A Warsaw resident may find it cheaper to go overseas for surgery to receive a replacement knee or hip that comes from down the street. The New York Times recently reported on the growing number of American “medical tourists” who undergo elective surgery outside the country at a fraction of stateside hospital costs. The article, “In Need of a New Hip, but Priced Out of the U.S.,” is part of an ongoing series on rising medical costs. It gives the example of a 67-year-old Boulder, Colo. man who received a Zimmer hip in a private Belgian hospital for $13,660 – compared to an $80,000 bill he would have faced at home. The implant cost the hospital about $4,000, while prices in America can range from $4,500 to about $8,000 for the device, according to the story. Manufacturer list prices for knee and hip implants grow about 5 percent each year, according to the January 2011 edition of trade publication Orthopedic Network News. It also reports that the list price of a coated total hip system alone rose by 278 percent in the last 20 years, from $3,727 to $14,099. The manufacturing cost for an artificial hip today is about $350, the New York Times quotes Dr. Blair Rhode of Orlando Park, Ill.-based ROG Sports Medicine as saying. There are many factors driving up prices that drive patients overseas, according to the article, but overall, American medical companies set charges free of regulation or marketplace competition. Hospitals and clinics have little leverage in buying implants, and due to nondisclosure agreements cannot know what their competitors are paying. There may also be a dozen layers of vendors between the physician and the patient, each adding to cost. Most devices are made by five major manufacturers – described by some economists as a “cartel” in the article – three of whom are based in Warsaw. The article points out the economic benefits that Zimmer, Biomet and DePuy bring to the area, with a relatively low county unemployment rate and high median family income. The three companies themselves saw sales exceeding $1 billion in 2011, and each pays its chief executive more than $8 million in salaries and benefits. Zimmer President David Dvorak received $8.6 million in 2012, according to Greater Fort Wayne Business Weekly – twice the pay of the next-highest executive on the publication’s list. Five Zimmer chiefs make the top 10 list, with a total compensation of about $20 million. The three Warsaw manufactures spent only about 5 percent of their 2011 revenue on research and development, the New York Times says, compared to 20 percent devoted to R&D in the pharmaceutical industry. It also describes new yearly models as merely a tweak of the old with a larger price tag, while doctors tend to prefer older, standard models with a proven track record. Innovations sometimes prove flawed, as in the case of metal-on-metal implants that have drawn a spate of class-action lawsuits. Much of the companies’ spending is devoted to fines and settlements – orthopedic companies paid $311 million in 2007 to settle Justice Department accusations of paying kickbacks to surgeons, with Zimmer paying more than $169 million of that. A federal judge also recently upheld a $228 million patent infringement finding against Zimmer. Part of the companies’ spending is also devoted to lobbying congress – $30 million last year – and to “buy brand loyalty” among doctors – $200 million in 2011, says the New York Times. The 1 million knee and hip implants performed in America every year is only expected to grow, doubling by 2020 and perhaps quadrupling by 2030, says the New York Times. At the average price paid by insurers, that could add up to more than $140 billion.
