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

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.