Research Activities, June 2012: Health Care Costs and Financing: Large variations in Medicare payments for surgery underscore savings potential from bundled payment programs

Research Activities, June 2012: Health Care Costs and Financing: Large variations in Medicare payments for surgery underscore savings potential from bundled payment programs

Large variations in Medicare payments for surgery underscore savings potential from bundled payment programs

Medicare payments vary dramatically among hospitals for four different inpatient surgeries, concludes a new study. Even after adjusting for differences in hospital geographic location and patient severity of illness, per-episode payments to the highest-cost hospitals were higher than those to the lowest-cost facilities by up to $2,549 for colectomy and $7,759 for back surgery. Also, postdischarge care and discretionary physician services accounted for a large proportion of the variation in payments. These findings suggest the potential savings from bundled payment programs for inpatient surgery, which combine provider reimbursements into a single payment for the entire episode, conclude the researchers. The goal is to improve care coordination and reduce duplicate or unneeded services.

In this study, the researchers found that the difference between the lowest and highest quintiles of total Medicare payments for episodes of hip replacement, coronary artery bypass grafting (CABG), back surgery, or colectomy varied by $2,549 for colectomy to $7,759 for back surgery—even after adjusting for price and patient case mix. Payments also differed greatly for the four components of each of the four procedures: index hospitalization, readmissions, physician services, and postdischarge care. For example, although the total payment differences between payment quintiles 5 and 1 was $6,909 for hip replacement and $7,435 for CABG, the difference in index hospitalization cost was $41 for hip replacement and $3,390 for CABG. The postdischarge care payment difference for hip surgery was $5,885, but only $2,332 for CABG.

In its acute care episode demonstration project involving cardiac surgery and joint replacement, the Centers for Medicare & Medicaid Services (CMS) is bundling only payments for hospital and inpatient physician services. Based on the findings of this study, the researchers suggest that the CMS demonstration project could save more by expanding beyond bundling hospital and inpatient physician services to include bundling of postdischarge care.

Their findings were based on Medicare fee-for-service data for the selected procedures conducted from January 2005 through November 2007. The study was funded in part by the Agency for Healthcare Research and Quality (HS18346).

More details are in "Large variations in Medicare payments for surgery highlight savings potential from bundled payment programs," by David C. Miller, M.D., Cathryn Gust, M.S., Justin B. Dimick, M.D., and others in the November 2011 Health Affairs 30(11), pp. 2107-2115.