The Spine Blog

Friday, July 11, 2014

Bundled Payments in Spine Surgery

The Affordable Care Act (ACA) includes provisions to study alternatives to the traditional fee for service payment model, including bundled payments in which payers provide a lump sum payment to the hospital and providers for an entire “episode of care”. The goal is to align the incentives of hospitals and providers and incentivize high quality and efficient care. Additionally, risk is shifted away from payers to hospitals and providers as they do not receive any further payments in cases of complications, re-admissions or other high cost events. Prior to adopting such a model, hospitals, providers, and payers need to have an understanding of the costs and variation in costs involved in the current system. To address this, Dr. Ugiliweneza and her colleagues analyzed the MarketScan data base from 2000-2009 to evaluate almost 200,000 episodes of spine surgery that they captured by using the 13 most common diagnosis related groups (DRGs) for spine surgery. The MarketScan data base includes data from patients with commercial insurance, Medicare, and Medicaid. They calculated the average index hospitalization costs and subsequent post-discharge costs for each of the DRGs for 30, 60, and 90 day bundles. The three most common DRGs were for lumbar fusion (36%), non-fusion spinal surgery (i.e. laminectomy, 24%), and cervical fusion (14%). They reported that the average 30 day cost for inpatient non-fusion spinal surgery was approximately $13,000 (standard deviation $7,800) and that for lumbar fusion was approximately $43,000 (standard deviation $26,000). Post-discharge costs amounted to about 5% of total costs, and there was a minimal increase in costs from 30 to 90 days. Hospitals accounted for 76% of costs, while physician costs made up 14% of the total.


This is the first paper to evaluate the costs of episodes of care in spine surgery, and it provides some data that hospitals, providers, and payers could use when designing a bundled payment plan. Spine surgery is among the highest cost interventions, and payers are motivated to find ways to limit their financial risk for these procedures. Bundled payments shift the risk to the hospitals and providers, which, in a properly designed system, will result in higher quality, more efficient care. Hospitals and providers will be financially motivated to avoid complications and readmissions, and this should be an impetus to improve quality. All payment systems have the potential for perverse incentives, and, depending on the details, health systems might be motivated to underdiagnose and undertreat post-operative complications. Another challenge will be creating methods to account for complex cases and patients, which hospitals and providers might be incentivized to avoid unless the bundled payment plans are appropriately risk adjusted to take into account the increased costs of taking care of these patients. Additionally, bundled payments in spine surgery will likely not be able to be based simply on DRGs given the huge variation of procedures covered by a single DRG, reflected in the large standard deviations around the average costs reported in this paper. Bundled payments will likely play a role in the future of spine surgery, and, as always, the devil will be in the details. This paper takes a good first step in establishing some benchmarks for costs associated with an episode of spine surgery. Hopefully once institutions gain real experience with bundled payments they will report on the clinical and financial results.

Please read Dr. Ugiliweneza’s paper on this topic in the July 1 issue. Does this change your view of bundled payments in spine surgery? Let us know by leaving a comment on The Spine Blog.

Adam Pearson, MD, MS

Associate Web Editor