Economies of scale in outpatient surgery

Healthcare Financial Management, Sept, 1997

According to a study by the Center for Healthcare Industry Performance Studies (CHIPS), sizable cost savings in outpatient surgical procedures are realized by hospitals with higher case volumes. This finding is consistent with traditional economy-of-scale arguments made by economists in other industries; however, the magnitude of savings was surprising.

Data for the study were derived from the Outpatient Standard Analytical File, which contains all Medicare hospital outpatient claims. Every hospital in the U.S. where outpatient surgeries were performed on Medicare recipients was included in the study. Each outpatient surgery procedure [TABULAR DATA OMITTED] was analyzed to determine Medicare patient volumes for low-, medium-, and high-volume surgical providers. Volume categories were procedure-specific. Hospitals categorized as low volume had total volume in the lowest quartile of all U.S. hospitals for a given procedure; medium-volume hospitals were in the middle two quartiles; and high-volume hospitals were in the highest quartile.

The data shown in the table below present average cost (adjusted for cost-of-living differences) for the five highest-dollar Medicare outpatient procedures.

Greater volume is clearly associated with a sizable reduction in average cost per procedure. From the existing data set, it is not possible to determine if quality differences exist, but other studies have shown that improvements in quality are associated with higher volumes. If a similar conclusion could be reached regarding outpatient surgical procedures, a strong argument could be made for increasing specialization and centers of excellence.

For further information about the study or specific results for individual hospitals, call CHIPS at (800) 8592447 and ask for an outpatient surgery consultant.

Or, send questions to moreinfo@chipsonline.com.