Reliability of hospital cost profiles in inpatient surgery

With increased policy emphasis on shifting risk from payers to providers through mechanisms such as bundled payments and accountable care organizations, hospitals are increasingly in need of metrics to understand their costs relative to peers. However, it is unclear whether Medicare payments for surgery can reliably compare hospital costs.

We used national Medicare data to assess patients undergoing colectomy, pancreatectomy, and open incisional hernia repair from 2009 to 2010 (n = 339,882 patients). We first calculated risk-adjusted hospital total episode payments for each procedure. We then used hierarchical modeling techniques to estimate the reliability of total episode payments for each procedure and explored the impact of hospital caseload on payment reliability. Finally, we quantified the number of hospitals meeting published reliability benchmarks.

Mean risk-adjusted total episode payments ranged from $13,262 (standard deviation [SD] $14,523) for incisional hernia repair to $25,055 (SD $22,549) for pancreatectomy. The reliability of hospital episode payments varied widely across procedures and depended on sample size. For example, mean episode payment reliability for colectomy (mean caseload, 157) was 0.80 (SD 0.18), whereas for pancreatectomy (mean caseload, 13) the mean reliability was 0.45 (SD 0.27). Many hospitals met published reliability benchmarks for each procedure. For example, 90% of hospitals met reliability benchmarks for colectomy, 40% for pancreatectomy, and 66% for incisional hernia repair.

Episode payments for inpatient surgery are a reliable measure of hospital costs for commonly performed procedures, but are less reliable for lower volume operations. These findings suggest that hospital cost profiles based on Medicare claims data may be used to benchmark efficiency, especially for more common procedures.