Variation in the Profit Margin for Different Types of Total Joint Arthroplasty

As health care shifts to a value-based model with bundled-payment methods, it is important to understand the costs and reimbursements of arthroplasty procedures that represent the largest expenditure of Medicare. The aim of the present study was to characterize the variation in (1) total hospital costs, (2) reimbursement, and (3) profit margin for different arthroplasty procedures.

The total hospital costs of total knee arthroplasty (TKA), total hip arthroplasty (THA), anatomic total shoulder arthroplasty (TSA), reverse shoulder arthroplasty (RSA), and total ankle arthroplasty (TAA) were calculated with use of time-driven activity-based costing at an orthopaedic institution from 2018 to 2020. The average reimbursement for each type of procedure was determined. Profit margin, defined as the reimbursement profit after direct costs, was calculated by deducting the average time-drive activity-based total hospital costs from the reimbursement value. Multivariate analyses were performed to evaluate the associations between costs, reimbursement, and profit margins.

There were 13,545 arthroplasty procedures analyzed for this study, including 6,636 TKAs, 5,902 THAs, 346 TSAs, 577 RSAs, and 84 TAAs. Costs and reimbursement were highest for TAA. THA and TKA resulted in the highest profit margins, whereas RSA resulted in the lowest. The strongest associations with profit margin were private insurance (0.46547), age (-0.22732), and implant cost (-0.19240).

THA and TKA had greater profit margins overall than TAA and upper-extremity arthroplasty in general. Profit margins for RSA, TSA, and TAA were all at least 28% lower than those for TKA or THA. Lower-volume arthroplasty procedures were associated with decreased profit margins. Study findings suggest that optimizing implant costs and length of stay are important for sustaining institutional fiscal health when performing shoulder and ankle arthroplasty surgery.