Procedures with the Most Rapidly Increasing Hospital Costs, 2004–2007 // Statistical Brief #82

December 2009

AHRQ HCUP Highlights Update - Hospital Costs Up for 10 Procedures
AHRQ News and Numbers

Hospital Costs for Bone Marrow Transplants, Other Common Procedures Up Sharply
Hospital costs for bone marrow transplants shot up 85 percent from $694 million to $1.3 billion between 2004 and 2007 according to the latest News and Numbers from the Agency for Healthcare Research and Quality (AHRQ).
Data from AHRQ shows that 10 procedures experienced rapid cost increases between 2004 and 2007. About 75 percent of the rise was due to increases in the number of patients who underwent these procedures and 25 percent resulted from higher costs per case treated.
In addition to bone marrow transplantation, the procedures with the most rapid increases in hospital costs included:
Open surgery for noncancerous enlarged prostate—up 69 percent to $1 billion.
Aortic valve resection or replacement—up 38.5 percent to $1.9 billion.
Cancer chemotherapy—up 33 percent to $2.6 billion.
Spinal fusion—up 29.5 percent to $8.9 billion.
Lobectomy (a type of lung cancer surgery)—up 29 percent to $1.8 billion.
Incision and drainage of skin and other tissues—up 29 percent to $1 billion.
Knee surgery—up 27.5 percent to $9.2 billion.
Nephrostomy (surgery to allow urine to pass through the kidneys)—up 25 percent to $683 million.
Mastectomy (breast removal because of cancer)—up 24 percent to $660 million.
Procedures with the Most Rapidly Increasing Hospital Costs, 2004–2007
Elizabeth Stranges, M.S., C. Allison Russo, M.P.H., and Bernard Friedman, Ph.D.
Introduction

Approximately one-third of the U.S. health care dollar is spent on inpatient hospital care, making hospitalizations the single most expensive component of the health care system.1 Hospital costs reflect the amount of money expended by the hospital for patient care (excluding physician expenses).

In 2007, about 70 percent of the nearly 40 million hospital stays involved some type of procedure, and about 30 percent of all stays involved an operating room procedure. Some of these procedures have been associated with much more rapidly increasing hospital costs than others. Identifying the procedures that generate the most rapid increases in hospital costs may contribute to a more informed discussion of overall cost increases. The increasing costs associated with a specific procedure can be the result of several causes, including the extension of treatment to different types of patients, treating more severely ill patients, rising salaries and input costs, and the diffusion of newer technologies and more expensive equipment.

This Statistical Brief presents data from the Healthcare Cost and Utilization Project (HCUP) and identifies which ten procedures generated the most rapidly increasing hospital costs between 2004 and 2007. Specifically, it shows estimates of the portion of the cost increase resulting from greater use of procedures versus a rise in the mean cost per stay. Note that possible demographic changes, illness patterns, technology changes or other causal determinants of the increasing use of these procedures are not addressed here. Information is presented by four payer groups: Medicare, Medicaid, private insurance, and self-pay (uninsured). All differences between estimates provided in the text are statistically significant at the 0.05 level or better. Costs for 2004 were adjusted to 2007 dollars using the overall Consumer Price Index (CPI).

Findings

During the four-year period from 2004 to 2007, overall hospital costs grew by 6.3 percent to $344 billion, inflation adjusted. The majority of this increase was due to a 3.9 percent rise in the mean cost per stay; a smaller portion resulted from a 2.4 percent growth in the volume of hospitalizations (figure 1). Aggregate costs for stays in which a procedure was performed grew by 7.2 percent between 2004 and 2007, totaling $296 billion in 2007. The rise in aggregate costs of stays with a procedure was predominantly driven by the growth in the volume of such stays (4.4 percent), while the mean cost per stay grew by 2.6 percent.

Hospital stays for procedures with the most rapidly increasing hospital costs
The ten principal procedures that generated the most rapid increases in total hospital costs from 2004 to 2007 are shown in table 1. The aggregate costs of stays for these ten procedures ($29.1 billion) accounted for 9.8 percent of the costs of all hospital stays with procedures performed ($296 billion) and 8.5 percent of the costs of all hospitalizations ($344 billion) in 2007.

While the aggregate costs for these ten procedures grew by 32.3 percent overall between 2004 and 2007, cost growth varied by procedure. The procedures with the most rapidly growing costs were bone marrow transplant—aggregate costs grew by 84.9 percent to $1.3 billion in 2007—and open prostatectomy—aggregate costs grew by 68.6 percent to $1.0 billion in 2007. The number of stays for these two procedures grew at different rates: stays for bone marrow transplants grew by 51.3 percent and those for open prostatectomy grew by 40.8 percent.

Among the ten procedures with the most rapidly increasing hospital inpatient costs, knee arthroplasty and spinal fusion were the procedures with the highest aggregate costs in 2007 ($9.2 billion and $8.9 billion, respectively). Aggregate costs for these stays grew by 27.5 percent (knee arthroplasty) and 29.5 percent (spinal fusion) between 2004 and 2007.

Factors accounting for growth in hospital costs among stays for procedures with the most rapidly increasing hospital costs
As shown in figure 2, the overwhelming driver of growth in total hospital costs among these stays was growth in the volume of stays with these procedures. Among these stays, growth in the number of hospitalizations with these principal procedures accounted for about three-fourths (23.5 percent of 32.3 percent total) of the total increase.

However, factors attributing to cost growth varied considerably by procedure. For example, growth in volume drove the growth of aggregate costs among stays for incision and drainage of skin as the mean cost of these stays declined (30.8 percent change due to increase in number of stays; 2.2 percent change due to decrease in mean cost per stay). Growth in volume also drove the aggregate cost growth of stays for knee arthroplasty (26.0 percent out of 27.5 percent), lobectomy or pneumonectomy (25.7 percent out of 29.2 percent), and aortic resection (33.3 percent out of 38.5 percent). In contrast, growth in mean cost per stay—that is, greater intensity of the use of services—contributed notably to the aggregate cost increases for mastectomy (20.1 percent out of 23.8 percent), cancer chemotherapy (18.0 percent out of 33.2 percent), nephrotomy and nephrostomy (12.9 percent out of 25.3 percent), and spinal fusion (12.8 percent out of 29.5 percent).

Hospital stays for procedures with the most rapidly increasing hospital costs, by payer
Table 2 shows that the growth rates between 2004 and 2007 of the aggregate costs of stays for the top 10 procedures varied by payer. For Medicare-covered and privately-insured stays, bone marrow transplant (90.4 percent and 100.6 percent, respectively) and open prostatectomy (54.7 percent and 76.2 percent, respectively) were the procedures with the fastest growing costs among the ten procedures. Similarly, stays for open prostatectomy experienced rapid cost growth among Medicaid-covered patients (71.4 percent) and the uninsured (45.7 percent). In contrast, the cost of stays for bone marrow transplants grew by only 7.4 percent among Medicaid-covered patients, and declined by 10.0 percent among the uninsured.

For uninsured stays, the aggregate costs of stays for aortic resection grew faster (64.0 percent) than those of stays for any of the other top 10 procedures examined. The cost of these stays grew at a similar rate among Medicaid patients (63.6 percent), although the number of Medicaid-covered stays grew much less dramatically than the number of uninsured stays (34.4 percent vs. 113.4 percent). Aggregate costs of stays for aortic resection grew by 34.6 among Medicare-covered stays and 37.8 among privately-insured stays.

Figure 3 shows that the total increase in the aggregate cost of stays for the ten procedures varied by payer, as did the factors accounting for this growth. The underlying determinants of cost are different for each payer group as age, income and health status are generally different for each group. The percentage increase in aggregate costs was highest for hospitalizations paid for by private insurance, which experienced a 38.3 percent growth in total costs from 2004 to 2007. Nearly one-third (12.3 percent out of 38.3 percent) of the increase in the cost growth for the private insurance stays was driven by growth in cost per stay.

There was less growth in the aggregate costs of stays for the ten procedures among patients covered by Medicare (29.4 percent), Medicaid (24.4 percent) and among uninsured patients (20.1 percent). About one-quarter (6.9 percent out of 29.4 percent) of the change in the growth in costs for Medicare hospitalizations was due to an increase in the mean cost per stay. About one-third of the cost growth for the Medicaid stays was driven by an increase in the mean cost per stay (7.6 percent out of 24.4 percent). For uninsured stays for these procedures there was actually a decline in the mean cost per stay (-2.7 percent vs. 20.1 percent total). The increase in the aggregate costs for this group was driven by the increase in the number of stays with these procedures performed (22.8 percent).

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Statistical Brief #82