Cost of practice in a tertiary/quaternary referral center

Is it sustainable?

K. G. Cologne, G. S. Hwang, A. J. Senagore

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

Background: Third-party payers are moving toward a bundled care payment system. This means that there will need to be a warranty cost of care—where the cost of complexity and complication rates is built into the bundled payment. The theoretical benefit of this system is that providers with lower complication rates will be able to provide care with lower warranty costs and lower overall costs. This may also result in referring riskier patients to tertiary or quaternary referral centers. Unless the payment model truly covers the higher cost of managing such referred cases, the economic risk may be unsustainable for these centers.

Methods: We took the last seven patients that were referred by other surgeons as “too high risk” for colectomy at other centers. A contribution margin was calculated using standard Medicare reimbursement rates at our institution and cost of care based on our administrative database. We then recalculated a contribution margin assuming a 3 % reduction in payment for a higher than average readmission rate, like that which will take effect in 2014. Finally, we took into account the cost of any readmissions.

Results: Seven patients with diagnosis related group (DRG) 330 were reviewed with an average age of 66.8 ± 16 years, American Society of Anesthesiologists score 2.3 ± 1.0, body mass index 31.6 ± 9.8 kg/m2 (range 22–51 kg/m2). There was a 57 % readmission rate, 29 % reoperation rate, 10.8 ± 7.7 day average initial length of stay with 14 ± 8.6 day average readmission length of stay. Forty-two percent were discharged to a location other than home. Seventy-one percent of these patients had Medicare insurance. The case mix index was 2.45. Average reimbursement for DRG 330 was $17,084 (based on Medicare data) for our facility in 2012, with the national average being $12,520. The total contribution margin among all cases collectively was −$19,122 ± 13,285 (average per patient −$2,731, range −$21,905–$12,029). Assuming a 3 % reimbursement reduction made the overall contribution margin −$22,122 ± 13,285 (average −$3,244). Including the cost of readmission in the variable cost made the contribution margin −$115,741 ± 16,023 (average −$16,534).

Conclusions: Care of high-risk patients at tertiary and quaternary referral centers is a very expensive proposition and can lead to financial ruin under the current reimbursement system.

Original languageEnglish (US)
Pages (from-to)1035-1039
Number of pages5
JournalTechniques in Coloproctology
Volume18
Issue number11
DOIs
StatePublished - Oct 26 2014
Externally publishedYes

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Tertiary Care Centers
Costs and Cost Analysis
Diagnosis-Related Groups
Medicare
Length of Stay
Health Insurance Reimbursement
Colectomy
Insurance
Reoperation
Body Mass Index
Referral and Consultation
Economics
Databases

Keywords

  • Bundled care payment
  • High-risk patients
  • Tertiary/quaternary referral centers
  • Warranty cost of care

ASJC Scopus subject areas

  • Gastroenterology
  • Surgery
  • Medicine(all)

Cite this

Cost of practice in a tertiary/quaternary referral center : Is it sustainable? / Cologne, K. G.; Hwang, G. S.; Senagore, A. J.

In: Techniques in Coloproctology, Vol. 18, No. 11, 26.10.2014, p. 1035-1039.

Research output: Contribution to journalArticle

Cologne, K. G. ; Hwang, G. S. ; Senagore, A. J. / Cost of practice in a tertiary/quaternary referral center : Is it sustainable?. In: Techniques in Coloproctology. 2014 ; Vol. 18, No. 11. pp. 1035-1039.
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abstract = "Background: Third-party payers are moving toward a bundled care payment system. This means that there will need to be a warranty cost of care—where the cost of complexity and complication rates is built into the bundled payment. The theoretical benefit of this system is that providers with lower complication rates will be able to provide care with lower warranty costs and lower overall costs. This may also result in referring riskier patients to tertiary or quaternary referral centers. Unless the payment model truly covers the higher cost of managing such referred cases, the economic risk may be unsustainable for these centers.Methods: We took the last seven patients that were referred by other surgeons as “too high risk” for colectomy at other centers. A contribution margin was calculated using standard Medicare reimbursement rates at our institution and cost of care based on our administrative database. We then recalculated a contribution margin assuming a 3 {\%} reduction in payment for a higher than average readmission rate, like that which will take effect in 2014. Finally, we took into account the cost of any readmissions.Results: Seven patients with diagnosis related group (DRG) 330 were reviewed with an average age of 66.8 ± 16 years, American Society of Anesthesiologists score 2.3 ± 1.0, body mass index 31.6 ± 9.8 kg/m2 (range 22–51 kg/m2). There was a 57 {\%} readmission rate, 29 {\%} reoperation rate, 10.8 ± 7.7 day average initial length of stay with 14 ± 8.6 day average readmission length of stay. Forty-two percent were discharged to a location other than home. Seventy-one percent of these patients had Medicare insurance. The case mix index was 2.45. Average reimbursement for DRG 330 was $17,084 (based on Medicare data) for our facility in 2012, with the national average being $12,520. The total contribution margin among all cases collectively was −$19,122 ± 13,285 (average per patient −$2,731, range −$21,905–$12,029). Assuming a 3 {\%} reimbursement reduction made the overall contribution margin −$22,122 ± 13,285 (average −$3,244). Including the cost of readmission in the variable cost made the contribution margin −$115,741 ± 16,023 (average −$16,534).Conclusions: Care of high-risk patients at tertiary and quaternary referral centers is a very expensive proposition and can lead to financial ruin under the current reimbursement system.",
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AU - Cologne, K. G.

AU - Hwang, G. S.

AU - Senagore, A. J.

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N2 - Background: Third-party payers are moving toward a bundled care payment system. This means that there will need to be a warranty cost of care—where the cost of complexity and complication rates is built into the bundled payment. The theoretical benefit of this system is that providers with lower complication rates will be able to provide care with lower warranty costs and lower overall costs. This may also result in referring riskier patients to tertiary or quaternary referral centers. Unless the payment model truly covers the higher cost of managing such referred cases, the economic risk may be unsustainable for these centers.Methods: We took the last seven patients that were referred by other surgeons as “too high risk” for colectomy at other centers. A contribution margin was calculated using standard Medicare reimbursement rates at our institution and cost of care based on our administrative database. We then recalculated a contribution margin assuming a 3 % reduction in payment for a higher than average readmission rate, like that which will take effect in 2014. Finally, we took into account the cost of any readmissions.Results: Seven patients with diagnosis related group (DRG) 330 were reviewed with an average age of 66.8 ± 16 years, American Society of Anesthesiologists score 2.3 ± 1.0, body mass index 31.6 ± 9.8 kg/m2 (range 22–51 kg/m2). There was a 57 % readmission rate, 29 % reoperation rate, 10.8 ± 7.7 day average initial length of stay with 14 ± 8.6 day average readmission length of stay. Forty-two percent were discharged to a location other than home. Seventy-one percent of these patients had Medicare insurance. The case mix index was 2.45. Average reimbursement for DRG 330 was $17,084 (based on Medicare data) for our facility in 2012, with the national average being $12,520. The total contribution margin among all cases collectively was −$19,122 ± 13,285 (average per patient −$2,731, range −$21,905–$12,029). Assuming a 3 % reimbursement reduction made the overall contribution margin −$22,122 ± 13,285 (average −$3,244). Including the cost of readmission in the variable cost made the contribution margin −$115,741 ± 16,023 (average −$16,534).Conclusions: Care of high-risk patients at tertiary and quaternary referral centers is a very expensive proposition and can lead to financial ruin under the current reimbursement system.

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