Understanding the Costs Associated With Surgical Care Delivery in the Medicare Population

Surgical care has been largely untargeted by Medicare payment reforms because episode costs associated with its delivery are not currently well understood.

To quantify the costs of inpatient and outpatient surgery in the Medicare population.

We analyzed claims data from a 20% national sample of Medicare beneficiaries (2008-2014). For a given study year, we identified all inpatient and outpatient procedures and constructed claims windows around them to define surgical episodes. After summing payments for services rendered during each episode, we totaled all inpatient and outpatient episode payments by surgical specialty. For inpatient episodes, we determined component payments related to the index hospitalization, readmissions, physician services, and postacute care. For outpatient episodes, we differentiated by the site of care (hospital outpatient department versus physician office versus ambulatory surgery center). We used linear regression to evaluate temporal trends in inpatient and outpatient surgical spending. Finally, we estimated the contribution of surgical care to overall Medicare expenditures.

Total Medicare payments for surgical care are substantial, representing 51% of Program spending in 2014. They declined modestly over the study period, from $133.1 billion in 2008 to $124.9 billion in 2014 (-6.2%, P = 0.085 for the temporal trend). While spending on inpatient surgery contributed the most to total surgical payments (69.4% in 2014), it declined over the study period, driven by decreases in index hospitalization (-16.7%, P = 0.002) and readmissions payments (-27.0%, P = 0.003). In contrast, spending on outpatient surgery increased by $8.5 billion (28.7%, P < 0.001). This increase was realized across all sites of care (hospital outpatient department: 36.6%, P < 0.001; physician office: 22.1%, P < 0.001; ambulatory surgery center: 36.6%, P < 0.001). Ophthalmology and hand surgery witnessed the greatest growth in surgical spending over the study period.

Surgical care accounts for half of all Medicare spending. Our findings not only highlight the magnitude of spending on surgery, but also the areas of greatest growth, which could be targeted by future payment reforms.