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VOLUME 46 | NUMBER 6 | DECEMBER 2011


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

Keywords: Hospital costs and prices; Medicare cost shifting; health care reform; prospective payment; insurance

Objective: 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.

Data Sources: Administrative records for 1,858 patients undergoing cardiac valve replacement surgery were obtained from 37 hospitals in 7 states for 2008.

Study Design: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.

Data Collection: Integrated Health Care Association, Aspen Health Metrics, American Hospital Association Annual Survey of Hospitals.

Principal Findings: 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.

Conclusions: Hospitals charge significantly higher prices and earn significantly higher contribution margins from private insurers than from Medicare for patients undergoing cardiac valve replacement.

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