![]() ![]() Both public and private insurers are experimenting with bundled “episode-of-care” methods of payment that allow hospitals to retain the savings they achieve through cost-control initiatives. ![]() The changing economic environment presents opportunities as well as challenges. 7,8 Many hospitals are thus finding they need to shift to a focus on cost reduction to preserve their operating margins. 5,6 CMS has proposed reductions in Medicare hospital payment updates. Private insurers are experimenting with narrow networks and consumer cost-sharing incentives that will channel patient volume away from facilities charging the highest prices. 1-4 This focus on revenue growth now appears to be of declining value. In the past decade, many hospitals have covered rising costs by merging with erstwhile competitors and demanding ever-higher payment rates from insurers. Total potential cost savings from implementing best local practices are 14.5% for joint replacement, 18.8% for spine fusion, and 29.1% for CRM.Devices accounted for 44% of variable costs for joint replacement, 39% for spine fusion, and 59% for CRM.Device prices and length of stay exhibited wide variation.Adopting best local practices in device purchasing and discharge planning may yield savings. Three high-margin services are joint replacement, spine surgery, and cardiac rhythm management (CRM). Insurers are implementing designs that channel patients toward low-price facilities. Hospitals have opportunities for cost reduction from adoption of best local practices in supply chain management and discharge planning. Total potential hospital cost savings from achieving best local practices in device prices and patient length of stay are 14.5% for joint replacement, 18.8% for spine fusion ,and 29.1% for CRM. Device prices and patient length-of-stay exhibited wide variation across hospitals. Implantable medical devices accounted for a large share of each procedure’s variable costs: 44% for joint replacement, 39% for spine fusion, and 59% for CRM. The impact on each hospital of matching lowest local market device prices and lowest patient length of stay (LOS) was calculated using multivariate regression analysis controlling for patient demographics, diagnoses, comorbidities, and implications.Īverage variable costs ranged from $11,315 for joint replacement to $16,087 for CRM and $18,413 for spine fusion. Ten hospitals in 1 major metropolitan area supplied patient-level administrative data on 9778 patients undergoing joint replacement, spine fusion, or cardiac rhythm management (CRM) procedures in 20. We performed multivariate statistical analyses of the association between total variable cost per procedure and medical device price and length of stay, controlling for patient and hospital characteristics. To quantify the potential reduction in hospital costs from adoption of best local practices in supply chain management and discharge planning. ![]()
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