Variation in medicare payments for colorectal cancer surgery

Abstract

Purpose: Colorectal cancer (CRC) is the second most expensive cancer in the United States. Episode-based bundled payments may be a strategy to decrease costs. However, it is unknown how payments are distributed across hospitals and different perioperative services. Methods: We extracted actual Medicare payments for patients in the fee-for-service Medicare population who underwent CRC surgery between January 2004 and Decembe 2006 (N = 105,016 patients). Payments included all service types from the date of hospitalization up to 1 year later. Hospitals were ranked from least to most expensive and grouped into quintiles. Results were case-mix adjusted and price standardized using empirical Bayes methods. We assessed the contributions of index hospitalization, physician services, readmissions, and postacute care to the overall variation in payment. Results: There is wide variation in total payments for CRC care within the first year after CRC surgery. Actual Medicare payments were $51,345 per patient in the highest quintile and $26,441 per patient in the lowest quintile, representing a difference of δ = $24,902. Differences were persistent after price standardization (δ=$17,184 per patient) and case-mix adjustment (δ=$4,790 per patient). Payments for the index surgical hospitalization accounted for the largest share (65%) of payments but only minimally varied (11.6%) across quintiles. However, readmissions and postacute care services accounted for substantial variations in total payments. Conclusion: Medicare spending in the first year after CRC surgery varies across hospitals even after case-mix adjustment and price standardization. Variation is largely driven by postacute care and not the index surgical hospitalization. This has signifi-cant implications for policy decisions on how to bundle payments and define episodes of surgical CRC care.