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SAN FRANCISCO – Endovascular aneurysm repair (EVAR) is associated with negative operating margins among Medicare beneficiaries, and device costs account for more than 50% of the technical costs, results from a single-center study demonstrated.
"U.S. health care expenditures have steadily increased over several decades, with some projections now reaching 20% of gross domestic product by 2020," Dr. David H. Stone said at the Vascular Annual Meeting. "Accordingly, vigorous debate surrounding health care reform has ensued. In this setting physicians and health care system alike are placing a growing emphasis on both cost reduction and quality improvement, thus increasing the overall value of health care delivery. Endovascular aneurysm repair represents a high-value procedure, though it remains associated with significant cost. This places EVAR at odds with efforts to constrain procedure-associated health care dollars."
Dr. Stone, in the section of vascular surgery at Dartmouth-Hitchcock Medical Center, Lebanon, N.H., and his associates retrospectively examined the EVAR-associated technical costs, revenues, and resulting operating margins among 127 infrarenal EVARs performed at the center between April 2011 and March 2012. They excluded cases in which anatomy was deemed outside of conventional "Instructions for Use" guidelines, included cases treated only by a single vendor’s device, and restricted the payer source to Medicare-remunerated cases billed using the DRG 238 code. This left a cohort of 49 patients. The researchers then determined mean EVAR implant costs per procedure and used 2012 University HealthSystem Consortium data to benchmark their DRG 238 costs and length of stay – another major driver for cost.
"To our surprise, we initially determined that our section’s annual net operating margin for EVAR when billed using DRG 238 was substantially negative, approaching –$500,000 per year," Dr. Stone said. Specifically, mean technical costs among the 49 patients were $31,672, while technical revenue was $27,657, resulting in a negative technical operating margin of $4,015 per case. More specifically, stent grafts accounted for 52% of the technical costs while institutional overhead costs accounted for the remaining 48%.
Among the nonimplant costs, the operating room accounted for the single greatest technical cost driver (17%). "By comparison, stent grafts account for roughly threefold more technical cost than [did] any nonimplant hospital costs," Dr. Stone said.
"Interestingly, there is an apparent inequity between the stent graft costs when considered as a percentage of cost vs. a percentage of revenue. More specifically, stent grafts currently account for 52% of the technical costs but assume 60% of the DRG payment, thus contributing in part to our institution’s negative margin."
Given the substantial impact of graft costs to the procedure, the researchers also examined Dartmouth-Hitchcock’s current vendor market share for the medical center’s entire EVAR practice. The vendors were not named but rather described as vendors A, B, C, and D. "Though historically we have not routinely integrated costs into our case planning, we were somewhat surprised to learn that vendor D – the highest-cost device – derived the largest market share, while vendors A and B – the two lowest-cost devices – derived the smallest market shares, respectively," Dr. Stone said. "Surgeons were largely unaware of this cost disparity." He said that a "lack of transparency" of the device costs among institutions has also led in part to the sustainability of this practice pattern.
Dr. Stone acknowledged certain limitations of the study, including its single-center design, "thus graft pricing and institutional overhead will likely vary among hospitals," he said. "In addition, we did not analyze DRG 237–remunerated EVAR with major complications, where costs may be higher yet. However, we nevertheless believe that the adjudicated financial costs presented here may reflect a similar trend in many institutions throughout the country for Medicare-remunerated EVAR."
He concluded his remarks by noting that the negative operating margin for Medicare-remunerated EVAR "is likely unsustainable. Surgeon awareness of price differential among grafts may allow for competitive negotiated pricing. Accordingly, we believe that EVAR as a high-value procedure must undergo care delivery redesign, reflecting cost restructuring with viable remuneration schemes in order for current practice to remain sustainable."
Dr. Stone said that he had no relevant financial conflicts to disclose.
Dr. Stone and his colleagues at Dartmouth-Hitchcock have identified simple, uncomplicated EVAR cases as producing a negative contribution margin to the institution, primarily because of device costs. In today’s environment of cost containment, it is imperative that physicians partner with institutions to evaluate appropriate methods of cost containment, while maintaining excellence of care. These findings should not lead to the abandonment or restriction of EVAR, but rather further discussions between hospitals and physicians as to ways to decrease cost of the procedure. This will include negotiations with vendors to potentially decrease device costs and to provide, at the least, budget neutral interventions, as the current status is not sustainable.
As we move forward, these types of calculations will need to occur at all institutions for high-volume procedures to ensure viability of the institutions while maintaining excellence of medical care.
Dr. Linda Harris is the program director and division chief of vascular surgery at the State University of New York, Buffalo.
Dr. Stone and his colleagues at Dartmouth-Hitchcock have identified simple, uncomplicated EVAR cases as producing a negative contribution margin to the institution, primarily because of device costs. In today’s environment of cost containment, it is imperative that physicians partner with institutions to evaluate appropriate methods of cost containment, while maintaining excellence of care. These findings should not lead to the abandonment or restriction of EVAR, but rather further discussions between hospitals and physicians as to ways to decrease cost of the procedure. This will include negotiations with vendors to potentially decrease device costs and to provide, at the least, budget neutral interventions, as the current status is not sustainable.
As we move forward, these types of calculations will need to occur at all institutions for high-volume procedures to ensure viability of the institutions while maintaining excellence of medical care.
Dr. Linda Harris is the program director and division chief of vascular surgery at the State University of New York, Buffalo.
Dr. Stone and his colleagues at Dartmouth-Hitchcock have identified simple, uncomplicated EVAR cases as producing a negative contribution margin to the institution, primarily because of device costs. In today’s environment of cost containment, it is imperative that physicians partner with institutions to evaluate appropriate methods of cost containment, while maintaining excellence of care. These findings should not lead to the abandonment or restriction of EVAR, but rather further discussions between hospitals and physicians as to ways to decrease cost of the procedure. This will include negotiations with vendors to potentially decrease device costs and to provide, at the least, budget neutral interventions, as the current status is not sustainable.
As we move forward, these types of calculations will need to occur at all institutions for high-volume procedures to ensure viability of the institutions while maintaining excellence of medical care.
Dr. Linda Harris is the program director and division chief of vascular surgery at the State University of New York, Buffalo.
SAN FRANCISCO – Endovascular aneurysm repair (EVAR) is associated with negative operating margins among Medicare beneficiaries, and device costs account for more than 50% of the technical costs, results from a single-center study demonstrated.
"U.S. health care expenditures have steadily increased over several decades, with some projections now reaching 20% of gross domestic product by 2020," Dr. David H. Stone said at the Vascular Annual Meeting. "Accordingly, vigorous debate surrounding health care reform has ensued. In this setting physicians and health care system alike are placing a growing emphasis on both cost reduction and quality improvement, thus increasing the overall value of health care delivery. Endovascular aneurysm repair represents a high-value procedure, though it remains associated with significant cost. This places EVAR at odds with efforts to constrain procedure-associated health care dollars."
Dr. Stone, in the section of vascular surgery at Dartmouth-Hitchcock Medical Center, Lebanon, N.H., and his associates retrospectively examined the EVAR-associated technical costs, revenues, and resulting operating margins among 127 infrarenal EVARs performed at the center between April 2011 and March 2012. They excluded cases in which anatomy was deemed outside of conventional "Instructions for Use" guidelines, included cases treated only by a single vendor’s device, and restricted the payer source to Medicare-remunerated cases billed using the DRG 238 code. This left a cohort of 49 patients. The researchers then determined mean EVAR implant costs per procedure and used 2012 University HealthSystem Consortium data to benchmark their DRG 238 costs and length of stay – another major driver for cost.
"To our surprise, we initially determined that our section’s annual net operating margin for EVAR when billed using DRG 238 was substantially negative, approaching –$500,000 per year," Dr. Stone said. Specifically, mean technical costs among the 49 patients were $31,672, while technical revenue was $27,657, resulting in a negative technical operating margin of $4,015 per case. More specifically, stent grafts accounted for 52% of the technical costs while institutional overhead costs accounted for the remaining 48%.
Among the nonimplant costs, the operating room accounted for the single greatest technical cost driver (17%). "By comparison, stent grafts account for roughly threefold more technical cost than [did] any nonimplant hospital costs," Dr. Stone said.
"Interestingly, there is an apparent inequity between the stent graft costs when considered as a percentage of cost vs. a percentage of revenue. More specifically, stent grafts currently account for 52% of the technical costs but assume 60% of the DRG payment, thus contributing in part to our institution’s negative margin."
Given the substantial impact of graft costs to the procedure, the researchers also examined Dartmouth-Hitchcock’s current vendor market share for the medical center’s entire EVAR practice. The vendors were not named but rather described as vendors A, B, C, and D. "Though historically we have not routinely integrated costs into our case planning, we were somewhat surprised to learn that vendor D – the highest-cost device – derived the largest market share, while vendors A and B – the two lowest-cost devices – derived the smallest market shares, respectively," Dr. Stone said. "Surgeons were largely unaware of this cost disparity." He said that a "lack of transparency" of the device costs among institutions has also led in part to the sustainability of this practice pattern.
Dr. Stone acknowledged certain limitations of the study, including its single-center design, "thus graft pricing and institutional overhead will likely vary among hospitals," he said. "In addition, we did not analyze DRG 237–remunerated EVAR with major complications, where costs may be higher yet. However, we nevertheless believe that the adjudicated financial costs presented here may reflect a similar trend in many institutions throughout the country for Medicare-remunerated EVAR."
He concluded his remarks by noting that the negative operating margin for Medicare-remunerated EVAR "is likely unsustainable. Surgeon awareness of price differential among grafts may allow for competitive negotiated pricing. Accordingly, we believe that EVAR as a high-value procedure must undergo care delivery redesign, reflecting cost restructuring with viable remuneration schemes in order for current practice to remain sustainable."
Dr. Stone said that he had no relevant financial conflicts to disclose.
SAN FRANCISCO – Endovascular aneurysm repair (EVAR) is associated with negative operating margins among Medicare beneficiaries, and device costs account for more than 50% of the technical costs, results from a single-center study demonstrated.
"U.S. health care expenditures have steadily increased over several decades, with some projections now reaching 20% of gross domestic product by 2020," Dr. David H. Stone said at the Vascular Annual Meeting. "Accordingly, vigorous debate surrounding health care reform has ensued. In this setting physicians and health care system alike are placing a growing emphasis on both cost reduction and quality improvement, thus increasing the overall value of health care delivery. Endovascular aneurysm repair represents a high-value procedure, though it remains associated with significant cost. This places EVAR at odds with efforts to constrain procedure-associated health care dollars."
Dr. Stone, in the section of vascular surgery at Dartmouth-Hitchcock Medical Center, Lebanon, N.H., and his associates retrospectively examined the EVAR-associated technical costs, revenues, and resulting operating margins among 127 infrarenal EVARs performed at the center between April 2011 and March 2012. They excluded cases in which anatomy was deemed outside of conventional "Instructions for Use" guidelines, included cases treated only by a single vendor’s device, and restricted the payer source to Medicare-remunerated cases billed using the DRG 238 code. This left a cohort of 49 patients. The researchers then determined mean EVAR implant costs per procedure and used 2012 University HealthSystem Consortium data to benchmark their DRG 238 costs and length of stay – another major driver for cost.
"To our surprise, we initially determined that our section’s annual net operating margin for EVAR when billed using DRG 238 was substantially negative, approaching –$500,000 per year," Dr. Stone said. Specifically, mean technical costs among the 49 patients were $31,672, while technical revenue was $27,657, resulting in a negative technical operating margin of $4,015 per case. More specifically, stent grafts accounted for 52% of the technical costs while institutional overhead costs accounted for the remaining 48%.
Among the nonimplant costs, the operating room accounted for the single greatest technical cost driver (17%). "By comparison, stent grafts account for roughly threefold more technical cost than [did] any nonimplant hospital costs," Dr. Stone said.
"Interestingly, there is an apparent inequity between the stent graft costs when considered as a percentage of cost vs. a percentage of revenue. More specifically, stent grafts currently account for 52% of the technical costs but assume 60% of the DRG payment, thus contributing in part to our institution’s negative margin."
Given the substantial impact of graft costs to the procedure, the researchers also examined Dartmouth-Hitchcock’s current vendor market share for the medical center’s entire EVAR practice. The vendors were not named but rather described as vendors A, B, C, and D. "Though historically we have not routinely integrated costs into our case planning, we were somewhat surprised to learn that vendor D – the highest-cost device – derived the largest market share, while vendors A and B – the two lowest-cost devices – derived the smallest market shares, respectively," Dr. Stone said. "Surgeons were largely unaware of this cost disparity." He said that a "lack of transparency" of the device costs among institutions has also led in part to the sustainability of this practice pattern.
Dr. Stone acknowledged certain limitations of the study, including its single-center design, "thus graft pricing and institutional overhead will likely vary among hospitals," he said. "In addition, we did not analyze DRG 237–remunerated EVAR with major complications, where costs may be higher yet. However, we nevertheless believe that the adjudicated financial costs presented here may reflect a similar trend in many institutions throughout the country for Medicare-remunerated EVAR."
He concluded his remarks by noting that the negative operating margin for Medicare-remunerated EVAR "is likely unsustainable. Surgeon awareness of price differential among grafts may allow for competitive negotiated pricing. Accordingly, we believe that EVAR as a high-value procedure must undergo care delivery redesign, reflecting cost restructuring with viable remuneration schemes in order for current practice to remain sustainable."
Dr. Stone said that he had no relevant financial conflicts to disclose.
AT THE VASCULAR ANNUAL MEETING
Major finding: In a study of DRG 238 remunerated EVAR, stent grafts accounted for 52% of the technical costs while institutional overhead costs accounted for the remaining 48%.
Data source: A retrospectively examination of the EVAR-associated technical costs, revenues, and resulting operating margins among 127 infrarenal EVARs performed at Dartmouth-Hitchcock Medical Center between April 2011 and March 2012.
Disclosures: Dr. Stone said that he had no relevant financial conflicts to disclose.