Economic value of orthopaedic trauma: the (second to) bottom line

We evaluated the economic aspects of an orthopaedic trauma section at a regional Level I, semi-academic community hospital. This study analyzes the economics of a dedicated hospital-based orthopaedic trauma program.

Institutional financial reports were analyzed for 2 time periods. In the pre-program (PRE) period (2 years), we estimated the amount of forsaken revenue resulting from cases transferred to other institutions. In the post-program (POST) period (2 years), we analyzed financial reports to evaluate fiscal solvency. Health Care Cost and Utilization Project National Inpatient Sample (HCUP-NIS) data, International Classification of Diseases, 9th Revision (ICD-90 codes, and Eclipsys software were used. Standard accounting definitions for gross revenue, net revenue, direct costs, contribution margin, indirect costs, and net profit/loss were used.

In the PRE-program period 88 patients were transferred; forsaken charges were about $1.25 million/year. Based on historic collection rates, there was about $450,000/year of actual lost revenue. In the POST-program period net revenue was about $7 million with a $1.5 million contribution margin, which increased 9%-11% in year 2. With inclusion of indirect costs, there was a net loss of nearly $5 million/year, but the financial software uses the direct cost expense as a major determinant of indirect costs. Based on the definition of indirect costs (overhead for lights, maintenance, etc) and with such expenses being used prior to the program, we felt that indirect cost was not an accurate variable and contribution margin is the better measure of economic value.

We found that orthopaedic trauma is a financially viable program. Understanding the determination and interpretation of financial data is essential for any such analysis.