Variability in Costs Associated with Total Hip and Knee Replacement Implants

Background: Implant costs associated with total hip replacement and total knee replacement procedures account for a large share of total costs and reimbursements to hospitals. Federal policymakers are promoting episode-of-care payment and other value-based delivery and payment reforms in part to encourage physicians and hospitals to cooperate in managing costs for these and other procedures. The present study quantifies the patient, hospital, and market characteristics associated with variation in implant and total procedure costs for hip and knee arthroplasty. Methods: Clinical, demographic, and economic data were collected on 10,155 unilateral primary total knee replacement procedures and 5013 unilateral primary total hip replacement procedures from sixty-one hospitals in 2008. Variation in implant costs per procedure was measured within and across hospitals. Multivariate statistical analyses were used to measure the association between patient and hospital characteristics and implant costs and total procedure costs. Results: The average implant cost per case ranged from $1797 to $12,093 for total knee replacement procedures and from $2392 to $12,651 for total hip replacement procedures. For total knee replacement, 2.5% of total variation in device costs was attributable to patient characteristics and 61.0% was attributable to hospital characteristics; the remaining 36.5% of variance was attributable to within-hospital variation not due to patient or hospital characteristics. For total hip replacement, 4.4% of variance was attributed to patient characteristics, 36.1% was attributed to hospital characteristics, and 59.5% was attributed to within-hospital variation not due to patient or hospital characteristics. Conclusions: There are substantial variations in total hip replacement and total knee replacement implant costs within and across hospitals after controlling for patient diagnoses and comorbidities. This variation is responsible for the majority of variation in the overall cost of total hip and knee replacement surgery.