In Need of a New Hip, but Priced Out of the U.S.

Michael Shopenn, who has an artificial hip, on Copper Mountain in Colorado



N.Y. TIMES Elizabeth Rosenthal

WARSAW, Ind. — Michael Shopenn’s artificial hip was made by a company based in this remote town, a global center of joint manufacturing. But he had to fly to Europe to have it installed.

Mr. Shopenn, 67, an architectural photographer and avid snowboarder, had been in such pain from arthritis that he could not stand long enough to make coffee, let alone work. He had health insurance, but it would not cover a joint replacement because his degenerative disease was related to an old sports injury, thus considered a pre-existing condition.

Desperate to find an affordable solution, he reached out to a sailing buddy with friends at a medical device manufacturer, which arranged to provide his local hospital with an implant at what was described as the “list price” of $13,000, with no markup. But when the hospital’s finance office estimated that the hospital charges would run another $65,000, not including the surgeon’s fee, he knew he had to think outside the box, and outside the country.

“That was a third of my savings at the time,” Mr. Shopenn said recently from the living room of his condo in Boulder, Colo. “It wasn’t happening.”

“Very leery” of going to a developing country like India or Thailand, which both draw so-called medical tourists, he ultimately chose to have his hip replaced in 2007 at a private hospital outside Brussels for $13,660. That price included not only a hip joint, made by Warsaw-based Zimmer Holdings, but also all doctors’ fees, operating room charges, crutches, medicine, a hospital room for five days, a week in rehab and a round-trip ticket from America.

“We have the most expensive health care in the world, but it doesn’t necessarily mean it’s the best,” Mr. Shopenn said. “I’m kind of the poster child for that.”

 

St. Rembert's, the private hospital in Belgium where Mr. Shopenn had his hip replaced for $13,660. Thomas Vanden Driessche for The New York Times



As the United States struggles to rein in its growing $2.7 trillion health care bill, the cost of medical devices like joint implants, pacemakers and artificial urinary valves offers a cautionary tale. Like many medical products or procedures, they cost far more in the United States than in many other developed countries.

Makers of artificial implants — the biggest single cost of most joint replacement surgeries — have proved particularly adept at commanding inflated prices, according to health economists. Multiple intermediaries then mark up the charges. While Mr. Shopenn was offered an implant in the United States for $13,000, many privately insured patients are billed two to nearly three times that amount.

An artificial hip, however, costs only about $350 to manufacture in the United States, according to Dr. Blair Rhode, an orthopedist and entrepreneur whose company is developing generic implants. In Asia, it costs about $150, though some quality control issues could arise there, he said.

 

So why are implant list prices so high, and rising by more than 5 percent a year? In the United States, nearly all hip and knee implants — sterilized pieces of tooled metal, plastic or ceramics — are made by five companies, which some economists describe as a cartel. Manufacturers tweak old models and patent the changes as new products, with ever-bigger price tags.

Generic or foreign-made joint implants have been kept out of the United States by trade policy, patents and an expensive Food and Drug Administration approval process that deters start-ups from entering the market. The “companies defend this turf ferociously,” said Dr. Peter M. Cram, a physician at the University of Iowa medical school who studies the costs of health care.

Though the five companies make similar models, each cultivates intense brand loyalty through financial ties to surgeons and the use of a different tool kit and operating system for the installation of its products; orthopedists typically stay with the system they learned on. The thousands of hospitals and clinics that purchase implants try to bargain for deep discounts from manufacturers, but they have limited leverage since each buys a relatively small quantity from any one company.

In addition, device makers typically require doctors’ groups and hospitals to sign nondisclosure agreements about prices, which means institutions do not know what their competitors are paying. This secrecy erodes bargaining power and has allowed a small industry of profit-taking middlemen to flourish: joint implant purchasing consultants, implant billing companies, joint brokers. There are as many as 13 layers of vendors between the physician and the patient for a hip replacement, according to Kate Willhite, a former executive director of the Manitowoc Surgery Center in Wisconsin.


Dr. Rory Wright at the Orthopedic Hospital of Wisconsin with two modern hip joint options.

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“Manufacturers will tell you it’s R&D and liability that makes implants so expensive and that they have the only one like it,” said Dr. Rory Wright, an orthopedist at the Orthopedic Hospital of Wisconsin, a top specialty clinic. “They price this way because they can.”
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Americans pay, on average, about four times as much for a hip replacement as patients in Switzerland or France and more than three times as much for a Caesarean section as those in New Zealand or Britain. The average price for Nasonex, a common nasal spray for allergies, is $108 in the United States compared with $21 in Spain. The costs of hospital stays here are about triple those in other developed countries, even though they last no longer, according to a recent report by the Commonwealth Fund, a foundation that studies health policy. ----

 [ Mr. Shopenn's ] joint implant and surgery in Belgium were priced according to a different logic. Like many other countries, Belgium oversees major medical purchases, approving dozens of different types of implants from a selection of manufacturers, and determining the allowed wholesale price for each of them, for example. That price, which is published, currently averages about $3,000, depending on the model, and can be marked up by about $180 per implant. (The Belgian hospital paid about $4,000 for Mr. Shopenn’s high-end Zimmer implant at a time when American hospitals were paying an average of over $8,000 for the same model.)

“The manufacturers do not have the right to sell an implant at a higher rate,” said Philip Boussauw, director of human resources and administration at St. Rembert’s, the hospital where Mr. Shopenn had his surgery. Nonetheless, he said, there was “a lot of competition” among American joint manufacturers to work with Belgian hospitals. “I’m sure they are making money,” he added.

Dr. Cram, the Iowa health cost expert, points out that joint manufacturers are businesses, operating within the constraints of varying laws and markets.

“Imagine you’re the C.E.O. of Zimmer,” he said. “Why charge $1,000 for the implant in the U.S. when you can charge $14,000? How would you answer to your shareholders?” Expecting device makers “to do otherwise is like asking, ‘Couldn’t Apple just charge $50 for an iPhone?’ because that’s what it costs to make them.”

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When joint replacement surgery first became widely used in the 1970s, it was reserved for older patients with crippling pain from arthritis, to offer relief and restore some mobility. But as technology and techniques improved, its use broadened to include younger, less debilitated patients who wanted to maintain an active lifestyle, including vigorous sports or exercise.

 

In the first few decades, implants were typically cemented into place. But since the 1980s, many surgeons have used implants made of more sophisticated materials that allow the patient’s own bone to grow in to hold the device in place. For most patients, implants have proved miraculous in improving quality of life, which is why socialized medical systems tend to cover them. Per capita, more hip replacements are done in Britain, Sweden and the Netherlands, for example, than in the United States.

 

Motivated in part by science and in part by the need to create new markets, joint makers churn out new designs that are patented, priced higher and introduced with free training courses for surgeons. Some use more durable materials so that a patient requiring a hip implant at age 40 or 50 might rely on it longer than the standard 20 years, while other models are streamlined and require smaller incisions.

Many doctors say that for most patients, older, standard implants with a successful track record are appropriate. Expensive modifications make no difference for the typical patient, but they drive up prices for all models and have sometimes proved to be deeply flawed, they say.

In the last few years, joint manufacturers have faced lawsuits and have settled claims with patients after new, all-metal implants, which were meant to be more durable than the standard version, had unusually high failure rates.

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Device makers have used some of their profits to lobby Congress and to buy brand loyalty. In 2007, joint makers paid $311 million to settle Justice Department accusations that they were paying kickbacks to surgeons who used their devices; Zimmer paid the biggest fine, $169.5 million. That year, nearly 1,000 orthopedists in the United States received a total of about $200 million in payments from joint manufacturers for consulting, royalties and other activities, according to data released as part of the settlement.

Despite that penalty, payments continued, according to a paper published in The Archives of Internal Medicine in 2011. ....      

Although only a tiny percentage of orthopedists receive payments directly from manufacturers, the web of connections is nonetheless tangled.

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There are, of course, a number of factors that explain why Mr. Shopenn’s surgery in Belgium would cost many times more in the United States. In America, fees for hospitals, scans, physical therapy and surgeons are generally far higher. And in Belgium, even private hospitals are more spartan.

When Mr. Shopenn arrived at the hospital, he was taken aback by the contrast with NewYork-Presbyterian Hospital, where his father had been a patient a year before. The New York facility had “comfortable waiting rooms, an elegant lobby and newsstands,” Mr. Shopenn remembered.

But in Belgium, he said, “I was immediately scared because at first I thought, this is really old. The chairs in the waiting rooms were metal, the walls were painted a pale green, there was no gift shop. But then I realized everything was new. It was just functional. There wasn’t much of a nod to comfort because they were there to provide health care.”

 

The pricing system in Belgium does not encourage amenities, though the country has among the lowest surgical infection rates in the world — lower than in the United States — and is known for good doctors. While most Belgian physicians and hospitals are in business for themselves, the government sets pricing and limits profits. Hospitals get a fixed daily rate and surgeons receive a fee for each surgery, which are negotiated each year between national medical groups and the state.

 

....European orthopedists tend to make about half the income of their American counterparts, whose annual income averaged $442,450 in 2011, according to a survey by the Commonwealth Fund, a foundation that studies health policy.

Belgium pays for health care through a mandatory national insurance plan, which requires contributions from employers and workers and pays for 80 percent of each treatment. Except for the poor, patients are generally responsible for the remaining 20 percent of charges, and many get private insurance to cover that portion.

Mr. Shopenn’s surgery, which was uneventful, took place on a Tuesday. On Friday he was transferred for a week to the hospital’s rehabilitation unit, where he was taught exercises to perform once he got home.

 

Twelve days after his arrival, he paid the hospital’s standard price for hip replacements for foreign patients. Six weeks later he saw an orthopedist in Seattle, where he was living at the time, to remove stitches and take a postoperative X-ray. “He said there was no need for further visits, that the hip looked great, to go out and enjoy myself,” Mr. Shopenn said.

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Mr. Shopenn’s new hip worked so well that a few months after returning from Belgium he needed a hernia operation — a result of too much working out at the gym. He was home by 4 p.m. the day of the outpatient surgery, but the bill came to $16,500. Though his insurance company covered the procedure, he called the hospital’s finance department for an explanation.

He remembers in particular a “surreal” discussion with a “very nice” administrator about a $750 bill for a surgical drain, which he called “a piece of plastic in a sealed bag.”

“It was mind-boggling to me that the surgery could possibly cost this much,” he said, “after what I’d just done in Belgium.”