Cost of Elective Surgery and Utilization of Ancillary Services in Teaching Hospitals

19 Pages·2008·1.99 MB·English

Cost of Elective Surgery and Utilization of
Ancillary Services in Teaching Hospitals
Steven R. Eastaugh
Measures of surgical utilization studied are the number of elective tests performed
preoperatively and the total cost per case. The unit of analysis is a matched pair of
patients who underwent the same elective procedure, one a Veterans Administration pa-
tient, and the other a municipal or voluntary hospital patient. Federal ownership of the
hospital had the strongest impact on tests and cost per case. On average, costsfor the VA
patients were 52 percent more percase.
The foreign medical graduate variable had a large positive (inflationary) effect on the
number of tests, but a slight downward influence in the cost regressions. The fraction of
surgeons with faculty appointments had a strong negative (curtailing) impact on elective
testing, but an upward influence on cost per case. Additional variables such as age,
average laboratory turnaround time, and fraction of the medical school's students doing
their surgical clerkship at the hospital had a slight upward influence on utilization. The
three policy issues raised in the study involve changingthehospital reimbursement incen-
tives, targeting continuing education programs to categories ofstaffthat need itmost, and
redistributingfaculty and students.
HOSPrrALS have priced themselves anywhere from 25 to 33 percent for
into the public eye. Since 1950the simple, well-defined diagnostic catego-
hospital sector has grown from an ries like simple appendicitis and acute
industry that consumed 1.1 percent of myocardial infarction, to 90 to 110
Gross National Product to one that percent for perforated appendicitis and
consumes 3.5 percent of GNP[1]. The breastcancercases,respectively[3]. Ina
increasing proportion of governmental -sample of 285 hospitals during the
financing of hospital care compels ac- period 1968 to 1971, Redisch found
countability. Excessive number oftests that laboratory tests per patient day
and long lengths ofstay are two central increased at an average annual rate of9
issues in the public debate aboutrising percent[4]. Expenditures for laboratory
hospital costs[2]. The purpose of this tests and other nonpersonnel items
study is to discover some ofthe factors have the highest rate of increase of any
contributing most to excessive utiliza- element responsible for rising hospital
tion of hospital services. There has costs[5].
been a dramatic growth in laboratory Excessive use oftestsandprocedures
tests per patient episode. Scitovsky are a source of concern not only be-
found that lab tests per episode in- cause they are costly but because they
creased between 1964 and 1971 by are unnecessary. Evidence that Ameri-
A shortened version ofthis paper was presented at The Annual Meeting ofTheAmeri-
can Public Health Association on October 18, 1978.
Address communications and requests for reprints to Steven R. Eastaugh, Assistant
Professor of Health Economics, Graduate School of Business and Public Administration,
Sloan Program ofHospital and Health Services Administration, Malott Hall, Cornell Uni-
versity, Ithaca, NY 14853.
0017-9124/79/1404-0290/$02.50/0
Cost ofElective Surgery 291
can medicine has a high degree of un- here: differing combinations of physi-
necessary utilization has frequentlyap- cian andhospitalcharacteristics leadto
peared in the literature. A recent study different styles of medicine, which in
by Neuhauser and Jonsson found that turn lead to different utilization pat-
the American physician appears to use terns. For example, one might presup-
three times as many tests to decide pose that medical school faculty mem-
upon a simple elective surgical diagno- bers involved in patient care have a
sis as does a comparable Swedish professional interest in curtailing inap-
physician[6]. One possible explanation propriate prescriptions, butitmightnot
is that Americansurgeons domoretest- always be in the faculty members'
ing because they are more discriminat- interests to curtail alltypes ofexcessive
ing in deciding to operate. Unfortu- utilization. Faculty members and at-
nately, this is not consistent with the tendingphysiciansmighthaveaninter-
fact that the operation rate per 10,000 est in maximizing revenues for new
population is 18 percent lower in equipment because of their interest in
Sweden relativetotheUnited Statesfor technology. Lave and Leinhardt have
inguinal hernia, and 25 percent lower examinedlengthofstayinconsiderable
for cholecystectomies and prosta- detail, but omit consideration ofhospi-
tectomies[6]. The Swedish patients tal characteristics from the analysis
have the same age and diagnosis- because their sample consists of indi-
specific mortality rates as their Ameri- viduals from only one hospital.[8] The
can counterparts, so that all the addi- authors conclude that the majorreason
tional utilization observed inAmerican why length of stay is so long and costs
hospitals may not be considered medi- so high in the urban teaching hospital
cally necessary. they studied "is because residents, due
Utilization patterns are not merely a to their comparative youth and lack of
function of patient characteristics and experience, order more tests."[8] For-
the requirement of "good medicine." eign medical graduates (FMGs) might
Medical care requirements can be met also be expected to require more tests
with different amounts of resources per case because theirtraining is not as
and length of hospitalization. How extensive or as diagnosis-oriented as
these requirements of good medicine that provided by the typical American
are met depends in some part on the medical school[9] Presumably, an infe-
physician characteristics and the hos- rior education is associated with
pital environment. Surgical utilization greater uncertainty and the need for
is probably affected by hospital charac- more time between sequential deci-
teristics such as the laboratory turn- sions and perhaps the need for more
around time,theavailability ofhospital information (more tests)[10].
beds, the availability ofasurgical suite, Other interpretations may account
and the type of hospital ownership for the unnecessary utilization de-
(federal, voluntary, municipal). scribed here. For example, one expla-
Physician background characteristics nation for increasing lab utilization is
are also determinants of physician be- that the American surgeon is coerced
havior. The duration of stay and num- by the threat of a malpractice suit into
ber of tests per patient are likely to be ordering more tests. However, a survey
affected bythe educationalbackground of physician attitudes conductedbythe
of the surgeon and the strength of the staff of the Duke Law Journal suggests
affiliation with the local medical that the threat of malpractice had a
school[7]. A causalsequence isimplied minuscule effect on what they called
292 Health Services Research
positive defensive practices, i.e., order- Huang[161 and by Freiberg and
ing excessive laboratory tests[11]. The Scutchfield[19] provide persuasive evi-
study by Scitovsky cited previously dence that insurance does not affect
suggests that a technological inflation length of stay. The "moral hazard"
in the quantity of tests and price ofthe argument advanced by Freiberg and
procedures predates the so-called mal- Scutchfield suggests that the more
practice "crisis" by 20 years[3]. The highly insured patients should have
problem in interpretation here is that a more tests and longer length of stay,
number of variables, some related to because demand is less constrained by
the patients, some to the hospital, and cost considerations. However, their
some to the physician, all tend to econometric evidence rejects this hy-
influence utilization. Thewayinwhich pothesis and suggests statistically in-
that interaction occurs ismostcomplex significant negative coefficients[17].
and demands further research. The findings inthe literature pertaining
Most of the multivariate regression to theeffectsofinsuranceonutilization
studies emphasize the effect of insur- per episodearesomewhatmixed. Over-
ance coverage on various hospital out- all, the preliminary evidence indicates
put and cost measures (cost per diem, that insurance does not affect length of
laboratory charges per episode, length stay but that it is a contributory factor
of stay). These studies vary with re- to rising costs.
spect to objectives and methodology. Huang[16, p. 12] provides an ex-
The customary approach involves an ample of a multivariate study of the ef-
aggregate cross section of individual fect of physician and hospital charac-
state or hospital observations, for each teristics on utilization, with the indi-
ofa number ofyears[12]. Davis found a vidual patient as the unit of analysis.
positive relationship between insur- Huang applied data on 27,210 patients
ance and the length of hospitalization discharged from sixWashington hospi-
and cost per episode. Feldstein[13] and tals in 1975 to analyze the effects of
Hu and Werner[14] provide corrobora- hospital characteristics on length of
tive evidence that more highly insured stay and costs per episode. For 18
areas have higher costs perepisodeand medically homogeneous diagnoses
longer stays, on the average. Feldstein Huang estimated reduced form equa-
estimated an average length of stay tions for length of stay and found the
equation from a cross section of the 50 dummyvariable forinsurancetobesta-
states, for each of ten years. Hu and tistically insignificant, but three factors
Werner studied hospital and demo- with significant positive impacts on
graphic characteristics in 70 hospital length of stay and laboratory charges
regions inPennsylvania. Priceperdiem are whetherthe hospital had a) a medi-
and mean patient income had no effect cal student teaching program, b) a pro-
in the Hu-Werner length of stay equa- fessional nursing affiliation, and c) an
tion, but insurance has a length of stay internship program. Huang's findings
elasticity of 0.41 measured at the concerning the influence of affiliation
sample mean. The finding of a positive on utilization corroborates earlier find-
insurance effect disagrees with the re- ings by Salkever[18]. Salkever used a
sults reported by Lee and Wallace in a principal components analysis to de-
study of Medicare patients' length of lineate case-mix variables for the 73
stay within multihospital regional New Yorkhospitals sampled andfound
catchment areas[151. that interns and residents per episode
Two more recent studies by had statistically significantpositive im-
Cost ofElective Surgery 293
pact on length of stay and costs per stractors enter the nonfederal facility
case. with information on the already se-
lected federal patient pool and select a
nonfederal sample that had the same
Statistical Methods
sex, primary diagnosis, and welfare
The data for the analysis were drawn status. Stage two in the matching pro-
from 780 records obtained at 19 hospi- cess was to apply Caliper matching
tals for elective herniorrhaphy, prosta- methods based on predefined ranges of
tectomy, andcholecystectomypatients. what constitutes an acceptable match,
The 12 VA hospitals in the study e.g., any nonfederal partner had to be
represent a 9 percent random stratified within fouryears, plus or minus, ofthe
sample of VA hospitals performing federal patient's age[211. Stage three in
surgery. The 12 VA facilities were the sampling design involved using
selected from the stratification of 135 nearest available matching methods
VA general hospitals by bed size, aver- after the data collection stages were
age length of stay, and research completed, for final pairing ofthe non-
budget[191. The nonfederal hospital federal and VA patient groups on the
sample consisted of 3 municipal and 4 basis of age, secondary diagnosis, and
voluntary hospitals from the same five-digit zip codenumber[22]. Patients
cities as the VA hospitals. The nonfed- with a preadmission visit to the hospi-
eral hospitals had approximately the tal (9 percent) had their medical record
same bed size and annual number of abstracts coded with a-1, sothatinthe
adult surgical admissions as the VA matching process, only patients with
hospital in the same city. Of 9 nonfed- equivalent preadmissionworkupswere
eral hospitals asked to participate in matched with one another. One of the
the study, 7 agreed. explanations for the tendency of pri-
The patient pairs were drawn from vate insurance patients to have fewer
among two samples: 360 VA patients tests and days of preoperative stay is
from 12 VA hospitals, and 420 nonfed- that their admission was preceded by a
eral patients from 7 nonfederal hospi- preadmission visit, but 91 percent of
tals. The 360 VA patients were drawn the patients in our sample entered the
as a random sample, but the 420 non- hospital without any preadmission
federal patients were selected in order tests. In the final analysis, 102 VA
tohavepatientcharacteristics thatwere patients remained unmatched, com-
as nearly similar to the federal patients pared to 162 unmatched nonfederal
as possible[201. The research rationale patients, and 258 VA-nonfederal pa-
was to minimizethevarianceinpatient tient pairs were formed [7, Chap. 4].
case-mix characteristics in order to The followingregression approach is
measure the effects ofstaffandhospital proposed for determining how muchof
characteristics on utilization and cost. the variation in tests and cost per case
The first step in the matching process are patient related, hospital related, or
was to select the covariables on which staff related. The eight dependent vari-
the two samples were to be matched. ables to be studied for the sample are
The six patient characteristics under the ratios between pairs in 1)prosta-
consideration were age, sex, primary tectomy cost; 2)herniorrhaphy cost;
diagnosis, secondary diagnosis, socio- 3)cholecystectomy cost; 4)cost per epi-
economic status, and distance from the sode, for the sample of three types of
hospital. The first stageinthematching elective surgery; 5)number of elective
process was to have nurse record ab- tests[27] ordered preoperatively for
294 Health Services Research
prostatectomy patient pairs; 6)number cholelithiasis is almost always con-
of elective tests ordered preoperatively firmed in our sample of cholecystec-
for hernia patient pairs; 7)number of tomy patients by radiologic evidence of
electivetestsorderedpreoperativelyfor single or multiple gallstones, or by
cholecystectomy patient pairs; and evidence of a nonfunctioning gallblad-
8)number of elective tests ordered pre- der by observing the movement of
operatively for all surgical patient concentrated amounts of gallbladder
pairs. dye. Some tests are elective, such as a
Implicit in this analysis is that to do serum amylase assay, because the ma-
more tests or to require higher costs for jority of clinicians do not believe that
producing thesameproductis inappro- this test is necessary to rule out the
priate or wasteful behavior, i.e., the possibility of pancreatitis[23].
behavior is unnecessary in that the The information on costs came in
marginal benefits of more tests or days two forms, depending on whether or
of hospitalization are minimal. not the hospital had a patient-based
The definition ofan unnecessary test system of charges. For example, four
inthis context is one that did not make hospitals in the sample had patient-
the partner better off relative to his based accounting systems for billing
match, undergoing the same operation, purposes; thus one only needed to ask
with the same outcome. Operationally, for the costs and charges. Costs were
an unnecessary test is one that was assigned to the surgical department by
provided to only one member of the means of the multiple apportionment
pair and that Payne[23] defines as algebraic method of costallocation[25].
unnecessary for a partner with given However, 12 VA hospitals' and 3 mu-
case-mix characteristics, i.e., age, sex, nicipal hospitals in the sample had no
and diagnoses. Pauly[24] has provided need for itemized billing, and thus had
a more stringent definition of what is no need for a price list or a charge-to-
unnecessary in the context of surgery cost ratio. Consequently, a relative
relative to "a potential partner who has value scale for assessing imputed
at least as much knowledge and under- charges had to be developed. This was
standing of possible costs and conse- done in three ways. First, the hospital
quences as the physician." It should be and ancillary costs were reduced to a
emphasized that, in this project, the relative value scale by averaging pre-
criteria used to define unnecessary vailing hospital charges in the region
tests and days of stay were both profes- (see Table 1). Second, the surgeon's fee
sional, as Payne suggested, and norma- for the area was taken from the Social
tive, relative to the matched patient Security Administration Survey of Pre-
pair. vailing Charges[26]. Third, in the case
of the 12 federal hospitals and 3 mu-
Operationalization of the nicipal hospitals, theresources utilized
in the elective surgical episode were
Variables
multiplied by the relative value scale
Product definition is a most complex and multipliedbytheconversionfactor
problem in the field of medical eco- measured in dollars per relative scale
nomics. An operational definition of a unit to obtain dollars per episode[25,
required intermediate product would pp. 191-193].
be a testthatwasrequiredinnearly 100 All patients sampled were middle-
percent ofthepatients inthediagnostic aged males eligible for Medicaid and
category under study. For example, free VA hospital care. Three patient
Cost ofElective Surgery 295
Table 1:
Relative Value Scale for Costing Out Elective Surgical Services at the 12 VA
Hospitals and 3 Municipal Hospitals without a Schedule ofCharges
Relative Value
I. Fixed Charges Scale
Surgeon's Fee:
Incisional Prostatectomy 5.6
Cholecystectomy 4.2
Unilateral Inguinal Hernia 2.5
Anesthesiologist 1.75
Operating Room 1.2
Recovery Room (2-4 hours) 0.5
Anesthesia 0.26
II. Variable Charges*
Basic Room Rate (per day) 0.75
Pulmonary Function Test 0.60
Cholecystogram 0.47
Cystourethrogram 0.40
Intravenous Pyelogram 0.35
Upper Gastrointestinal Series 0.32
Barium Enema 0.29
Sigmoidoscopy (Proctoscopy) 0.22
Chest X-Ray 0.16
Serum Amylase Assay 0.14
Creatine Clearance 0.11
*Excluding tests necessary for admission at all 15 hospitals, andthe 4 voluntaryhospitals.
characteristics are included in the re- this study because they were con-
gression analysis as independent vari- sidered poor proxy measures for our
ables: medical school student and faculty
variables.
P1 Distance from hospital to
The list of independent variables,
home in miles
which will also be expressed as a ratio
P2 Dummy variable for lack of
of the nonfederal patient value for the
unmatched secondary diag-
data item divided by his matched
noses, between pairs
federal partner's value, includes the
P3 Patient age. following three physician-staff charac-
teristics:
The independent variables selected
for inclusion in this study were chosen S, Fraction of surgeons (exclud-
for reasons of either past performance ing anesthesiologists) at the fa-
in other studies or future relevance for cility who are FMGs
public policy. For example, a dummy S2 Fraction of the attending phy-
variable for affiliation with a medical sicians on the surgical service
school and the percentage of physi- with actual teaching faculty
cians with more than ten years of appointments at the local
clinical experience were omitted from medical school who receive
296 Health Services Research
salary from the school (in- or surgical suites. Inappropriate utiliza-
tended as an index of the hos- tion can be attributed to both a "sys-
pital's dependence on the tems" failure ofthe institution and/or a
medical school for physicians) staff behavior problem. The research
S3 Fraction of the affiliated medi- question then becomes one of asking
cal school's students who did how much staff improvement can be
their required core clinical expected for a given change in the
clerkship on the hospital surgi- independent variables holding the fol-
calservice(intendedasanindex lowing factors constant: patient age,
for the school dependence on sex, primary and secondary diagnoses,
thehospitalasatrainingground). welfare status, distance fromthehospi-
tal (six patient characteristics), bed
As described inthe literaturereview,
availability (occupancy), and lab turn-
Huang[16] and Salkever[181 have sug-
around time. Unless one considers all
gested a strong positive association
these factors simultaneously, onereally
between the teaching function and
is not measuring the variance truly
more frequent utilization of tests and
attributable to staff characteristics.
hospital days. The fraction ofthemedi-
This model is estimated by the ordi-
cal school's students depending on the
nary least-squaresmethodbytakingthe
individual hospital as a source of clini-
natural logarithms of all variables. This
cal education is intended as a proxy
double-log form is commonly em-
measure ofthe school's dependencyon
ployed because the estimated regres-
the hospital. One might suggest that if
sion coefficients are the elasticities of
the school is highly dependent on a
the independent variables with respect
hospital for teaching cases, the stu-
to the independent variables. Concep-
dents, intems, residents, and attending
tually, 258 patient pairs producing 258
physicians, acting as agents of the
paired ratios of nonfederal to federal
school's interest, would have added
data is equivalent to 258 first differ-
reason to increase length of stay in
ences of logs. fBy matching patient
order to maximize thenumberofteach-
pairs, instead of having 516 observa-
ing days available and to maximize
tions with 9+m independent variables
tests and cost per case in order to serve
(where m is the additional number of
a technological interest in maximizing
variables needed to measure the con-
revenues for new equipment[27].
structs captured in the matching pro-
Three hospital characteristics in-
cess, such as primary diagnosis, sex,
cluded in the list of independent vari-
welfare, urban-rural differences), oneis
ables are
left with 258 log differences and only 9
independent variables.
H1 Laboratory turnaround time on
the average for seven basic
tests Results
H2 Hospital occupancy rate
The results ofthe regression analysis
H3 Federal ownership of the hos-
for cost per case, displayed in Table 2,
pital (in this specification, the
indicate thatfederal ownershiphadthe
equation intercept).
largest elasticity. The dummy variable
Nonoptimal useoftestsandunneces- coefficient implies that federal hospital
sary costs presumably may be due to costper matchedsurgicalcasewas 52.3
the inadequacies of the hospital in percenthigherthannonfederalhospital
providing ancillary laboratory support care, ceteris paribus (the estimated co-
Cost ofElective Surgery 297
efficient is 0.4231 which equals ln(1 + tomies, but the percentage difference
0.523). The average total cost per case was only 18 percent in the case of
was $3,174 in federal hospitals, $1,980 prostatectomies. Finally, the regres-
in municipal hospitals, and $2,217 in sions were run with linear and double-
voluntary hospitals (Table 3). Theaver- log logit specifications. No significant
age per-diem cost was $198 in federal changes in the signs or significance of
hospitals, $187 in municipal hospitals, the coefficients were observed, but the
and $216 in voluntary hospitals. The fit was inferior. A dummy variable for
finding that the voluntary hospital per strength of affiliation (whether the hos-
diem is 9 percent higher than the pital was a member of the Council of
federal per diem is consistent with a Teaching Hospitals) was omitted from
National Academy of Sciences study the analysis because this variable was
finding, using almost the samegroupof insignificant and interacted with the
hospitals, and 1975 prices. The NAS student and faculty variable to make
study group found that on the average each less significant (but still signifi-
the nursing costs per diem for volun- cant at the 0.10 level for a two-tailed
tary hospital surgical patients exceeded test).
federal surgicalperdiems innursingby The following five findings summa-
19.8 percent[16]. But expressed in rize the results obtained in comparing
terms ofnursingcostspersurgical case, utilization efficiency between different
the federal hospitals were $262 more hospitals producing the same product.
costly than voluntary hospitals. Nurs- 1. The federal ownership hospital
ing costsrepresentedonly 30percentof characteristic was consistently the
total per-episode costs. most significant variable in explaining
The two diagnoses in columns two the variance between matched patient
and three of Table 2, treated by general pairs in tests utilized and cost percase.
surgeons and nonspecialty surgical On the average, VA patients had 104
residents, had the largest coefficients percent more preoperative elective
for the federal ownership variable. tests performed per case, all else being
Whereas, transurethral prostatecto- equal in the equation. VA patients also
mies, which were always done by had 52 percenthighercostsperelective
either urologists or urological resi- surgical case for the same operation,
dents, had the smallest coefficients for ceteris paribus. One policy implication
the federal ownership variable. For of these results is that shifting surgical
example, federal costs per case ex- patients from federal to nonfederal fa-
ceeded nonfederal costs, on the aver- cilities seems cost effective and may
age, by 72.1 percent in the case of also prove quality-beneficial according
cholecystectomies and 69.6 percent in to the National Academy of Sciences
the case of prostatectomies. Specialists study of VA hospitals[191.
appear to be increasingly autonomous 2. The size of the coefficient for the
from the institutional variable of fed- federal ownership variable was much
eral ownership. Additional empirical smaller when the surgery is done by a
support forthisexpectationisprovided specialist, compared to the sample of
by the elective test regressions in Table surgicalcasestreatedbynonspecialists.
4. On the average, the number of elec- However, the federal ownership vari-
tive tests for federal patients exceeded able was still the most statistically
the number for nonfederal patients by significant variable in all the regres-
184 percent in the case of hernias and sions. The finding that the federal
116 percent in the case of cholecystec- ownership coefficient was five to nine
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298 Health Services Research
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Cost ofElective Surgery 299
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