Variations in Medicare payments for episodes of spine surgery

Background context: Although the high cost of spine surgery is generally recognized, there is little information on the extent to which payments vary across hospitals.

Purpose: To examine the variation in episode payments for spine surgery in the national Medicare population. We also sought to determine the root causes for observed variations in payment at high cost hospitals.

Study design: All patients in the national fee for service Medicare population undergoing surgery for three conditions (spinal stenosis, spondylolisthesis, and lumbar disc herniation) between 2005 and 2007 were included.

Patient sample: Included 185,954 episodes of spine surgery performed between 2005 and 2007.

Outcome measures: Payments per episode of spine surgery.

Methods: All patients in the national fee for service Medicare population undergoing surgery for three conditions (spinal stenosis, spondylolisthesis, and lumbar disc herniation) between 2005 and 2007 were identified (n=185,954 episodes of spine surgery). Hospitals were ranked on least to most expensive and grouped into quintiles. Results were risk- and price-adjusted using the empirical Bayes method. We then assessed the contributions of index hospitalization, physician services, readmissions, and postacute care to the overall variations in payment.

Results: Episode payments for hospitals in the highest quintile were more than twice as high as those made to hospitals in the lowest quintile ($34,171 vs. $15,997). After risk- and price-adjustment, total episode payments to hospitals in the highest quintile remained $9,210 (47%) higher. Procedure choice, including the use of fusion, was a major determinant of the total episode payment. After adjusting for procedure choice, however, hospitals in the highest quintile continued to be 28% more expensive than those in the lowest. Differences in the use of postacute care accounted for most of this residual variation in payments across hospitals. Hospital episode payments varied to a similar degree after subgroup analyses for disc herniation, spinal stenosis, and spondylolisthesis. Hospitals expensive for one condition were also found to be expensive for services provided for other spinal diagnoses.

Conclusions: Medicare payments for episodes of spine surgery vary widely across hospitals. As they respond to the new financial incentives inherent in health care reform, high cost hospitals should focus on the use of spinal fusion and postacute care.