. 

These numbers indicate changes within the market, but they are not the whole story on the differences between genders.  In 2005 and 2006 patients diagnosed with a comorbidity prior to the procedure followed the same trend of higher charges for men, and the first half of 2007 was no exception. However, as of the end of June 2007, charges for female patients diagnosed with a comorbidity were an average of 1.58% more than male patients with a comorbidity, equating to a difference of $735 on average.