User Support

April 2007

C. Allison Russo, M.P.H., Chaya T. Merrill, M.P.H., and Bernard Friedman, Ph.D.



Introduction

Approximately one-third of the U.S. health care dollar is spent on inpatient hospital care, making hospitalizations the single most expensive component of the health care system. Hospital costs reflect the amount of money expended by the hospital for patient care (excluding physician expenses). In 2004, total hospital costs grew to $295 billion—an increase of 21.9 percent from 2000.

In 2004, more than 60 percent of the nearly 39 million hospital stays involved some type of procedure.¹ Some of these procedures have been associated with much more rapidly increasing hospital costs than others. Identifying the procedures that generate the most rapid increases in hospital costs may contribute to a more informed discussion of overall cost increases. The increasing costs associated with a specific procedure can be the result of several causes, including the extension of treatment to different types of patients, treating more severely ill patients, rising salaries and input costs, and the diffusion of newer technologies and more expensive equipment.

This Statistical Brief provides data from the Healthcare Cost and Utilization Project (HCUP) and identifies which procedures generated the most rapidly increasing hospital costs between 2000 and 2004. The brief shows estimates of the portion of the cost increase resulting from greater use of top procedures (higher volume) versus a rise in mean cost per stay. Information is presented for all payers and separately by four payer groups: Medicare, Medicaid, private insurance, and self-pay (uninsured). All differences between estimates noted in the text are statistically significant at the 0.05 level or better. Costs for 2000 were adjusted to 2004 dollars using the overall Consumer Price Index (CPI).

Findings

During the five-year period from 2000 to 2004, overall hospital costs grew by about 21.9 percent to $295 billion, inflation adjusted (data not shown). The majority of this increase was due to a nearly 15 percent rise in the mean cost per stay; a smaller portion of the increase was accounted for by growth in the volume of hospitalizations.

Growth in hospital costs associated with the top 10 procedures, 2000-2004
However, when focusing on the top 10 procedures that generated the most rapid increases in total hospital costs, a different pattern emerges. For this subset of high-frequency procedures, the increase in hospital costs resulted largely from an increase in the volume of procedures, rather than a rise in the mean cost per stay. Figure 1 shows the overall increase for these top 10 procedures as well as the portion of the increase that was due to growth in the number of stays with each procedure versus the growth in mean cost per stay. The top 10 procedures experienced a 64.8 percent increase in total hospital costs overall—43.0 percent was due to an increase in the number of stays (volume) and 21.7 percent was due to an increase in the mean cost per stay.

The magnitude of change in total costs varied across payer types, especially when comparing uninsured patients with patients covered by Medicaid, Medicare, and private insurance. The largest cost increase associated with the top 10 procedures was for uninsured patients (135.7 percent), followed by stays billed to Medicaid (76.8 percent), private insurance (71.1 percent), and Medicare (65.8 percent). Across all payer categories, the increase in the volume of the procedures performed accounted for most of the rise in total costs.

Procedures performed during hospital stays with the most rapidly increasing hospital costs
Table 1 lists the 10 procedures generating the most rapid increases in hospital costs between 2000 and 2004. During this time period, the largest increase in total hospital costs occurred for stays involving spinal fusion—93.6 percent. In contrast, there was only a 44.0 percent increase in the number of hospitalizations during which spinal fusion was the principal procedure. (These procedures were most often performed on patients hospitalized for spinal arthritis, spinal disc disorders, and other back problems.)

Cost per case increased more than volume for three procedures: insertion and/or replacement of a cardiac pacemaker or cardioverter/defibrillator (87.0 percent total cost increase), skin grafts (66.3 percent), and percutaneous transluminal coronary angioplasty (PTCA) (44.7 percent). (Insertion and/or replacement of a cardiac pacemaker or cardioverter/defibrillator is most often performed on patients admitted with cardiac dysrhythmias, conduction disorders, and congestive heart failure. Skin grafts are often used to treat burn victims. PTCA uses a balloon catheter to relieve the narrowing and obstruction of coronary arteries.)

Otherwise, total hospital costs increased mostly due to increases in volume for the following procedures: incision and drainage of the skin and subcutaneous tissue, blood transfusion, arthroplasty of the knee, enteral and parenteral nutrition (nutritional support through an intravenous line or tube feeding), hemodialysis, and abdominal paracentesis (removal of fluid from the abdominal cavity). (Arthroplasty of the knee is primarily knee replacement surgery. Blood transfusions are used to treat anemia or blood loss. Enteral and parenteral nutrition is used for a range of chronic conditions. Hemodialysis is used for renal failure. Incision and drainage of the skin and subcutaneous tissue is most often used for skin infections and complications of surgical and medical care. Abdominal paracentesis is commonly performed on patients hospitalized for liver disease and cancers.)

Procedures performed in hospital stays with the most rapidly increasing hospital costs, by primary payer
Tables 2 through 5 list for each primary payer group the procedures associated with hospital stays that experienced the most rapidly increasing hospital costs between 2000 and 2004. The payer groups are Medicare, Medicaid, private insurance, and self-pay (uninsured). Some procedures appeared for all payers. For all four payer groups, spinal fusion and procedures related to cardiac pacemaker or cardioverter/defibrillator were among the top 10 procedures with the most rapidly increasing hospital costs. The percentage change in the total costs associated with stays involving spinal fusion was highest among uninsured stays (190.9 percent) and stays covered by Medicare (136.5 percent). Cardiac pacemaker or cardioverter/defibrillator procedures had the most rapidly increasing costs for uninsured stays (163.4 percent) and Medicaid-covered stays (105.1 percent).

Blood transfusions and parenteral/enteral nutrition also experienced the most rapidly increasing hospital costs for all four payer groups; however, they were highest for uninsured stays (152.9 percent and 127.1 percent, respectively). In fact, the cost increase for uninsured stays involving blood transfusions was more than twice the increase experienced for hospitalizations billed to Medicare (75.3 percent), Medicaid (69.3 percent), and private insurance (70.1 percent).

Among the procedures with rapidly increasing costs, PTCA generated the most costs in 2004, but it was not the most rapidly growing in any payer group and was not even in the top 10 list for privately insured patients. Uninsured stays also had the highest cost increases among hospitalizations involving incision and drainage of the skin and subcutaneous tissue (198.9 percent) and hemodialysis (134.0 percent). Also, cost increases for stays involving skin grafts were especially high for uninsured stays (128.1 percent) and Medicaid-covered stays (96.5 percent). Conversely, privately insured stays experienced the highest total hospital cost increase for stays during which arthroplasty of the knee was the principal procedure performed (79.5 percent).

Data Source

The estimates in this Statistical Brief are based on data from the HCUP 2004 Nationwide Inpatient Sample (NIS). Historical data were drawn from the 2000 NIS.

Definitions

Types of hospitals included in HCUP
HCUP is based on data from community hospitals, defined as short-term, non-Federal, general and other hospitals, excluding hospital units of other institutions (e.g., prisons). HCUP data include OB-GYN, ENT, orthopedic, cancer, pediatric, public, and academic medical hospitals. They exclude long-term care, rehabilitation, psychiatric, and alcoholism and chemical dependency hospitals, but these types of discharges are included if they are from community hospitals.

Unit of analysis
The unit of analysis is the hospital discharge (i.e., the hospital stay), not a person or patient. This means that a person who is admitted to the hospital multiple times in one year will be counted each time as a separate "discharge" from the hospital.

Cost estimation
Total hospital charges for any hospital discharge were converted to costs using cost-to-charge ratios (CCRs) based on hospital accounting reports from the Centers for Medicare and Medicaid Services (CMS).² Costs will tend to reflect the actual costs of production, while charges represent what the hospital billed for the case. When applied to all discharges at the hospital, the hospital-wide inpatient CCR removes the effects of well-known differences in markup between hospitals. In a subset of states, detailed charges for every case are reported. Each detailed charge at a hospital in those states can be converted to cost using CMS accounting data at the departmental level. Component costs for each hospital discharge in the states with detailed data are added and pooled by Diagnosis Related Group (DRG) category of the patient. This yields a set of adjustment factors by DRG that correct hospital-wide CCRs for systematic differences in the composition of services in different DRGs. Hospital cost and charges do not include professional (physician) fees.

All cost data are presented in 2004 dollars using the Bureau of Labor Statistics Consumer Price Index All Urban Consumers (CPI-U) U.S. city average and reported to the nearest hundreds. The increase in cost per case is approximately equal to the difference between the increase in total cost and the increase in number of cases.

Primary payer
Each hospitalization and its related hospital bill are attributed to the payer who was expected by the hospital to pay the major portion of the bill (i.e., the expected primary payer). The expected primary source of payment at admission may not be the ultimate primary payer. In addition, other (secondary) payers may pay a portion of the bill. For this report, if the primary payer is listed as "self-pay" or "no charge," the payer is "uninsured."

Procedures and Clinical Classifications Software (CCS)
The principal procedure is the procedure that was performed for definitive treatment rather than one performed for diagnostic or exploratory purposes (i.e., the procedure that was necessary to take care of a complication). If two procedures appear to meet this definition, the procedure most related to the principal diagnosis was selected as the principal procedure.

CCS categorizes procedure codes into clinically meaningful categories.³ This "clinical grouper" makes it easier to quickly understand patterns of procedure use.

About the NIS

The HCUP Nationwide Inpatient Sample (NIS) is a nationwide database of hospital inpatient stays. The NIS is nationally representative of all community hospitals (i.e., short-term, non-Federal, non-rehabilitation hospitals). The NIS is a sample of hospitals and includes all patients from each hospital, regardless of payer. It is drawn from a sampling frame that contains hospitals comprising about 90 percent of all discharges in the United States. The vast size of the NIS allows the study of topics at both the national and regional levels for specific subgroups of patients. In addition, NIS data are standardized across years to facilitate ease of use.

About HCUP

HCUP is a family of powerful health care databases, software tools, and products for advancing research. Sponsored by the Agency for Healthcare Research and Quality (AHRQ), HCUP includes the largest all-payer encounter-level collection of longitudinal health care data (inpatient, ambulatory surgery, and emergency department) in the United States, beginning in 1988. HCUP is a Federal-State-Industry Partnership that brings together the data collection efforts of many organizations—such as State data organizations, hospital associations, private data organizations, and the Federal government—to create a national information resource.

For more information about HCUP, visit http://www.hcup-us.ahrq.gov/.

HCUP would not be possible without the contributions of the following data collection Partners from across the United States:
Arizona Department of Health Services
Arkansas Department of Health & Human Services
California Office of Statewide Health Planning & Development
Colorado Health & Hospital Association
Connecticut Integrated Health Information (Chime, Inc.)
Florida Agency for Health Care Administration
Georgia GHA: An Association of Hospitals & Health Systems
Hawaii Health Information Corporation
Illinois Health Care Cost Containment Council and Department of Public Health
Indiana Hospital&Health Association
Iowa Hospital Association
Kansas Hospital Association
Kentucky Cabinet for Health and Family Services
Maryland Health Services Cost Review Commission
Massachusetts Division of Health Care Finance and Policy
Michigan Health & Hospital Association
Minnesota Hospital Association
Missouri Hospital Industry Data Institute
Nebraska Hospital Association
Nevada Division of Health Care Financing and Policy, Department of Human Resources
New Hampshire Department of Health & Human Services
New Jersey Department of Health and Senior Services
New York State Department of Health
North Carolina Department of Health and Human Services
Ohio Hospital Association
Oregon Office for Oregon Health Policy and Research and Oregon Association of Hospitals and Health Systems
Rhode Island Department of Health
South Carolina State Budget & Control Board
South Dakota Association of Healthcare Organizations
Tennessee Hospital Association
Texas Department of State Health Services
Utah Department of Health
Vermont Association of Hospitals and Health Systems
Virginia Health Information
Washington State Department of Health
West Virginia Health Care Authority
Wisconsin Department of Health and Family Services

For additional HCUP statistics, visit HCUPnet, our interactive query system at https://datatools.ahrq.gov/hcupnet.

For More Information

For a detailed description of HCUP and more information on the design of the NIS and methods to calculate estimates, please refer to the following publications:

Steiner, C., Elixhauser, A., Schnaier, J. The Healthcare Cost and Utilization Project: An Overview. Effective Clinical Practice 5(3):143–51, 2002.

Design of the HCUP Nationwide Inpatient Sample, 2004. Online. August 14, 2006. U.S. Agency for Healthcare Research and Quality. http://www.hcup-us.ahrq.gov/db/nation/nis/reports/NIS_2004_Design_Report.pdf

Houchens, R., Elixhauser, A. Final Report on Calculating Nationwide Inpatient Sample (NIS) Variances, 2001. HCUP Methods Series Report #2003-2. Online. June 2005 (revised June 6, 2005). U.S. Agency for Healthcare Research and Quality. http://www.hcup-us.ahrq.gov/reports/methods/2003_02.pdf

Houchens R. L., Elixhauser A. Using the HCUP Nationwide Inpatient Sample to Estimate Trends. (Updated for 1988–2004). HCUP Methods Series Report #2006-05. Online. August 18, 2006. U.S. Agency for Healthcare Research and Quality. http://www.hcup-us.ahrq.gov/reports/methods/2006_05_NISTrends Report_1988-2004.pdf

Suggested Citation

Russo, C. A. (Thomson Healthcare), Merrill C. (Thomson Healthcare), and Friedman, B. Procedures with the Most Rapidly Increasing Hospital Costs, 2000–2004. HCUP Statistical Brief #28. April 2007. Agency for Healthcare Research and Quality, Rockville, MD. http://www.hcup-us.ahrq.gov/reports/statbriefs/sb28.pdf.

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AHRQ welcomes questions and comments from readers of this publication who are interested in obtaining more information about access, cost, use, financing, and quality of health care in the United States. We also invite you to tell us how you are using this Statistical Brief and other HCUP data and tools, and to share suggestions on how HCUP products might be enhanced to further meet your needs. Please e-mail us at hcup@ahrq.gov or send a letter to the address below:

Irene Fraser, Ph.D., Director
Center for Delivery, Organization, and Markets
Agency for Healthcare Research and Quality
540 Gaither Road
Rockville, MD 20850


¹Procedures are defined as any diagnostic or therapeutic intervention (invasive or non-invasive) that appears on the discharge record of a hospitalized patient.
²HCUP Cost-to-Charge Ratio Files (CCR). Healthcare Cost and Utilization Project (HCUP). 2001–2003. U.S. Agency for Healthcare Research and Quality, Rockville, MD. http://www.hcup-us.ahrq.gov/db/state/costtocharge.jsp.
³HCUP CCS. Healthcare Cost and Utilization Project (HCUP). August 2006. U.S. Agency for Healthcare Research and Quality, Rockville, MD. http://www.hcup-us.ahrq.gov/toolssoftware/ccs/ccs.jsp.