OHE lunchtime seminar by Irene Papanicolas and Alistair McGuire from London School of Economics, held 29 April 2015

1. Do Financial Incentives Trump Clinical
Guidance? Hip Replacement Treatment in
England and Scotland
(Answer=Yes)
Irene Papanicolas
Alistair McGuire
London School of Economics

2. Hip Replacement in the UK
• In England there are about 90,000 hip replacement
procedures/year. In Scotland there are about 6,000
• Hip replacements are carried in about 300 hospitals (30%
independent, 60% NHS).
• In both countries there is variation across providers in terms of cost,
activity and where procedures are carried out
• Since Devolution, the different countries have pursued different
policies, particularly England and Scotland
• Key difference in financing of health services
– England: Adoption of ‘market mechanisms,’ – including Payment by Results
– Scotland: Use of budgets
Sources: National Joint Registry, Audit Scotland

3. Variations in Hip Replacement
• Large literature examining variations in Hip Replacement within and
across countries
– Costs
– Outcomes (mortality, readmissions/ complications, pain, LOS)
• Some of the literature has focused on differences in treatment
practice
– Place of treatment
– Waiting times
– Type of implant
• Many of these findings have translated in to policy
– Use as quality indicators
– Clinical practice
– Financial incentives

4. Case Based Payment Systems
• Also known as activity based payment/PbR/ DRGs
• Fixed (exogenous) hospital prices for condition/treatment pairings
• The most common mechanism for reimbursing hospitals in Europe
• Most commonly adopted in order to
– Increase transparency
– Increase efficiency
– Improve quality of care
• Based on the concepts of:
– Diagnostic Related Groups (DRGs) (Fetter et al., 1980)
– Yardstick competition (Shleifer et al., 1985)
• Main concerns:
– costs among cases should be as similar as possible

5. Case payment incentives
• Positive incentives
– Removes economic incentive
to over-provide services for a
single patient
– Possibly increases quality
– Easy to operate
– Low administration costs (?)
– Hospital specialisation (?)
• Negative incentives
– Possible ‘DRG-creep’
– Cost shifting
– Cream-skimming
– Increases unnecessary
admissions (increases costs)
and readmissions (decreases
quality)
– Quality skimping
– Data fraud
– Low payment may lead to
slow adoption of useful
technology
– Hospital specialisation (?)

6. Research Question
• Did the 2005/6 introduction of different PbR/DRG-type prices for
cemented and uncemented hip replacements affect the mix of
treatments?
– English NHS hospitals seemed to increase up-take of higher
reimbursed uncemented hip prosthesis after payments introduced
• Hip replacement: cemented and uncemented joint replacement
have similar patient outcomes but different costs
• Method: Difference in Difference Regression
– Scotland as control: PbR never introduced
– Comparison of trends in England vs Scotland before (1996-2004) and
after (2005-2010)
– Hospital level data
6

7. Figure 1: Timeline
7

8. Tariff and costs for Hip Replacement in
England
Estimated revenue gain:

9. Uptake of Hip Replacement procedures across
providers, Scotland and England (1996-2012)

10. 10
Proportion of Uncemented Hip Replacement to
total, Scotland and England(1996-2012)

11. Uptake of uncemented procedures across
providers, Scotland and England

12. What drives the selection of the prosthesis?
• Evidence?
– Two techniques have comparable rates of success (Abdulkarim
et al, 2013; Morshed et al, 2007)
• Clinical Guidance?
– Different guidance/technology appraisals have been issued
– NICE Guidance for prostheses (Technology Appraisal TA2 – 2000 and
revised TA304 - 2014):
“There is currently more evidence of the long term viability of
cemented prostheses, which, in many cases, occupy the lower end
of the range of prostheses cost, than there is for uncemented and
hybrid prosthesis. (TA2 -2000)”
• Other incentives?
– Different financial incentives in place in the two countries

13. Table 3: Descriptive Statistics
Year Number of Hospitals Average Age % Male
England Scotland England Scotland England Scotland
1996 150 34 66 71 36 30
1997 155 37 66 72 36 27
1998 155 36 66 72 37 32
1999 153 32 66 72 37 31
2000 156 34 67 72 38 32
2001 179 33 68 73 38 33
2002 190 34 68 72 38 30
2003 189 38 69 69 39 38
2004 196 36 69 70 39 33
2005 226 41 69 69 39 34
2006 180 40 69 70 37 34
2007 191 43 69 69 36 36
2008 243 24 69 70 38 36
2009 257 44 69 71 38 34
2010 291 39 69 72 38 36
2011 299 38 69 69 38 36
2012 308 40 68 71 40 39
13

14. Empirical model & Data
• Interested in identifying the extent to which PbR
influenced the rate of adoption of uncemented hip
replacement
• Use administrative hospital data from both countries
(HES in England – ISD in Scotland) for years 1996-2012.
• Difference in difference approach
– Examine the change in uncemented activity (levels and
proportions)
– Control for hospital type and patient characteristics

15. Estimation Approach: Difference in Difference
Basic model:
• Controls: age, co-morbidity, sex, volume, ISTC, Foundation Trust, Teaching hospital
• α: proportion of uncemented Hip Replacement in Scotland before PbR
• α + β: proportion in England before PbR
• α + γ: proportion in England after PbR
• α + β + γ + δ: differential proportion after PbR in England compared to Scotland

16. Estimation Approach: Difference in Difference
Two-stage model:
(1)
(2)
• Controls (1): age, co-morbidity, sex, elective
• Controls (2): ISTC, Foundation Trust, Teaching hospital
• α: Adjusted uncemented levels in Scotland before PbR
• α + β: Adjusted uncemented levels in Scotland after PbR
• α + γ: Adjusted uncemented levels in England after PbR
• α + β + γ + δ: Adjusted uncemented levels after PbR in England compared to
Scotland

17. Main Results

18. Robustness checks
• Run with different specifications
– Trend/year tests
– Testing effect without geographic ‘centres of
excellence’
– Separately for elective and emergency admissions

19. Robustness Checks - Trend test

20. Robustness Checks - Geographic Test

21. Robustness check (III) Testing for type of
admission

22. Conclusions
• The English NHS experienced much higher, relative
uptake rates uncemented Hip Replacements than
Scotland after PbR.
– How are decisions regarding the prostheses within
hospitals made?
– Central purchasing, stocks, etc
– Can affect revenue…
• Uncemented Hip Replacement increased in England
while clinical guidance recommended the cemented
procedure