New cost models to offset margin losses associated with EVAR are needed

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David H Stone

By David H Stone

 

The rapidly changing economic healthcare landscape has ushered in a new era of care delivery with a growing emphasis placed on cost reduction, quality, and overall value. While endovascular aneurysm repair (EVAR) has changed how we treat aneurysm disease in contemporary practice, it remains associated with significant procedure associated costs, which may have implications surrounding its financial sustainability for hospitals and healthcare systems alike. In this setting, we recently presented our findings at the Society of Vascular Surgery Annual Meeting in San Francisco, USA, regarding the financial implications of EVAR in the cost containment era. The purpose of the study was to examine the procedure associated costs and operating margins associated with Medicare remunerated EVAR at a tertiary care academic medical centre in contemporary practice. We believe these findings will have a growing relevance to all vascular specialists alike who provide EVAR care in a myriad of practice environments.

After creating a relatively uniform EVAR cohort for cost analysis over a one-year period, there were several interesting findings worthy of highlighting. First, this study demonstrated that the annual net operating margin for Medicare DRG 238 remunerated EVAR within the Section of Vascular Surgery was substantially negative at our institution, approaching -US$500,000. More specifically, we determined that DRG 238 technical costs (US$31,672) surpassed DRG 238 technical revenue (US$27,657), resulting in a negative technical margin of -US$4,015 per case, consistent with the annual net operating margin finding. Furthermore, when DRG 238 overall costs and length of stay were benchmarked to other academic medical centres, using UHC 2012 data, we determined that our institution was already in the lowest quartile nationally, suggesting that we were not merely a high-cost EVAR provider, thus driving our negative margin. Rather, there was something intrinsic to the current EVAR delivery paradigm such as implant costs, which better accounted for the negative operating margin.

Second, this study demonstrated that stent graft implants indeed accounted for the majority of the procedure’s technical costs (52%). Among the non-graft implant drivers for technical cost, depicted as a percentage of technical costs, operating room (17%) was the largest. Additional procedure associated costs included supplies (8%), beds (7%), radiology (2%), lab and pharmacy (2%), and other (12%). Interestingly, when compared to non-implant costs, stent grafts still accounted for more than three-fold more in technical cost than operating rooms costs. Furthermore, there was an apparent inequity between the stent graft cost, when depicted as a percentage of technical cost, versus a percentage of technical revenue. More specifically, the requisite grafts were found to account for 52% of the procedure’s technical costs, though assumed 60% of the DRG payment, highlighting their prominent footprint regarding contemporary EVAR’s technical financial margin. 

Thirdly, this study determined that graft implant cost and local EVAR market share did not correlate. Somewhat surprisingly, our findings revealed that the vendor with the largest market share (54%) was not the lowest cost device. In addition, the two vendors with the lowest priced grafts, derived the smallest market shares respectively (12% and 9%). Historically, device cost has not been routinely factored into case planning paradigms, highlighting the paucity of surgeon awareness of vendor price differential. Interestingly, our study additionally projected that when cost was factored into case planning for the estimated 40% of all locally performed EVARs in which all major commercially available devices could be used interchangeably with equipoise, vendor market share could be shifted to lower cost devices, with an anticipated savings of US$200,000 annually.

While this study had several intrinsic limitations, including that costs, revenues and margins for EVAR are likely to fluctuate among institutions, the compelling procedure associated margin findings are likely to be prevalent across many institutions throughout the United States for Medicare remunerated EVAR. Based on these significant findings, Medicare remunerated EVAR is potentially unsustainable for hospitals which provide comprehensive EVAR care. Furthermore, fostering surgeon awareness of vendor price differentials may serve to both inform case planning and better negotiate competitive device pricing, thus offsetting the primary driver for EVAR technical costs. This study emphasises the need for novel models of more cost neutral EVAR delivery, thus offsetting procedure associated margin losses and supporting long-term sustainable healthcare systems. 

 

David H Stone, vascular surgeon, is with the Dartmouth-Hitchcock Medical Center, Lebanon, USA

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