Variation in Medicare Expenditures for Treating Perioperative Complications: The Cost of Rescue

Key Points

Question  How do Medicare payments vary across hospitals for patients rescued from perioperative complications?

Findings  In this cohort study, Medicare payments for patients who were rescued at the highest cost-of-rescue hospitals were 2- to 3-fold higher than at the lowest cost-of-rescue hospitals for abdominal aortic aneurysm repair ($60 456 vs $23 261), colectomy ($56 787 vs $22 853), pulmonary resection ($63 117 vs $21 325), and total hip replacement ($41 354 vs $19 028).

Meaning  These findings highlight the potential for hospitals to target efficient treatment of perioperative complications in cost-reduction efforts.

Importance  Treating surgical complications presents a major challenge for hospitals striving to deliver high-quality care while reducing costs. Costs associated with rescuing patients from perioperative complications are poorly characterized.

Objective  To evaluate differences across hospitals in the costs of care for patients surviving perioperative complications after major inpatient surgery.

Design, Setting, and Participants  Retrospective cohort study using claims data from the Medicare Provider Analysis and Review files. We compared payments for patients who died vs patients who survived after perioperative complications occurred. Hospitals were stratified using average payments for patients who survived following complications, and payment components were analyzed across hospitals. Administrative claims database of surgical patients was analyzed at hospitals treating Medicare patients nationwide. This study included Medicare patients aged 65 to 100 years who underwent abdominal aortic aneurysm repair (n = 69 207), colectomy for cancer (n = 107 647), pulmonary resection (n = 91 758), and total hip replacement (n = 307 399) between 2009 and 2012. Data analysis took place between November 2015 and March 2016.

Exposures  Clinical outcome of surgery (eg, no complication, complication and death, or complication and survival) and the individual hospital where a patient received an operation.

Main Outcomes and Measures  Risk-adjusted, price-standardized Medicare payments for an episode of surgery. Risk-adjusted perioperative outcomes were also assessed.

Results  The mean age for Medicare beneficiaries in this study ranged from 74.1 years (pulmonary resection) to 78.2 years (colectomy). The proportion of male patients ranged from 37% (total hip replacement) to 77% (abdominal aortic aneurysm repair), and most patients were white. Among patients who experienced complications, those who were rescued had higher price-standardized Medicare payments than did those who died for all 4 operations. Assessing variation across hospitals, payments for patients who were rescued at the highest cost-of-rescue hospitals were 2- to 3-fold higher than at the lowest cost-of-rescue hospitals for abdominal aortic aneurysm repair ($60 456 vs $23 261; P < .001), colectomy ($56 787 vs $22 853; P < .001), pulmonary resection ($63 117 vs $21 325; P < .001), and total hip replacement ($41 354 vs $19 028; P < .001). Compared with lowest cost-of-rescue hospitals, highest cost-of-rescue hospitals had higher risk-adjusted rates of serious complications with similar rates of failure to rescue and overall 30-day mortality.

Conclusions and Relevance  After 4 selected inpatient operations, substantial variation was observed across hospitals regarding Medicare episode payments for patients rescued from perioperative complications. Notably, higher Medicare payments were not associated with improved clinical performance. These findings highlight the potential for hospitals to target efficient treatment of perioperative complications in cost-reduction efforts.

Surgical complications are expensive events for patients, hospitals, and payers.^1,2 Emerging value-based purchasing policies, such as bundled payments and nonpayment for readmissions, seek to reward hospitals that deliver high-quality care at lower costs. Thus, common targets for surgical quality improvement initiatives include reducing hospitals’ rates of perioperative complications and death. It is increasingly recognized that effective treatment of complications once they have occurred is another important indicator of hospital quality with inpatient surgery.³ Preventing mortality after patients have experienced a major complication (ie, preventing failure to rescue) presents a particular challenge for clinicians who strive to improve quality while delivering cost-efficient care.

The costs associated with rescuing patients from perioperative complications are poorly understood. While several studies have demonstrated that surgical complications dramatically increase the overall cost of care,^1,2,4,5 to our knowledge, none have explored variation in how efficiently hospitals manage those complications. In the attempt to rescue a dying patient from a surgical complication, clinicians might devote more resources (eg, diagnostic studies, therapeutic interventions, and postoperative rehabilitation) toward that patient’s care. Alternatively, vulnerable patients who experience complications may simply die earlier and incur fewer expenses than those who survive following adverse events. A more nuanced understanding of the costs of perioperative complications would help hospitals and policy makers better gauge cost efficiency with surgery to more appropriately incentivize high-quality, low-cost surgical care.

To better understand the relationship between perioperative complications and health care costs, we analyzed Medicare claims data for patients who underwent abdominal aortic aneurysm (AAA) repair, colectomy for cancer, pulmonary resection, and total hip replacement. We examined costs from the payer perspective, with Medicare expenditures representing societal costs of health care. First, we compared Medicare episode payments across 3 groups of patients: those without complications, those with complications who died, and those with complications who were rescued. Then, we evaluated between-hospital variation in Medicare payments for patients who were rescued from complications. Finally, we assessed the relationship between the “cost of rescue” and other clinical outcomes at these hospitals.

Using procedure codes from the International Classification of Diseases, Ninth Revision, Clinical Modification, we identified all Medicare patients aged 65 years to 100 years who underwent any of 4 operations between 2009 and 2012: AAA repair, colectomy, pulmonary resection, or total hip replacement (eAppendix 1 in the Supplement). These procedures were selected because they are common, high-risk operations that have varying rates of perioperative adverse events and require management with different sets of clinical resources. To enhance the homogeneity of the individual cohorts, patients who underwent AAA repair were excluded if diagnostic or procedure codes indicated rupture of the aneurysm,^6-8 and only patients who underwent colectomy for a diagnosis of cancer were included. For similar reasons, patients who underwent total hip replacement were excluded if diagnostic codes indicated primary or secondary malignancy or hip fracture.²

Claims data were analyzed from the Medicare Provider Analysis and Review files, which contain hospital discharge abstracts for all fee-for-service acute care hospitalizations of US Medicare beneficiaries. Patients were eligible for payment analysis if they were enrolled in Medicare Part A and B (fee-for-service) plans and had no payments from a health maintenance organization for 1 month prior to and 6 months after the index operation.⁹ This ensured that payments for a patient’s episode of surgical care were captured entirely by Medicare. Hospitals were excluded if they had no record of patients who survived a postoperative complication, which excluded 1% to 5% of patients eligible for payment analysis. Information about hospital characteristics was obtained from Medicare cost reports and the American Hospital Association Annual Survey Database. This study was approved by the institutional review board of the University of Michigan and judged to be exempt from human participant review owing to the retrospective nature of the study and negligible risk to patient.

In all models evaluating Medicare payments and perioperative outcomes, covariates included age, sex, race/ethnicity, and 29 Elixhauser comorbid diseases.^10,11 Additional covariates were procedure year, admission priority, preoperative length of stay, and surgical approach (eg, endovascular vs open AAA repair, laparoscopic vs open colectomy, and video-assisted thoracoscopic surgery vs open pulmonary resection).

Actual Medicare payments, not submitted hospital charges, were assessed for each patient. Consistent with prior literature, patient discharge records were linked to other Centers for Medicare and Medicaid Services files containing claims for services relevant to the index operation, including the carrier (ie, physician), outpatient, and home health files.^2,9 Payments were determined for all service types from the date of hospital admission for the index operation to 30 days from the hospital discharge date (ie, episode payments), consistent with the Medicare Payment Advisory Commission practices.^2,9 As specified elsewhere, total episode payments were organized into individual types of services: index hospitalization, readmissions, physician services, and postacute care services.^2,9

For each patient, total Medicare payments were assessed using risk-adjusted and price-standardized payments. Risk adjustment accounted for patient-specific factors as described earlier. Price standardization excluded the subsidies that Medicare provides to hospitals for indirect medical education and disproportionate share costs and were calculated using methods previously established to account for regional variation in Medicare payments.^9,12 After risk-adjusting for patient characteristics, these price-standardized payments can be interpreted as a meaningful measure of relative resource usage (ie, cost efficiency) across hospitals because they account for intended differences in Medicare spending. In this study, the primary outcome was the average price-standardized episode payment for patients who survived following perioperative complications.

Perioperative outcomes were assessed using Medicare claims data. Perioperative complications were identified using International Classification of Diseases, Ninth Revision, Clinical Modification codes from the index hospitalization (eAppendix 2 in the Supplement).^2,13,14 These codes have been validated in prior studies of surgical outcomes.^15,16 Eight major perioperative complications were identified for this study: pulmonary failure, pneumonia, myocardial infarction, deep venous thrombosis/pulmonary embolism, acute renal failure, postoperative hemorrhage, surgical site infection, and gastrointestinal bleeding. Serious complications were defined by a coded complication and an extended length of stay (>75th percentile for each operation).^8,17 Failure to rescue was defined as death in a patient who had at least 1 complication.^13,14 Mortality within 30 days of the index operation was ascertained from the Medicare denominator file.

The average total Medicare payment for an episode of surgical care was determined at the patient level for each category of clinical outcome: no complication, complication and death, or complication and survival. After price standardization, total payments were risk-adjusted using linear regression with log link owing to the right-skewed distribution of actual payments. All analyses accounted for clustering of patients within hospitals by calculating robust standard errors.

Differences in episode payments between patients who died following complications and patients who survived following complications were compared using 1-way analysis of variance with the Bonferroni multiple-comparison test. To assess variation in the cost of rescuing patients from perioperative complications, hospitals were ranked and grouped into quintiles based on their average payment for patients who survived an adverse event.

Risk-adjusted perioperative outcomes were modeled using multiple logistic regression. C statistics ranged from 0.70 (failure to rescue) to 0.88 (serious complications), indicating moderate to strong predictive power for individual models. Odds ratios were converted to relative risks to facilitate clinical interpretation,¹⁸ and 95% confidence intervals were calculated using robust variance estimates.

Hypotheses were tested using a 2-sided approach with α = .05. Statistical analyses were conducted using STATA, version 11.2 (StataCorp).

Patient demographics and comorbidities varied across the 4 selected procedures as did perioperative outcomes (Table 1). Overall, rates of adverse perioperative events were lowest for total hip replacement and highest for colectomy. Mean rates of overall complications ranged from 4.9% for total hip replacement to 25.1% for colectomy. Average rates of failure to rescue (ie, mortality among patients who had a complication) ranged from 3.4% for total hip replacement to 17.7% for colectomy and 18.0% for pulmonary resection. In a consistent pattern, average rates of overall 30-day mortality ranged from 0.3% for total hip replacement to 6.2% for colectomy.

Hospital factors also differed depending on the operation (Table 1). Hospital procedure volume in Medicare patients was highest for total hip replacement, while volumes were lowest for AAA repair and pulmonary resection. Most hospitals were nonprofit and reported as nonteaching hospitals.

As expected, mean Medicare episode payments were higher for patients with perioperative complications than for patients without complications (Figure 1). Furthermore, among patients who experienced complications, those who survived had higher price-standardized Medicare payments than did those who died ($37 746.57 vs $36 793.16 for AAA repair [P = .42], $36 619.33 vs $31 949.96 for colectomy [P < .001], $38 093.10 vs $34 030.70 for pulmonary resection [P < .001], and $28 278.32 vs $26 801.74 for total hip replacement [P = .003]). For all 4 operations, the index hospitalization accounted for a greater proportion of total Medicare payments among patients who died following a complication than among those who survived. Among patients who survived their complications, readmissions and postacute care services largely contributed to the higher total episode payments (Figure 1).

Next, we focused specifically on patients who were rescued from perioperative complications. After ranking hospitals on their average Medicare payments for patients who were rescued, impressive variation in episode payments was observed across hospital quintiles for all 4 operations (Figure 2). Payments for patients who were rescued at highest cost-of-rescue hospitals were 2- to 3-fold higher than at lowest cost-of-rescue hospitals for AAA repair ($60 456 vs $23 261; P < .001), colectomy ($56 787 vs $22 853; P < .001), pulmonary resection ($63 117 vs $21 325; P < .001), and total hip replacement ($41 354 vs $19 028; P < .001).

Medicare episode payments were broken down into different components of care to identify the source of variation across hospitals (Table 2). The index hospitalization accounted for the largest share of variation in Medicare payments for AAA repair (53% of the total difference in payments between highest and lowest cost-of-rescue hospitals), colectomy (48%), and pulmonary resection (55%). In contrast, postacute care was the largest source of variation for total hip replacement (39%). Readmissions and postacute care services also made substantial contributions to the overall variation in payments for all 4 operations.

In addition to having higher Medicare payments for patients rescued from complications, these highest cost-of-rescue hospitals also had higher risk-adjusted rates of overall and serious complications compared with the lowest cost-of-rescue hospitals (Table 3). Risk-adjusted rates of serious complications were higher at the highest cost-of-rescue hospitals than at the lowest cost-of-rescue hospitals for AAA repair (relative risk [RR], 1.27; 95% CI, 1.21-1.33), colectomy (RR, 1.40; 95% CI, 1.36-1.45), lung resection (RR, 1.26; 95% CI, 1.20-1.32), and total hip replacement (RR, 1.27, 95% CI, 1.16-1.37).

Similarly, highest cost-of-rescue hospitals performed no better and in some cases worse than lowest cost-of-rescue hospitals when assessing failure to rescue and overall 30-day mortality (Table 3). Rates of failure to rescue were similar at the highest and lowest cost-of-rescue hospitals for AAA repair, colectomy, pulmonary resection, and total hip replacement. Furthermore, rates of overall 30-day mortality were significantly worse at the highest cost-of-rescue hospitals for AAA repair and colectomy. Trends in surgical outcomes are displayed across all hospital quintiles of cost-of-rescue payments in the eTable in the Supplement.

In this study, we investigated the costs associated with rescuing patients from perioperative complications after 4 common, resource-intensive operations at hospitals nationwide. Perhaps unsurprisingly, we found that price-standardized Medicare payments were higher for patients who survived their complications than for those who died, largely owing to payments for readmissions and postacute care services. However, we observed striking hospital-level variation in Medicare spending for rescuing these patients. Mean Medicare payments for patients who were rescued varied as much as 3-fold between the highest and lowest cost-of-rescue hospitals. Furthermore, highest cost-of-rescue hospitals had higher risk-adjusted rates of overall and serious complications. These highest cost-of-rescue hospitals also failed to demonstrate better rates of failure to rescue and 30-day mortality.

It is well documented that perioperative complications are associated with increased costs of surgical care.^1,2,5 Despite this relationship between complications and costs, perioperative mortality has not been linked with higher surgical costs.² This discrepancy may be explained by the possibility that patients who die following perioperative complications incur fewer costs than those who experience a prolonged recovery and survive their complications. Another feasible explanation is that certain hospitals may rescue their patients from complications more efficiently than other hospitals. Our study sought to evaluate these variable sources of health care spending. First, we provide empirical evidence that among patients who experience surgical complications, those who die actually have lower Medicare payments than do those who are rescued. Next, importantly, our data reveal significant variation in the cost of rescuing patients from perioperative complications across hospitals. Going beyond existing evidence that poor surgical quality leads to higher costs,^2,5 our results suggest that inefficient treatment of perioperative complications once they occur contributes substantially to higher health care spending. Our finding that the lowest cost-of-rescue hospitals have 3-fold lower Medicare payments without sacrificing clinical quality highlights a potential target for surgical cost reduction.

Numerous studies have argued that reducing the overall occurrence of adverse events can lead to significant financial savings.^2,4,19,20 While this argument certainly has face validity, even the best hospitals and surgeons will continue to have complications at some rate.³ Efficient treatment of complications that do occur may be an important approach that, to our knowledge, has not yet been explored for containing health care costs. Comparing cost-efficiency across hospitals can be challenging owing to variable payment patterns at each institution. For example, certain hospitals are inherently more expensive because they treat many low-income patients without insurance or they carry out educational missions by teaching residents and students. By specifically studying price-standardized Medicare payments (which accounted for intended differences in Medicare spending), this analysis enabled a meaningful comparison of resource use for surgery across hospitals.

Although it is known that Medicare expenditures in general vary across hospitals for episodes of surgery,^9,21,22 to our knowledge, cost-efficiency in treating patients with complications has not been studied. These findings indicate that variation in Medicare payments for rescuing patients from complications is as pronounced as, if not more than, that observed for all surgical patients. Furthermore, this study provides a detailed appreciation of the mechanisms underlying the variation in episode payments to hospitals for patients rescued from adverse events. While the index hospitalization is known to be a major source of variation in Medicare payments,² we observed that readmissions and postacute care also contributed substantially to variation in cost-efficiency for patients with perioperative complications.

Whether higher spending is required to achieve better clinical quality is the fundamental question for policy makers in the value-based purchasing era.^23-25 Similar to the relationship between episode payments and surgical outcomes demonstrated previously for all patients together,² higher payments for rescuing patients with complications were not associated with better outcomes in this study. Here, hospitals receiving the largest payments for rescued patients had higher rates of complications, but were no more effective and in some cases worse than other hospitals at preventing mortality. From another perspective, lowest cost-of-rescue hospitals achieved equivalent or superior surgical quality with remarkably lower Medicare spending.

This study has several limitations. First, the use of Medicare payments may be considered a proxy for the true costs that institutions incur for providing care (ie, costs for individual tests and studies ordered). However, episode payments represent costs to Medicare, which offers a federally funded perspective of health care use and a key area where national payment reform is being piloted via value-based purchasing initiatives. Next, studying Medicare claims limits the generalizability of these findings to younger patients with private insurance. Nevertheless, the 4 operations we studied are commonly performed for elderly patients, and private insurers tend to base decisions on results demonstrated in the Medicare population. Additionally, a recognized drawback of administrative data analysis is residual confounding from lack of clinically granular data. To evaluate this limitation, we performed several sensitivity analyses to enhance the homogeneity of the study cohort, with similar findings to the results presented here. Furthermore, studying Medicare patients uniquely enabled us to fully capture all payments associated with an episode of surgical care. Finally, this study could not answer with certainty the question of why the highest cost-of-rescue hospitals were less efficient with Medicare dollars. What we can learn from these data is that patients at high cost-of-rescue hospitals tended to experience complications more frequently. Importantly, this was associated with relatively higher Medicare payments for not only the index hospitalization but also for readmissions and postacute care services. Future studies using quality collaboratives could more thoroughly understand differences in clinical care processes for surgical care between highest and lowest cost-of-rescue hospitals.

This study presents important considerations for emerging policy initiatives. While innovative reimbursement strategies, such as accountable care organizations and bundled payments, aim to reward cost-efficient hospitals that provide high-quality care, a concern is that surgical quality at expensive hospitals might decrease further if their reimbursements are reduced. However, this analysis suggests that steering patients away from these hospitals has the potential to both lower Medicare spending and improve the safety of surgical care for patients. In this study, the lowest cost-of-rescue hospitals demonstrated lower rates of perioperative complications in general. Furthermore, these lower-cost hospitals did not sacrifice clinical quality when treating patients who did incur adverse events (ie, their rates of failure to rescue were equivalent to rates at higher-cost hospitals). This study provides evidence for cost-efficiency while effectively treating patients with perioperative complications. Emerging payment policies that incentivize high-quality care at lower costs may lead to previously unforeseen benefits even when applied to surgical patients who experience costly complications.

Using price-standardized Medicare payments to evaluate cost-efficiency with 4 inpatient operations, wide variation was observed across hospitals regarding episode payments for patients rescued from perioperative complications. Compared with lower cost-of-rescue hospitals, the highest cost-of-rescue hospitals had higher risk-adjusted complication rates with similar rates of failure to rescue and 30-day mortality. These results highlight the potential for hospitals to examine strategies for managing perioperative complications to identify opportunities for improved cost efficiency with surgery.

Corresponding Author: Jason C. Pradarelli, MD, MS, Department of Surgery, Brigham and Women’s Hospital, 75 Francis St, Boston, MA 02115 (jasonpradarelli@gmail.com).

Accepted for Publication: June 10, 2016.

Published Online: October 5, 2016. doi:10.1001/jamasurg.2016.3340

Author Contributions: Dr Pradarelli had full access to all of the data in the study and takes responsibility for the integrity of the data and the accuracy of the data analysis.

Concept and design: Pradarelli, Healy, Ghaferi, Dimick, Nathan.

Acquisition, analysis, or interpretation of data: Pradarelli, Osborne, Dimick, Nathan.

Drafting of the manuscript: Pradarelli, Healy, Dimick.

Critical revision of the manuscript for important intellectual content: All Authors.

Statistical analysis: Pradarelli, Osborne, Dimick.

Administrative, technical, or material support: Healy, Ghaferi, Dimick.

Study supervision: Ghaferi, Dimick, Nathan.

Conflict of Interest Disclosures: Dr Ghaferi receives salary support from the BlueCross BlueShield of Michigan Foundation as the director of the Michigan Bariatric Surgery Collaborative. Dr Dimick is a cofounder of ArborMetrix, a company that makes software for profiling hospital quality and efficiency.

Funding/Support: Dr Pradarelli was supported for this work by National Institutes of Health grant 2UL1TR000433 through the Master of Science in Clinical Research program at the University of Michigan. Dr Healy is supported by National Institutes of Health T32 grant CA009672. Dr Ghaferi receives grant funding from the Agency for Healthcare Research and Quality and the National Institute on Aging. Dr Dimick receives grant funding from the National Institutes of Health, Agency for Healthcare Research and Quality, and the BlueCross BlueShield of Michigan Foundation.

Role of the Funder/Sponsor: The funding sources had no role in the design and conduct of the study; collection, management, analysis, and interpretation of the data; preparation, review, or approval of the manuscript; and decision to submit the manuscript for publication.

Disclaimer: Dr Dimick is the Surgical Innovation Editor for JAMA Surgery but was not involved in the editorial review or the decision to accept the manuscript for publication.