DOES HOSPITAL PROCEDURE-SPECIFIC VOLUME AFFECT TREATMENT COSTS - A NATIONAL STUDY OF KNEE REPLACEMENT SURGERY

Objective. The long-run cost savings potential of private sector refor m efforts, such as selective contracts with providers, depends in part on the relationship between procedure-specific volume and average hos pital resources that are consumed in treating patients associated with that specific procedure. Study examines a model that estimates the re lationship between hospital procedure-specific volume and average hosp ital treatment costs, using an elective surgical procedure as an examp le. Data Sources. Medicare Provider Analysis and Review (MedPAR) files for 1989 for hospitalizations in which a Medicare beneficiary receive d a knee replacement (KR) surgery during 1989. Hospital information wa s obtained from the American Hospital Association's 1989 Annual Survey . All patient-level data were aggregated to the hospital level to crea te a data file, with the hospital as the unit of observation. Study De sign. This study used administrative claims data and regression analys is to estimate the effect of hospital procedure-specific volume on ave rage hospital treatment costs of patients receiving KR surgery. We als o examined the stability of the volume-cost relationship across hospit als of different sizes. Principal Finding. The average treatment costs associated with KR surgery are inversely related to a hospital's KR v olume in the regression equation estimated using all hospitals perform ing KR surgery. The inverse relationship between cost and volume is fo und to be robust for different-size hospitals. Conclusions. The potent ial cost savings associated with performing KR surgery at incrementall y higher hospital volume level can amount to as much as 10 percent of the hospital's average treatment cost. However, the incremental cost s avings associated with increased patient volume depends on the hospita l's current volume level and its size.