You have been hired in the third quarter of 2017 as a consultant to determine how the not-for-profit health care system New Orleans Health Care should build a sustainable outpatient joint replacement program for its patients.

Problem: New Orleans Health Care leaders must evaluate the viability of the organization?s potential strategy for shifting its joint replacement procedures to the outpatient setting. What do you recommend as a course of action?

Strategy: Expand joint replacement procedures to the outpatient environment by converting existing inpatient facilities to outpatient capabilities (i.e., by creating outpatient rooms in a hospital environment)
Solve for the statement of the problem.

Provide a SWOT analysis.

Describe your marketing strategy(ies).

Identify any other important factors that New Orleans Health Care should consider based on your evaluation.

Identify barriers to and facilitators of the success of your plan.
New Orleans Health Care
This case is fictional. You can use the data provided. Although some may be dated, the important thing is the strategy and analysis.

Statement of Purpose
You have been hired in the third quarter of 2017 as a consultant to determine how the not-for-profit health care system New Orleans Health Care (NOHC) should build a sustainable outpatient joint replacement program for its patients.

Joint Replacements in America
As the US population ages and becomes more obese, demand for joint replacements is growing. Currently, more than 1 million hip and knee replacement surgeries are performed each year, and more than 1.4 million women and 1.1 million men are living with total hip arthroplasty while more than 3 million women and 1.7 million men are living with total knee arthroplasty.1 The next decade is forecasted to
create an 84% growth in hip and knee replacement procedures (Figure 1).2,3 In addition, the average age of patients undergoing hip replacement surgery has declined from over 66 to under 65, while the average age for knee replacement surgeries has declined from 68 to under 66.4 This suggests that the need for joint replacement is expanding beyond the Medicare population. Amid this growth, joint replacement procedures are shifting from the inpatient to the outpatient setting.2
An additional reason for this shift from the inpatient to outpatient setting is the use of less invasive joint replacement procedures. Many total joint replacement patients now require only a 1-day stay because of improvements in surgical techniques. Government and commercial payers have adjusted their policies accordingly: beginning in 2018, Centers for Medicare and Medicaid Services (CMS) removed total knee arthroplasty from its inpatient-only list.2 Meanwhile, an array of economic factors (e.g., pressure from payers to reduce spending, ability of physicians to capture more procedure volume at freestanding sites, growing patient demand for elective outpatient procedures) has begun to drive procedures to off-campus settings such as hospital outpatient departments (HOPDs, which are 100% hospital owned) and ambulatory surgery centers (ASCs, in which physicians maintain ownership, have a direct financial interest in the success of the facility, and work to ensure this
success).5,6 By 2028, 57% of elective joint replacements are expected to be performed in the outpatient setting.2
Because ASCs can perform specific services more efficiently, Medicare reimburses ASCs as a percentage of the amount paid to HOPDs. In 2003, for example, Medicare procedures performed in ASCs cost 83% of the amount paid to HOPDs for the same services; today, procedures performed in an ASC cost Medicare just 53% of the amount paid to HOPDs. However, as health systems move toward deriving more revenue from value-based care, the potential for higher reimbursement in an HOPD may be outweighed by the advantages of leveraging a broader ambulatory platform.7

Figure 1. Outpatient Joint Replacement
Location and Demographics
New Orleans is the most populous city in Louisiana and an economic and commercial hub for the broader Gulf Coast region of the United States (Figure 2). New Orleans is located in the Mississippi River Delta, south of Lake Pontchartrain, approximately 105 miles upriver from the Gulf of Mexico. The city operates one of the world’s busiest ports and the region accounts for a significant portion of the nation’s oil refining and petrochemical production.
According to the most recent U.S. Census, 343,829 people and 189,896 households live in New Orleans. Its racial and ethnic makeup is 60.2% African American, 33.0% White, 2.9% Asian, 0.0% Pacific Islander, and 1.7% persons of two or more races. People of Hispanic or Latino origin make up 5.3% of the population.8 Approximately 12.9% of the population is aged 65 years or older and 25.4% of the population lives below the federal poverty line.

Figure 2. New Orleans, Louisiana

Greater New Orleans Metropolitan Area
The greater Now Orleans metropolitan area includes a metropolitan area designated by the United States Census as encompassing eight parishes (the Louisiana equivalent of other states’ counties) (Figure 3). The U.S. Census Bureau estimates 1,275,762 people were living in the New Orleans Metropolitan Statistical
Area (MSA) in July 2017, up 7.2 percent from 2010.

Figure 3. Greater New Orleans Metropolitan Area

Location of the New Orleans-Metairie-Bogalusa MSA and its components:

students enrolled in the region’s nine universities and eight community/technical colleges.9
U.S. Census Bureau population data by age for the U.S. and the New Orleans
MSA are presented in Tables 1 and 2, respectively.

Table 1. U.S. Census Bureau Population Projection for the U.S. (2017)
US Census Projection (2017)
Age Population
0-44 190,347,535
45-54 42,329,099
55-64 42,002,141
65-74 29,667,535
75-84 14,696,969
85-99 6,467,905
Total 325,511,184

Table 2. U.S. Census Bureau Population Projection for the New Orleans MSA (2017) US Census Projection (2017)
Age Population
0-44 746,635
45-54 162,870
55-64 173,264
65-74 118,231
75-84 54,301
85-99 20,461
Total 1,275,762

Anti-Kickback Statutes and Stark Law
?Anti-Kickback Statute is a criminal statute that prohibits exchanging, or offering to exchange, anything of value in return for referring, or inducing another to refer, federal health care program business. More specifically, the federal statute prohibits anyone from knowingly and willfully soliciting or receiving, or offering or paying, any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, in return for referring, or to induce a person to refer, an individual for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a federal health care program. The Louisiana anti-kickback statute permits certain individuals to be held civilly liable regardless of whether the individual harbored criminal intent (in addition to potentially being held criminally liable if the individual did harbor criminal intent) and can apply to payments made by private payers (in addition to payments made by governmental payers).10
?Stark Law prohibits physician self referrals. Specifically, the federal law prohibits a physician from referring his or her Medicare or Medicaid patients for the furnishing of designated health services (?DHS?) to an entity with which the physician (or an immediate family member) has a financial relationship. Louisiana?s Stark law differs from its federal counterpart in that its application is not limited to Medicare or Medicaid patients (but also includes private payer patients) or to services that constitute DHS (but also includes non-DHS). Further, if Louisiana?s Stark law is implicated, the disclosures required thereby are mandatory?there are no exceptions. The required disclosures must be in writing, furnished to the patient, and include the existence and nature of the physician?s financial interest in the health care provider to which the patient is being referred.10

Building an Outpatient Joint Replacement Program
Creating an outpatient joint replacement care option requires collaboration among surgeons, hospital administrators, service line personnel, and possibly ambulatory leaders or partners. Examples of considerations New Orleans Health Care should make include the following:
?Examine inpatient programs in the market to identify patients likely to shift to the outpatient setting. The loss of inpatient joint replacement revenues needs to be balanced against an expanded service line perspective that incorporates inpatient, HOPD, and ASC settings. Examining factors such as payer mix, contribution margin, length of stay, and patient demographics can reveal the extent of the outpatient shift in the market.
?Consider the competitive environment and partnerships. Determine the level at which independent orthopedic surgeon practices could impact existing total joint volume. Evaluate the prevalence of competitor initiatives to capture the outpatient joint replacement market.
?Understand the ASC and partnership perspective. Joint ownership of a facility can help to align the interests of surgeons and hospitals. Before creating a joint venture, it is important to consider cultural fit among physicians and administrators and create a culture that is mission driven, as well as potential legal issues surrounding such a venture.

Potential Strategy
New Orleans Health Care is considering three main strategies for shifting its joint replacement procedures from an inpatient to an outpatient setting:
1.Retain the status quo, with joint replacement procedures handled in inpatient facilities
2.Expand joint replacement procedures to the outpatient environment by converting existing inpatient facilities to outpatient capabilities (i.e., by creating outpatient rooms in a hospital environment)
3.Expand joint replacement procedures to the outpatient environment by creating standalone (ASC) facilities under a joint partnership agreement with physicians, essentially relinquishing ownership to capture procedure volume
Assumptions
?Discount rate is 4%.
?The New Orleans MSA population will experience a 1.00% annual growth from 2017 through 2020 and a 1.05% annual growth from 2021 through 2030.
?NOHC has three major practices for hip and knee replacements, representing a total of 26 surgeons.
?An ASC Agreement would increase the expected referral rate from 40% to approximately 90%.
?NOHC current market share for hip and knee replacements is 10%.
?Several market competitors have already begun to expand their joint replacement procedures from the inpatient to the outpatient setting.
?All patients are covered by Medicare, Medicaid, or commercial insurance (i.e., none are self pay).
?Commercial reimbursement rates are 50% of charges for both inpatient and outpatient hip and knee replacement surgeries.
?2% of inpatient surgeries for both hip and knee replacement are covered by
Medicaid.
?Medicaid does not provide reimbursement for outpatient hip or knee replacement surgeries.
?Additional assumptions are presented in Tables 3 through 14.

Table 3. National Inpatient Sample: Primary Hip Replacement
Age Number of People Annual New Orleans MSA
0-44 46,060 15,353 60
45-54 141,425 47,142 181
55-64 297,065 99,022 408
65-74 318,515 106,172 423
75-84 185,300 61,767 228
85-99 44,790 14,930 47
Total 1,033,155 344,385 1,349

Table 4. National Inpatient Sample: Primary Knee Replacement
Age Number of People Annual New Orleans MSA
0-44 32,405 10,802 42
45-54 215,905 71,968 277
55-64 600,475 200,158 826
65-74 719,970 239,990 956
75-84 355,630 118,543 438
85-99 47,840 15,947 50
Total 1,972,225 657,408 2,590

Table 5. National Inpatient Sample: Average Procedural Volume for Participating Surgeons

Surgeons Procedures Per Surgeon
Hip 2,882 92,780 32.2
Knee 3,418 156,656 45.8

Table 6. Payer Mix
Medicare 25%
Medicaid 30%
Commercial 45%

Table 7. Building and Equipment
Depreciation (Hospital Outpatient):
Waiting Area $500,000
Total Sq Ft 500
Depreciation Life (Yrs) 10.0

Depreciation (ASCU):
Building Basis (Shell) $5,000,000
Total Sq Ft 12,500
Depreciation Life (Yrs) 40.0

Equipment
Major Moveable Equipment $2,000,000
Depreciation Life (Yrs) 7

Table 8. Salaries
Clinical Coordinator $99,320
Insurance Verification Specialist $42,640
Medical Records Coder $47,840
Manager of Practice Operations $58,240
Registered Nurse (3) $252,720
Benefits (% Salary) 27.5%

Table 9. Inpatient Hip Replacement Charges, Reimbursements, and Costs
Inpatient Charges Reimbursement Direct Costs Indirect Costs
Medicare $61,500 $14,685 $12,500 $6,250
Medicaid $61,500 $13,000 $12,500 $6,250
Commercial $61,500 $30,750 $12,500 $6,250
Note: Indirect costs are 50% of direct costs.

Table 10. Inpatient Knee Replacement Charges, Reimbursements, and Costs
Inpatient Charges Reimbursement Direct Costs Indirect Costs
Medicare $60,500 $14,425 $13,140 $6,570
Medicaid $60,500 $13,000 $13,140 $6,570
Commercial $60,500 $30,250 $13,140 $6,570
Note: Indirect costs are 50% of direct costs.

Table 11. Outpatient Hip Replacement Charges, Reimbursements, and Costs
Inpatient Charges Reimbursement Direct Costs Indirect Costs
Medicare $55,350 $10,231 $11,250 $5,625
Medicaid NA NA NA NA
Commercial $55,350 $27,675 $11,250 $5,625
Percent of Inpatient 90% 90%
Note: Indirect costs are 50% of direct costs.

Table 12. Outpatient Knee Replacement Charges, Reimbursements, and Costs
Inpatient Charges Reimbursement Direct Costs Indirect Costs
Medicare $54,450 $10,050 $11,826 $5,913
Medicaid NA NA NA NA
Commercial $54,450 $27,225 $11,826 $5,913
Percent of Inpatient 90% 90%
Note: Indirect costs are 50% of direct costs.

Table 13. ASC Hip Replacement Charges, Reimbursements, and Costs
Inpatient Charges Reimbursement Direct Costs Indirect Costs
Medicare $49,815 $7,673 $10,125 $1,013
Medicaid NA NA NA NA
Commercial $49,815 $20,756 $10,125 $1,013
Percent of Outpatient 90% 75% 90%
Note: Indirect costs are 10% of direct costs.

Table 14. ASC Knee Replacement Charges, Reimbursements, and Costs
Inpatient Charges Reimbursement Direct Costs Indirect Costs
Medicare $49,005 $7,538 $10,643 $1,064
Medicaid NA NA NA NA
Commercial $49,005 $20,419 $10,643 $1,064
Percent of Outpatient 90% 75% 90%
Note: Indirect costs are 10% of direct costs.

Statement of the Problem
New Orleans Health Care leaders must evaluate the viability of the organization?s potential strategy for shifting its joint replacement procedures to the outpatient setting. What do you recommend as a course of action?

Deliverables
1.Solve for the statement of the problem.
2.Make a list of your assumptions.
3.Provide a SWOT analysis.
4.Describe your marketing strategy(ies).

5.Identify any other important factors that New Orleans Health Care should consider based on your evaluation.
6.Identify barriers to and facilitators of the success of your plan.

References
1.Maradit Kremers H, Larson DR, Crowson CS, et al. Prevalence of Total Hip and Knee Replacement in the United States. J Bone Joint Surg Am. Sep 2
2015;97(17):1386-1397.
2.Sg2. Outpatient Joint Replacement: Managing the Transition and Positioning for
Growth. 2019.
3.HCUP National Inpatient Sample (NIS). Healthcare Cost and Utilization Project
2015. Rockville, MD: Agency for Healthcare Research and Quality; 2015.
4.Scutti S. More men, younger Americans having joint replacement surgery. 2018; https://www.cnn.com/2018/03/06/health/hip-knee-replacementsurgeries-earlier-study/index.html. Accessed August 27, 2019.
5.Beckmann S, et al. Build a Sustainable Outpatient Joint Replacement Program.
Washington, D.C.: Advisory Board; 2018.
6.Becker’s Hospital Review. HOPD or ASC: 5 questions for hospitals to consider. https://www.beckershospitalreview.com/hospital-managementadministration/hopd-or-asc-5-questions-for-hospitals-to-consider.html.
Accessed August 30, 2019.
7.Becker’s ACS Review. HOPD vs. ASCs: 5 insights on the reimbursement gap. https://www.beckersasc.com/asc-coding-billing-and-collections/hopd-vs-ascs5-insights-on-the-reimbursement-gap.html. Accessed October 7, 2019.
8.U.S. Census Bureau. American FactFinder. https://www.census.gov/en.html. Accessed August 28, 2019.
9.Greater New Orleans IRED. Explore the Region. http://gnoinc.org/explore-theregion/. Accessed August 30, 2019.
10.Keaty WS, Holmes GP. Physician?s Guide to Louisiana?s Anti-Kickback Statutes and Stark Law. 2017; https://d3dkdvqff0zqx.cloudfront.net/groups/lsms/attachments/lsms%20%20louisiana%20aks%20and%20stark%20article%20(final).pdf. Accessed August 30, 2019.