A Comparison of Costs: How California Teaching Hospitals Achieved Slower Growth Than Nonteaching Hospitals in Operating Room Costs From 2005 to 2014

PURPOSE: Historically, teaching hospitals have had higher costs than nonteaching hospitals, introducing potential financial risk in value-based payment models. This study compared risk-adjusted operating room (OR) costs between California teaching and nonteaching hospitals. METHOD: Using 2,992 financial statements from fiscal years (FYs) 2005-2014, the authors extracted data for OR total costs, components of direct costs, and indirect costs. Cross-sectional and longitudinal models estimated OR costs per minute of surgery by teaching status, ownership, case mix index, and geographic area. RESULTS: Risk-adjusted cost was $9.44 per minute less in teaching than nonteaching hospitals in FY 2014 (95% CI, 3.03-15.85, P = .004). Between FY 2005 and FY 2014, OR costs grew more slowly at teaching hospitals because of slower wage growth and indirect costs per minute (-$0.13 and -$0.77 per minute per year, respectively, P = .005 and P < .001). Hourly pay rose more at teaching hospitals ($0.26 per hour per year, P = .008) but was offset by slower full-time equivalents growth (-0.002 per 10,000 OR minutes per year, P = .001). Between FY 2005 and FY 2014, operative volume increased at teaching hospitals and decreased at nonteaching hospitals. CONCLUSIONS: By 2014, California teaching hospitals had lower OR costs per minute than nonteaching hospitals because of relative labor productivity gains and slower indirect cost growth. The latter likely resulted from a volume shift from nonteaching to teaching facilities. These trends will help teaching hospitals compete under value-based models. Implications for patients and nonteaching hospitals warrant evaluation.