Variation in Hospital Costs, Payments, and Profitabilty for Cardiac Valve Replacement Surgery

Abstract

Examine the variation for Medicare and privately insured patients in hospital costs, payments, and contribution margins and their association with characteristics of the patients, hospitals, and hospital markets. Administrative records for 1,858 patients undergoing cardiac valve replacement surgery were obtained from 37 hospitals in 7 states for 2008. Bivariate and multivariate statistical analyses of costs, payments, and profitability (contribution margin) for Medicare and privately insured patients, adjusting for patient, hospital, and market characteristics. Integrated Health Care Association, Aspen Health Metrics, American Hospital Association Annual Survey of Hospitals. Cardiac valve replacement surgery is an expensive but profitable procedure, with average cost and contribution margin per case of U.S.$38,667 and U.S.$21,967, respectively. Average costs per case for Medicare patients are 16.1 percent higher in concentrated than in competitive local markets after adjusting for patient comorbidities, complications, and other relevant factors (p<.01). Payments per case were 33.2 percent (p<.01) lower from Medicare than from private insurers. The average contribution margin earned by hospitals from Medicare was U.S.$30,986 lower than the margin earned from private insurers (p<.01), after adjusting for patient, hospital, and market characteristics. Hospitals charge significantly higher prices and earn significantly higher contribution margins from private insurers than from Medicare for patients undergoing cardiac valve replacement.