Estimating revenue, costs, and operating margin of any hospital-based thoracic surgery practice using a novel financial model

Abstract

ObjectiveThe study objective was to develop a generalizable financial model that estimates payor-specific reimbursements associated with anatomic lung resections for any hospital-based thoracic surgery practice. MethodsMedical records of patients who presented to the thoracic surgery clinic and eventually underwent an anatomic lung resection from January 2019 to December 2020 were reviewed. The volume of preoperative and postoperative studies, clinic visits, and outpatient referrals was measured. Neither subsequent studies nor procedures from outpatient referrals were captured. Diagnosis-related group, cost-to-charge ratios, Current Procedural Terminology Medicare payment data, and Private:Medicare and Medicaid:Medicare payment ratios were used to estimate payor-specific reimbursements and operating margin. ResultsA total of 111 patients met inclusion criteria and underwent 113 operations: 102 (90%) lobectomies, 7 (6%) segmentectomies, and 4 (4%) pneumonectomies. These patients underwent 554 total studies, received 60 referrals to other specialties, and had 626 total clinic visits. The total charges and Medicare reimbursement were $12.5 M and $2.7 M, respectively. After adjusting for a 41% Medicare, 2% Medicaid, and 57% Private payor mix, the total reimbursement was $4.7 M. With a 0.252 cost-to-charge ratio, total costs and operating income were $3.2 M and $1.5 M, respectively (ie, 33% operating margin). Average reimbursement per surgery by payor was $51k for Private, $29k for Medicare, and $23k for Medicaid. ConclusionsFor any hospital-based thoracic surgery practice, this novel financial model can calculate both overall and payor-specific reimbursements, costs, and operating margin across the full perioperative spectrum. By manipulating hospital name, hospital state, volume, and payor mix, any program can gain insights into their financial contributions and use the outputs to guide investment decisions.