Issue: August 2007
August 01, 2007
10 min read

Current cost freeze and Medicare cuts: What are they doing to orthopedics?

Our panel of experts discuss reimbursement cuts and how they will affect their practice.

Issue: August 2007
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The trend towards gradual decreases in Medicare fees paid to orthopedic surgeons over the last 10 years is likely to continue. In 2007, overall fees paid to orthopedic surgeons as a group dropped about 5%. Add in inflation and the effective decrease more than doubles.

To further compound that: The liability crisis in Miami-Dade County, Fla., where I practice has reached critical mass. In 2006, I had to perform 55 hip replacements just to cover my malpractice insurance (at a $250,000 per-event level).

As a result, many physicians have already opted to leave the Medicare program due to the inability to keep the lights on in their offices.

Helping us explore these issues in this Orthopedics Today Virtual Round Table discussion are two orthopedic surgeons, including a private practitioner in a large private group in a major city and a chief of staff at a large urban academic center; the head of the health policy group for the American Association of Hip and Knee Surgeons; and the former administrator for the Centers for Medicare & Medicaid Services (CMS).

Carlos J. Lavernia, MD

Round Table Participants

Virtual Moderator

Carlos J. Lavernia, MDCarlos J. Lavernia, MD
Chief of Orthopaedics, Mercy Hospital Chief
Orthopedic Institute Miami, FL

Robert L. Barrack, MDRobert L. Barrack, MD
Charles F. and Joanne Knight Distinguished Professor
Orthopaedic Surgery Chief of Staff Orthopaedics
Barnes-Jewish Hospital Chief
Adult Reconstructive Surgery
Washington University School of Medicine
St. Louis, MO

Thomas K. Fehring, MDThomas K. Fehring, MD
OrthoCarolina Hip and Knee Center
Charlotte, NC

Brian S. Parsley, MDBrian S. Parsley, MD
Chairman, Health Policy Committee,
AAHKS Associate Professor,
Department of Orthopaedic Surgery
Baylore College of Medicine
Houston, TX

Thomas A. Scully, JDThomas A. Scully, JD
Former Administrator,
Centers for Medicare & Medicaid Services General Partner
Welsh Carson Anderson & Stowe Senior Councel Alston & Bird, LLP Washington, DC

Carlos J. Lavernia, MD: How have Medicare cuts affected your practice or department?

Robert L. Barrack, MD: The greatest impact has been on the earning potential of surgeons with a high percentage of Medicare patients, especially total joint surgeons who, in recent years, must perform more surgeries to maintain the same income. Obviously, there is a limit to this strategy.

Thomas K. Fehring, MD: I work in an 81-member private practice orthopedic group with eight dedicated arthroplasty surgeons. Medicare cuts have placed most of the arthroplasty surgeons at the bottom of the salary pool despite a significant increase in case volume. While this wide disparity in income between the arthroplasty group and our sports medicine and spine colleagues has not gone unnoticed. These cuts have brought our arthroplasty group closer as we struggle to improve efficiency in caring for the increasing demand of patients needing complex primary and revision joint replacement.

We must not allow unreasonable governmental cuts to cause dissention within our orthopedic groups. We must educate our patients and lawmakers that continued cuts will eventually create access problems. As cuts continue, more surgeons will drop Medicare and fewer young surgeons will choose a career in arthroplasty. Eventually, patients will see excessive delays in treatment.

Lavernia: Do you foresee Medicare patients losing access to musculoskeletal care?

Barrack: The immediate crisis is in managing complications such as infections and revisions. While we can effectively manage straightforward primary cases with efficient, high-quality, high-volume care, this breaks down with complicated cases such as total knee infections. With the projected increases in volumes, I can foresee substantial waiting lists for Medicare patients for these complicated cases.

Fehring: This is already happening. Revision surgery is very labor-intensive both intra- and perioperatively. It makes little economic sense for a surgeon to perform a 3-hour revision procedure if he could instead do multiple procedures in another orthopedic subspecialty and significantly increase reimbursements.

It is human nature that reimbursement and lifestyle issues will influence a resident’s career decisions. This is reflected already in the number of fellowship positions offered. While there are more than 325 fellowship positions available for spine and sports medicine specialty training for the 2007 academic year, only 92 hip and knee fellowship positions are available. As of March 2007, only 74 of the 92 available hip and knee replacement fellowships were filled, and 20 of these 74 were filled by foreign medical program graduates.

At the same time, the number of primary hip and knee replacements that are needed will rise exponentially as baby boomers mature. It is therefore obvious that there will be insufficient hip and knee replacement specialists to meet forecasted demands for complex primary and revision hip and knee replacement.

Thomas A. Scully, JD: I am answering this from my view as a former CMS administrator and how my former agency would see this, so these are not necessarily my personal views.

“Nothing would happen if senior surgeons resigned from Medicare ... there is very little sympathy for surgeons in Washington.”
— Thomas A. Scully, JD

I do not think the cuts will impact access because I don’t think the 10% cut will happen. Congress will fix this — for this year anyway — but the structural issues won’t go away. You will be getting zero to a very small increase. Even with a zero inflation increase, part B spending will still go up probably 8% to 9% next year. I believe that volume is the problem and it won’t go away.

I don’t think you will lose doctors or institutions. This “close the Washington Monument” approach never works in Washington. No major hospital can survive without Medicare. None have dropped out and none will, but that does not mean the policy is sound.

Lavernia: Should senior faculty members be allowed to opt out of Medicare, and what effect will that have?

Barrack: Like most academic centers, we are part of a large physician’s group. I am not aware of any faculty who opted out of Medicare at our institution.

Fehring: While our group may allow senior partners to drop Medicare, our hip and knee center has decided not to pursue this strategy. While this approach may be financially advantageous for a senior partner, we must not allow unreasonable governmental reimbursement cuts to further divide our orthopedic groups and subspecialties. Opting out of Medicare would cause significant dissention within our group. It would significantly limit the earning potential of the younger physicians who would bear an inordinate load of Medicare and Medicaid patients.

We feel it is the obligation of all members of our group to service all of the patients in our community who need hip and knee replacement. We need a solution that helps all arthroplasty surgeons, not just a select few.

Scully: Nothing would happen if senior surgeons resigned from Medicare. If 25% or more of all surgeons refused Medicare patients, that might get noticed. But there is very little sympathy for surgeons in Washington. There is far more compassion for nurses, general practitioners (GPs), emergency room physicians and others. This may not be fair given the massive loss of surgical income in the last decade, but that is the reality.

Lavernia: How low would the primary reimbursement have to go until significant numbers of hip and knee surgeons stop taking Medicare patients?

Fehring: I think we are very close to that level. Since 1990, the reimbursement for hip and knee replacement has gone down 64% and 59%, respectively, in inflation-adjusted dollars. We have allowed the government to perform what I term a “boiling frog technique” with regard to hip and knee replacement reimbursement. If you put a frog in a pot of water and raise the temperature slowly, the frog acclimates. But if you turn the heat up 100° and throw the frog in, he would jump out quickly.

Medicare has decided to slowly ratchet down the reimbursement for hip and knee replacement to lower costs, yet keep physicians in the pot. With each decrease, we pedal harder to maintain the same income. Eventually, you can only pedal so fast before you burn out.

I think we are rapidly reaching the point where we can not squeeze out any more efficiencies from our system or do more cases daily. If cuts continue, eventually the overhead expenses will become similar to the reimbursement. This will be intolerable and will force most dedicated hip and knee surgeons to drop Medicare.

Brian S. Parsley, MD: Most of the reimbursement cuts have resulted from a decrease in the practice expense side of the Medicare formula. In addition, Medicare’s work values have been adopted by some other insurers. As goes Medicare, so goes overall reimbursement.

Some of those who have dropped Medicare are well-established surgeons who can afford to excuse themselves. This trend, though, has increased significantly in the past few years.

The exact level that would trigger a major exit from Medicare is unclear. As reimbursements gradually decline, cancellations will gradually rise, barring a precipitous drop, which would lead to a massive exodus. The federal government, unfortunately, is playing on the altruistic nature of physicians in general who want to take care of the patients in need.

Lavernia: What has the American Association of Hip and Knee Surgeons (AAHKS) done for arthroplasty surgeons in the last 5 years to help decrease the impact of the reductions in reimbursement?

Parsley: The AAHKS has done many things to involve themselves in the reimbursement process in a much more significant way.

We have AAHKS members in multiple committees and councils within the American Medical Association (AMA) and the American Academy of Orthopaedic Surgeons (AAOS) to participate in the reimbursement process from top to bottom. This has allowed for better communication within our organization and greater influence on the reimbursement process.

We also have increased health policy advocacy efforts within the AAOS by providing greater support for the Ortho Political Action Committee (PAC) as well as greater active financial support of an additional health policy lobbyist in our Washington office in conjunction with other members of the Board of Specialty Societies. And we have set up a Health Policy Committee within AAHKS to further coordinate our health policy efforts through greater communication and coordination of our activities.

The AMA Relative Value Utilization Committee (RUC) is instrumental in establishing physician reimbursement through active participation and by having an advisor to the AMA RUC representing AAHKS and our physician interests. In 2005, the CMS tried to revisit the primary TKR and hip fracture codes as part of a 5-year review. That resulted in a recommendation by the AMA RUC for no change in the work values. CMS unilaterally decided to reduce the work values on these codes significantly.

Through the successful efforts of the AAHKS and the AAOS advocacy groups, we convinced CMS to restore the original work values. The savings amount to an estimated $58 million to $60 million annually. This was a huge success for our advocacy efforts, and these efforts are ongoing.

Lavernia: With the new pay-for-performance (P4P) measures, how is your faculty preparing for the coming of quality-based payments, and will this partially resolve the payment reductions?

Barrack: Complying with the P4P initiative is largely an issue of infrastructure. We easily meet the requirements by virtue of the audits that are already in place for ensuring that we meet the standards for prophylactic antibiotics and DVT treatment.

The challenge is in ensuring that an additional CPT code is added to the billing codes to document that these standards have been met. The potential payment is only 1.5%. Although not insignificant, this will offset the proposed reductions very little.

Scully: P4P won’t address payment issues. Most Democrats in Congress really don’t like P4P; they are happy with a single-payer Medicare system. Republicans hate price fixing and think that is the core of our problem in health care — that Medicare and most other payers pay the last doctor in his class at the University of Western Liberia the same as the best doctor from Johns Hopkins. When you pay everyone the same, you get what you ask for: a high volume of services with very little incentive for a focus on quality. P4P is a marginal attempt to deal with this, but it is only nibbling on the fringes.

It always amazes me that physicians, who are often very astute economists, don’t find it strange that the only place in the U.S. economy where we fix prices is health care, and it is the most screwed up part of our economy. The system follows exactly the incentives we have created.

The new P4P system will have no impact on the cuts. What drives the cuts is that without them, you have 15% to 18% annual spending growth. This growth is driven by volume explosions (not per-unit increases) that are created by the incentive of everyone to drive more volume to make up for declining payments. It is a vicious cycle, driven by government price fixing.

Parsley: The AAHKS is well-represented on multiple committees within the AAOS, the AMA and additional committees on P4P. We communicate directly with CMS regarding our P4P concerns and to ensure adequate and reliable performance measures. It is critical that P4P reflect quality improvements; pay-for-reporting is not as important.

AAHKS, along with AAOS, is working to ensure that measures quantify quality outcomes and, with compliance, will actually improve quality rather than simply improve the reporting burden.

P4P reimbursements will have little positive impact and will simply offset further reductions. The fear for those who do not report the performance measures is that their reimbursement will be reduced further.

Lavernia: Is “balance billing” wealthy beneficiaries an option?

Fehring: Our group has discussed balance billing and has created a conceptual plan to care for all patients if we are forced to drop Medicare, should overhead for joint replacement exceed reimbursement. Because we have a large share of the local joint replacement market, it was critical to plan to maintain access for all patients regardless of their ability to pay.

“It is critical that P4P reflect quality improvements; pay-for-reporting is not as important.”
— Brian S. Parsley, MD

In this so-called “Robin Hood Plan,” which is very similar to balanced billing, patients with the resources to pay for the procedure get charged a certain fee. Half of this fee goes to the provider and the other half goes to an “access bank.”

If an indigent patient needs a joint replacement, the provider receives full reimbursement from the “access bank.” Our staff says this could be administered without difficulty.

Scully: Balance billing is not an option. It was limited in 1989, with the adoption of the Resource-Based Relative Value Scale (in which I was the Bush Administration negotiator) because the American Association of Retired Persons (AARP) demanded it as part of the deal. The AARP believed some physicians were overbilling uneducated lower-income seniors beyond allocated Medicare fees. Fair or not, unless the AARP changes that view, which is highly unlikely, balanced billing limits will never be repealed.

As you can probably guess, I am a fan of the government getting out of price fixing and instead buying very well-regulated private health plans for seniors — just as we do for millions of federal employees.

I was a federal employee for 16 years, and the system works remarkably well. Private plans, with tight oversight and with their own money at risk, do a much better job of rewarding good performance and balancing the interests of patients and taxpayers than a centralized price-fixed government system ever can.

I love CMS and the dedicated employees there, and I am very proud of my time there. They do the best they can, but it is not the best way to run this railroad.

For more information:
  • Robert L. Barrack, MD, can be reached at 660 South Euclid Ave., Campus Box 8233, Department of Orthopedics, St. Louis, MO 63110; 314-362-2696; e-mail: He receives funding for consultant and membership on advisory committee or review panels from Smith & Nephew Orthopaedics.
  • Thomas K. Fehring, MD, can be reached at 1915 Randolph Road, Charlotte, NC 28207; 704-339-1321; e-mail:
  • Carlos J. Lavernia, MD, can be reached at 3659 South Miami Ave., Suite 4008, Miami, FL 33133; 305 285-5085; e-mail: He is an implant designer for Zimmer.
  • Brian S. Parsley, MD, can be reached at Baylor College of Medicine, 6620 Main St., 13th Floor Houston, TX 77030, 713-986-6016; e-mail: He receives clinical research support from DePuy.
  • Thomas A. Scully, JD, can be reached at Alston & Bird, LLP, The Atlantic Building, 950 F St., NW, Washington, DC 20004; 202-756-3300; e-mail: