For Cancer Surgeries, Higher Prices Don’t Necessarily Mean Higher Quality


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By Vivian Ho, Ph.D., Director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy | August 18, 2017

For many complex surgical operations, research concludes that patients who seek care from a surgeon who performs a high number of such procedures (high-volume surgeons) have lower mortality rates than patients operated on by low-volume surgeons. As a health economist, I was interested in learning whether health care costs differ between high- and low-volume surgeons. Are the costs of a hospital stay for an operation performed by a high-volume surgeon higher than that for a low-volume surgeon? After all, customers often assume that price is a signal of quality.

Several years ago, I and Thomas Aloia, a surgeon at the M.D. Anderson Cancer Center, analyzed hospital discharge records for patients who underwent six complex cancer operations (ranging from colon resection to pancreatic resection) in the states of Florida, New Jersey, and New York between 1989 and 2000. We found that the cost of hospital stays for patients who were operated on by a high-volume surgeon were significantly lower than for surgeons who performed a small number of cancer operations each year. However, we did not know the underlying reason why this relationship existed.

Dr. Aloia and I were awarded an NIH grant to find out why higher volume surgeons were able to achieve lower health care costs. We published three papers from this grant, with the final paper providing the most illuminating results. Analyzing Medicare data from 2005 through 2009, we found that higher surgeon volume was associated with lower-cost hospital stays for four cancer operations: colectomy, rectal resection, pulmonary lobectomy, and pancreatic resection.

The largest cost savings occurred for pancreatic resection, which is the most complicated operation. Patients operated on by a surgeon in the 95th percentile for procedure volume (14 operations per year) had costs that were on average $3,286 lower than a surgeon in the 5th percentile (1 pancreatic resection per year). For the operation that is considered more straightforward, a colectomy, costs for the highest volume surgeons were $1,089 lower than for the lowest volume physicians.

In this study, we were able to identify the source of the cost differential. Patients treated by high-volume surgeons had fewer instances of “processes of care” that are commonly used to address complications. These processes, including total parenteral nutrition, and critical care and inpatient consultations, raise the costs of a hospital stay between 14 and 34 percent. In fact, the higher need to deliver these processes of care to patients operated on by low-volume surgeons explained all of the volume-cost differential for colectomy and roughly half the difference for pancreatic resection.

Our analysis suggests that in the case of cancer surgery, higher price is not necessarily a signal of high quality. Instead, it may be an indicator of the need for costly care to address post-surgical complications. Patients may be better off seeking care from higher volume surgeons, not just because it’s better for their pocketbooks, but because they will receive better care.

What do these results suggest for health care policy? Most physicians are currently reimbursed under the fee-for-service system. Whether or not a surgeon performs an operation well or poorly, the fee the doctor receives from Medicare (or private insurers) remains the same. And if lower quality leads to more complications, then other physicians also receive additional compensation to address the resulting health care issues.

The Center for Medicare and Medicaid Services is gradually moving away from fee-for-service payments and towards value-based care. Providing a “bundled payment” to doctors and hospitals, where Medicare specifies a fixed reimbursement rate for all care associated with a treatment regardless of the actual costs of the hospital stay, will incentivize providers to deliver care with fewer costly complications.

However, efforts to make bundled payments mandatory for joint replacement and some cardiac care have been stalled by Health and Human Services Secretary Tom Price. Nevertheless, CMS has been able to launch an Oncology Care Model, which introduces financial and performance accountability measures for many physician practices delivering chemotherapy to Medicare beneficiaries across the country. We are still awaiting to learn the results of this new model.

Our nation has spent the last few months in a tumultuous debate over who should and should not receive government-subsidized health insurance. Yet health insurance coverage has become so costly, because we have failed to focus on the factors that needlessly drive up costs in our health care system. We must change the way we reimburse and incentivize health care providers for the care that they deliver. Bundled payments and other types of value-based care are potentially powerful tools for simultaneously improving the quality of patient care and reducing healthcare spending. Only with such tools will we be able to achieve a sustainable health care system.

Dr. Vivian Ho is a member of the Texas Medical Center Health Policy Institute’s Executive Advisory Committee. Dr. Ho is the James A. Baker III Institute Chair in Health Economics at Rice University and the Director of the Center for Health and Biosciences at Rice University’s Baker Institute for Public Policy. 

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