What Drives Variation in Episode-of-care Payments for Primary TKA? An Analysis of Medicare Administrative Data

Background Episode-of-care payments are defined as a single lump-sum payment for all services associated with a single medical event or surgery and are designed to incentivize efficiency and integration among providers and healthcare systems. A TKA is considered an exemplar for an episode-of-care payment model by many policymakers, but data describing variation payments between hospitals for TKA are extremely limited.

Questions/purposes We asked: (1) How much variation is there between hospitals in episode-of-care payments for primary TKA? (2) Is variation in payment explained by differences in hospital structural characteristics such as teaching status or geographic location, patient factors (age, sex, ethnicity, comorbidities), and discharge disposition during the postoperative period (home versus skilled nursing facility)? (3) After accounting for those factors, what proportion of the observed variation remains unexplained?

Methods We used Medicare administrative data to identify fee-for-service beneficiaries who underwent a primary elective TKA in 2009. After excluding low-volume hospitals, we created longitudinal records for all patients undergoing TKAs in eligible hospitals encompassing virtually all payments by Medicare for a 120-day window around the TKA (30 days before to 90 days after). We examined payments for the preoperative, perioperative, and postdischarge periods based on the hospital where the TKA was performed. Confounding variables were controlled for using multivariate analyses to determine whether differences in hospital payments could be explained by differences in patient demographics, comorbidity, or hospital structural factors.

Results There was considerable variation in payments across hospitals. Median (interquartile range) hospital preoperative, perioperative, postdischarge, and 120-day payments for patients who did not experience a complication were USD 623 (USD 516-768), USD 13,119 (USD 12,165-14,668), USD 8020 (USD 6403-9933), and USD 21,870 (USD 19,736-25,041), respectively. Variation cannot be explained by differences in hospital structure. Median (interquartile range) episode payments were greater for hospitals in the Northeast (USD 26,291 [22,377-30,323]) compared with the Midwest, South, and West (USD 20,614, [USD 18,592-22.968]; USD 21,584, [USD 19,663-23,941]; USD 22,421, [USD 20,317-25,860]; p < 0.001) and for teaching compared with nonteaching hospitals (USD 23,152 [USD 20,426-27,127] versus USD 21,336 [USD 19,352-23,846]; p < 0.001). Patient characteristics explained approximately 15% of the variance in hospital payments, hospital characteristics (teaching status, geographic region) explained 30% of variance, and approximately 55% of variance was not explained by either factor.

Conclusions There is much unexplained variation in episode-of-care payments at the hospital-level, suggesting opportunities for enhanced efficiency. Further research is needed to ensure an appropriate balance between such efficiencies and access to care.

Level of Evidence Level II, economic analysis.