CMS Proposes New Reimbursement Rates - DRG 209 Rate Increases by 2%
BY JOHN CHOPACK, MAY 24, 2004
Center for Medicare and Medicaid Services (CMS) released its 2005 proposed payments for inpatient procedures on May 18th/2004. CMS is calling for a 2% increase in DRG 209 payments bringing the total payment to $10,034 up from $9,839 the year before. DRG 209 is the code under which a vast majority of hip and knee replacements are reimbursed.
Every year Wall Street focuses its attention squarely on the change in reimbursement rates to try to gauge pricing within the orthopedic sector. We do not believe that the change in CMS payment rates for hip and knee procedures has a significant effect on implant pricing. Figure 1 demonstrates the clear disconnect between orthopedic reimbursement and list pricing of orthopedic implants. For example, in 2002 CMS proposed a total payment of $9,681 for procedures reimbursed under DRG 209 during 2003 which was a 1.6% increase. During the same year orthopedic implant manufacturers increased list price for hip and knee implants by 8.9% and 9.4% to $7,380 and $6,010. Also in 2003, hospitals paid a median price of $4,415 for a total hip and $3,848 for a total knee which was 9.8% and 10.0% higher than 2002, respectively. We just don't see the connection.
In our view the purchasing manager within the operating room has complete control over implant pricing. We doubt he or she has any idea what changes CMS is proposing on a year by year basis. I remember from my days of selling hips and knees that several of the hospitals in my territory informed me how much they would pay for my products (capitated pricing). They didn't quote CMS or any pricing catalogue; it was purely what they were willing to pay.
