title: What Incentives Are Created by Medicare Payments for Total Hip Arthroplasty?
abstract: Differences in profitability and contribution margin (CM) between various patient populations may make certain patients particularly attractive (or unattractive) to providers. This study seeks to identify patient characteristics associated with increased profit and CM among Medicare patients undergoing total hip arthroplasty (THA).
  
  
  
  The expected Medicare reimbursement for consecutive patients of Medicare-eligible age (65+ years) undergoing primary unilateral elective THA (n = 498) was calculated in accordance with Center for Medicare and Medicaid Services policy. Costs were derived from the hospital's cost accounting system. Profit and CM were calculated for each patient as reimbursement less total and variable costs, respectively. Patients were compared based on clinical and demographic factors by univariate and multivariate analyses.
  
  
  
  Medicare patients undergoing THA generated negative average profits but substantial positive CMs. Lower profit and CM were associated with higher American Society of Anesthesiologists Physical Status Classification (P < .01, P = .03), older age (P < .01), and longer length of stay (P < .01, P = .03). No association was found with gender, body mass index, or race.
  
  
  
  If our results are generalizable, Medicare patients requiring THA are currently financially attractive, but institutions have a long-term incentive to shift resources to more profitable patients and service lines, which may eventually restrict access to care for this population. THA providers have a financial incentive to favor Medicare patients with younger age, lower American Society of Anesthesiologists Physical Status Classification, and those who can be expected to require relatively short admissions. The Center for Medicare and Medicaid Services must strive to accurately match reimbursement rates to provider costs to avoid inequitable payments to providers and financial incentives discouraging treatment of high-risk patients or other patient subpopulations.
authors.affiliation: Department of Orthopaedics, University of North Carolina Hospitals, Chapel Hill, North Carolina.
authors.forename: R Carter
authors.initials: RC
authors.lastname: Clement
authors.affiliation: Department of Orthopaedics, University of North Carolina Hospitals, Chapel Hill, North Carolina.
authors.forename: Adrianne E
authors.initials: AE
authors.lastname: Soo
authors.affiliation: Perelman School of Medicine, University of Pennsylvania, Philadelphia, Pennsylvania.
authors.forename: Michael M
authors.initials: MM
authors.lastname: Kheir
authors.affiliation: Department of Orthopaedics, Hospital for Special Surgery, New York, New York.
authors.forename: Peter B
authors.initials: PB
authors.lastname: Derman
authors.affiliation: Department of Anesthesiology and Critical Care, University of Pennsylvania Health System, Philadelphia, Pennsylvania.
authors.forename: David N
authors.initials: DN
authors.lastname: Flynn
authors.affiliation: Department of Orthopaedics, Hospital of the University of Pennsylvania, Philadelphia, Pennsylvania.
authors.forename: L Scott
authors.initials: LS
authors.lastname: Levin
authors.affiliation: Department of Anesthesiology and Critical Care, University of Pennsylvania Health System, Philadelphia, Pennsylvania.
authors.forename: Lee A
authors.initials: LA
authors.lastname: Fleisher
mesh_terms: D000368:Aged; D019644:Arthroplasty, Replacement, Hip / Q000191:economics*; D014487:Centers for Medicare and Medicaid Services, U.S.; D015331:Cohort Studies; D017558:Elective Surgical Procedures; D005260:Female; D005102:Health Expenditures; D017721:Hospital Costs; D006760:Hospitalization; D006801:Humans; D008297:Male; D006278:Medicare / Q000191:economics*; D008875:Middle Aged; D015999:Multivariate Analysis; D012052:Reimbursement, Incentive; D014481:United States
keywords: Medicare; contribution margin; financial incentives; profit; reimbursement; total hip arthroplasty (THA)