A prospective cost analysis of laparoscopic cholecystectomy

A Prospective Laparoscopic

Cost Analysis Cholecystectomy

of

L. William Traverso, MD, Kent Hargrave, BA, Seattle, Washington

BACKGROUND: In order to improve the value of laparoscopie cholecystectomy (LC), we completed a prospective micro-cost analysis at a large, multispecialty referral hospital. METHODS: After a line-item cost database had been established, the following cost data were retrieved over a l-year period (May 1993 through May 1994): operating room (OR), radiology, pharmacy, anesthesia supplies, recovery room, and hospital room. OR cost data was further divided into costs for room-staff, room setup, radiology, ply disposable and nondisposable equipment. Sixty uncomplicated LC cases were collected (30 cases each for 2 surgeons to examine the surgeon variable). RESULTS: Sixty percent of the hospital costs occurred in the OR. Disposable laparoscopic equipment accounted for 17% of the total hospital costs and 28% of the OR costs. Staff charges in the OR (cost estimated by the hospital using minutes in the LC room) represented 24% and 41%, respectively, of the above costs to the hospital. CONCLUSIONS: The areas in which hospitals and. surgeons can improve the surgical value package (ie, decrease costs while maintaining quality) are in disposable equipment and efficient minimization of in-the-room time.

dustry showedLC, but not LIH, reducing hospital costs.3 The key to evaluating the value of a laparoscopicprocedure is to assess the quality and cost from the perspective of all the stakeholders.Therefore, the businessof medicine hasbegun to basedecisionson precalculatedcostsrather than on postcalculatedcharges.The importance of examining costsrather than chargescannot be overemphasized. The difference between chargesand costs are considerable. For example, chargesvary with geographiclocation and the health care provider’s type of practice. In order to offer the lowest bid for services,the hospital (provider) finds coststo be more important than chargeswhen competing for health care contracts with the payers. Unfortunately, costs have not been available becausethe health care businesshas emphasizedend-of-year budgets basedon the percentageof collected charges.In summary, the health care system does not know its costs. A truly novel approach has been the new emphasisto discover what the costsare before delivering the health care product. The incentive toward cost consciousness hasarisenin the economic retraction away from a time of plenty. Providers (ie, surgeonsand hospitals)and patients are experiencing the downsizing of available health care dollars. As Dr. Alexander Walt succinctly stated,“we have not had any formal instruction in the morality of spendingother people’smoney or in the practical detailsof the economics that underpin the health care field. Like our patients, we have not had any incentive to change.But we do now.“4 For the past 2 years, we have been establishingan itemhy has laparoscopic cholecystectomy (LC) been by-item cost database,or micro-cost analysis,for each parapidly adopted into medical practice but laparo- tient undergoing common surgical procedures.With this scopic inguinal hernia repair (LIH) has not? The answer method, we hoped to identify the cost of itemized equipresidesin the formula usedto calculatean operation’svalue ment and servicesfor our surgical product, thereby idento the entire health care system.For this formula, value is tifying the areasin which a newly cost-conscioushealth defined asa balancebetweenquality (short- and long-term care systemcan begin to decreasecostswhile maintaining results) and cost. If the value appealsto the majority of quality (ie, offer a better value). stakeholdersin the health care system,then the procedure is adoptedwith enthusiasm.The surgicalvalue packageof METHODS LC appealedto all stakeholders(ie, patient, physician, hosAs item-by-item cost entries were recorded during the pital, payer, employer, and manufacturer).’ LIH appealed past 2 years, our method and software slowly improved to only someof these stakeholdergroups.‘Surgeonsfelt until repetitively reliable data could be obtained. LIH was too complex and hospitalsand payers felt it was Therefore, we usedcost data for the last 12 months (May too expensive. In comparisonto LIH, our surgical value 1993 through May 1994) for patientsundergoingLC. For packageshowedopen tension-freeinguinal hernia repairs accuracy, all operative reports and hospital chartswere rewere simpler, had lessrisk, were accompaniedwith simi- viewed by a surgeonto ensurethat the patient had not been lar short-term recovery periods, and were associatedwith miscoded.We have found the incidence of m&coding to half of the cost.2A multi-institutional study funded by in- be at least 5% and related to the expertise of the coding personnel.In order to control for diseaseseverity, we excluded the following types of LC cases:casesconverted From the Department of Surgery, Virginia Mason Medical Center, Seattle, Washington. to an opencholecystectomy, casesin which associatedopRequests for reprints should be addressed to L. William Traverso, MD, erationswere completedat the sametime asLC, and cases Virginia Mason Medical Center, PO Box 900, 1100 Ninth Avenue (C6in which the patient had a positive cholangiogramrequirGSUR), Seattle, Washington 98 111. ing additional treatment. All patients underwent an intraPresented at the 81st Annual Meeting of the North Pacific Surgical Association, Coeur d’Alene, Idaho, November 10-11, 1994. operative cholangiogram,asthis procedureis routine dur-

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(3) OR staff cost, which was calculated by the number of minutes a patient wasin the laparoscopicOR andestimated to cover the expensefor the circulating nurse,scrub technician, and their administrativepersonnel(increasesannuDisposable equip 24% ally); (4) anesthesiasupply cost; (5) disposableequipment Nondisposable cost (eg, disposable laparoscopic instruments, drapes, instruments 4% catheters);(6) nondisposableequipmentcost (eg, nondisHospital room 24% posable laparoscopic instruments, amortized insufflator, video, cautery, light source); (7) radiology cost; (8) pharAnesthesia supply 3% macy cost; (9) recovery room cost; and (10) hospitalroom cost (ie, overnight care unit and/or hospitalroom). 30% StatilOR 20% OR costswere thosecostsincurred while the patient was in the laparoscopic surgery room and were examined Recovqy room 6% 7% through several of the cost centerslisted above. OR costs Admit 2% 2% were broken down into the following categories: room ALL PTS ($2,490) OVERNIGHT ($2,160) setup cost, room staff cost, radiology cost, all disposable equipmentcosts(eg, drapes,cautery pad, trocars), disposFigure 1. The percentage of total hospital costs for each cost center is depicted for all 60 patients and for those 49 patients who only able laparoscopicinstrumentcosts(ie, a kit including four required an overnight stay. OR = operating room. trocars, a clip applier, and a separatedisposablescissors), and nondisposablereusable equipment costs (ie, laparoscopic instruments, general surgical instruments, amoring LC at our teaching institution. To examinethe surgeon tized equipment). variable, an equal number of caseswere collected for two Within the above costcenters,the line-item costsfor each surgeons.Residentsparticipated with thesestaff surgeons patient were examinedto ensurethat the quantity had been in all operations. correctly entered.To examinethe surgeonvariable, the avCostswere compiled in two ways: total costs(including eragesfor all patientswere computedfor eachsurgeonand operatingroom costs)and operatingroom (OR) costsonly. then both surgeons. Two databaseswere used:(1) the quantity of itemsand services and (2) the actual cost of each item or service asso- RESULTS ciated with LC. This method allowed for the calculation of During the study period, 60 proceduresthat met the exthe actual cost both at tie time of LC or in current-year :lusion criteria of an uncomplicated LC with a negative dollars. All costsin this study are expressedin 1994 dol- mtraoperative cholangiogramwere performed by two surlars. Total costsincluded: (1) a one-timeadmissionprepa- geons(30 caseseach). The mean total cost for LC in all ration cost, which varied by patient acuity (eg, diabetic pa- 60 patientswas $2,490 + $830 (SD). Eleven of the 60 patients); (2) room setup cost for a laparoscopicprocedure tients were admitted to the hospitalafter the overnight care (eg, electricity, ancillary personnel,maintenancecontracts); unit for nonbiliary comorbid reasons(eg, nausea),with a Radiology Pharmacy

3% 5%

2. The average k standard deviation of all OR costs was $1,482 f 183 in 1994dollars. The itemized components of the total operating room (OR) cost are depicted. Minus the radiology cost half of the cost was evenly distributed between equipment and services (room and staff). Figure

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( TABLE Cost Comparison

all costs = $2,490 1 q ~R STAFF

t3 w

while in OR = $1,482 ~1.9~ 0 HOSPITAL

1300~

EB OTHER

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Figure 3. The major contributors toward costs in the 60 patients are depicted as percentages of all the hospital costs (all costs) and of operating room costs only (while in OR). OR STAFF = the hospital estimate of the cost to provide a scrub and circulating nurse in the operating room plus their administrative personnel; LAP DISP = laparoscopic disposable instruments and not other disposable equip ment used during the operation.

total average hospital stay of 3 days (range 1 to 6). The remaining 49 casesrepresentedthe typical LC patient with an overnight stay. Their averagetotal cost to the hospital was $2,180 f $269. The percentageof the total costsfor each cost center is depicted in Figure 1. OR costsfor all 60 patients were $1,482 + $183, which represented60% of the total costs. Other than the radiology cost, half of the OR costs were divided between room/staff ($690) and equipment ($707) (Figure 2). The major cost centers were disposablelaparoscopic instruments, OR personnel,and the hospital room. Thesecomponentsare depicted in Figure 3 as a percentageof the total hospital costs and of the OR costs. A comparison between surgeonsof costs incurred from room, staff, and disposableand nondisposableequipmentare listed in the Table. A $147 difference between surgeonsfor total OR costs was due to a 27-minute difference in average OR time. The result was a $127 difference in room/staff cost. COMMENTS The importance of determining costsrather than charges cannotbe overemphasizedin our cost-conscioushealthcare world that must negotiate for services basedon the price to provide a surgicalvalue package.This new emphasishas already had a positive effect on controlling the spiraling costsof health care. We undertook a prospective,itemized cost analysisfor a commongeneralsurgicalprocedure,LC, in order to examine and improve the costsof a procedure that accountsfor a considerablequantity of health care dollars in the United Statesand Canada. . A cost analysis study should not be undertaken without an outcome analysis.In order to determinea procedure’s value to the patient and our health care system, quality must be maintained while lowering costs. In regards to cholecystectomy, the following quality items must be observed: morbidity, mortality, return-to-activity, and relief of symptoms.Simultaneously with the cost analysis, our Office of Value Assessmentwas prospectively gathering preoperative and postoperative patient data to evaluate maintenanceof quality.5 There are several ways to evaluate costs in this study. One method is to comparethe estimatedcostsof variably usedservicesto the fairly exact costsof disposableequipTHE AMERICAN

Between Surgeons

Surgeon A OR time (min) 124 f 42 Room time (min) 169 f 45 Room/staff cost ($1 753 r 178 Disposable ($) 600 * 46 equipment Laparoscopic ($1 414 f 23 Nondisposable ($1 110 * 0 equipment Laparoscopic ($1 51 +: 0 Radiology ($1 85 * 0 Total OR costs ($1 1,548 f 46 Data reported as mean + SD,

Difference Surgeon 6 of Means 97 f 26 -27 137 + 28 -32 626 f 110 -127 580 ;t 62 -20 428 * 57

+14

1102 0

0

51 *o 85 T 0 1,401 i 62

0 0 -147

OR = operating room.

ment. Another methodis to examine the data from the perspective of a surgeon.In order to lower costs, what reasonabletechnologic advancementscould be employed or procedural aspects changed? First the costs must be known! The costsincurred by personnelwith fixed salaries but with variable service to individual patientscan only be estimated. More understandableare the actual costs of equipment used at a variable consumption rate. Both of theseservice and equipmentcostshave to be itemized. In this study, the costsincurred by the hospital while the patient was in the OR represented60% of the financial commitment. While the patient was in the OR, minus an $85 radiology cost,half of the costswereattributed to OR room time andthe other half to equipment.We will discusswhy equipmentis more important to direct cost-savingmaneuvers than the cost of OR room time. The latter, even though basedon an estimatedcost per minute, is very important to a hospital’scapacity to provide a cost-efficient operation. Fully 60% of equipment costs in the OR could be attributed to disposablelaparoscopicequipment(Figure 2). This equipment accounted for 28% of the OR costs and 17% of all the hospital costs (Figure 3). Much discussion has occurred regarding the controversy of disposableversus reusableequipment and their costs.6,7 These studies point out the hidden costs of cleaning nondisposableinstrumentsor disposingof the disposables.For institutions like ours that use a combination of both types of laparoscopicinstruments,we have examinedthe significant cost of the disposableinstrument and are looking for new costefficient products and ideas.Costsare being decreasedby evaluating many technologically advancedproducts of the partially reusabletype (“resposables”). Our study suggestsanotherpotential ground to decrease costs-decreasing the patient’s in-the-room time. The cost-savingpotential hereis not asgreat aswith equipment even though almosthalf of the OR costs are estimatedto be from costscalculated from the room times. The fixed nature of thesecostsmust be understood.Their reduction in an individual patient may not directly save the hospital money, asthesecostsare estimatedprimarily from salaries of personnel.If an OR minute is estimatedto cost the hospital $4, then decreasingthe OR time by 1 minute will not JOURNAL

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save the hospital exactly $4. The personnel are still at work while the minute is saved. In our study, approximately 70% of the in-the-room time was attributed to actually performing the procedure, while the other 30% represented preparation of room and patient (Table). MacFadyen and Lenz7 found that their LC time for 54 cases was 96 minutes and represented 47% of the in-theroom time. Therefore, the efficiency of the OR staff is important to monitor. We do not report a room turnover time in our study, but it has been considered by the hospital when it pondered how to estimate the room costs as a per-minute expense. Therefore, there are three components of OR room costs for a hospital to consider in order to reduce costs: room turnover time, in-the-room patient preparation, and LC time. As previously stated, these components are mainly based on fixed costs of personnel; however, these times are controlIable beginning with monitoring techniques. An assumption is that decreasing the patient’s in-theroom time will decrease costs. A maneuver that decreases time in the room does not directly decrease costs because the nursing personnel are present for a fixed shift. However, if the capacity to perform an additional LC during this shift is lost by inefficient time management, then the hospital has to perform the procedure with another team or during another shift. The efficient OR team saves the hospital money by providing “demand elasticity,” but the staff cost savings are harder to measure than savings on equipment. If there is no additional demand to perform another case that day, then decreasing LC time by 30 minutes on that day does not save money. If the demand is present, then decreasing OR times can reduce costs. Since 70% of the in-the-room time is LC time, then we should study its components in order to determine their length. A preliminary study of the minutes required for tasks during LC suggests that our initial assumptions are not correct. The longest portions of the procedure may be dissecting out the cystic duct rather than obtaining the cholangiogram or removing the gallbladder from its bed. The surgeon is evidently proceeding with caution in order to avoid biliary injury. A multicenter study is underway to determine how the procedure can be shortened while maintaining quality. Since this study cannot be accomplished by government, economists, or hospital administrators, surgeons must become economically responsible for contributions that only they can provide. Ways to decrease the time of LC itself are innovations in technique or equipment (eg, laparoscopic ultrasound for directed safe dissection in a rapid manner or techniques to facilitate dissection-other than with cautery or laser-for removal of the gallbladder from its bed). Clearly, laparoscopic surgery has reached a plateau with available technology, as only LC has found a niche that appeals to all the stakeholders. The surgeon is the quality manager. The operation must proceed with safety, not speed. Speed does not directly save the hospital money. Even though we used a standard disposable trocar kit, we still only observed a $20 difference for disposable equipment between surgeons and their preferences (eg, how they wished to close the skin or which cholangiocatheter to use). The 27-minute difference be-

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tween surgeon LC time in this study will not cause the hospital to lose capacity, but the analysis indicates a $127 difference in estimated costs based on in-the-room time differences. This is an example in which estimated costs are not really saved; however, another case (if available) may not be able to be performed due to excessive time use. When that time is added to inefficient in-the-room or room-turnover delays, a critical point may be reached in which demand elasticity is lost. We believe that OR time differences between surgeons are of less importance to decreasing costs than other factors observed in this study, particularly if the time differences are due to such variables as an insufficient number of patients evaluated in this study or if the severity of the cases (and therefore OR time increase) was related to different referral patterns. In this discussion, we have tried to contrast the costs of OR time (estimates based on a fixed cost of saIary) with the direct-cost savings of not using disposable equipment (actual costs that vary directly with consumption). In our study, disposable laparoscopic equipment accounted for 17% of the total hospital costs and 28% of the costs incurred in the OR. Innovations by the stakeholders in the health care system should address the equipment issue as being the most promising to reduce costs while maintaining quality. The teamwork required to provide a cost-efficient procedure as estimated from room times is also important to a hospital’s capacity to perform LC. Direct actual cost savings cannot be derived by attempting to decrease OR times on a case-by-case basis.

CONCLUSIONS During a prospective cost analysis of LC, we observed that 60% of the hospital costs occurred during LC. There were two major contributors to the cost of LC in our study. Disposable laparoscopic equipment accounted for 17% of the total hospital costs and 28% of the OR costs. Staff charges in the OR (cost estimated by the hospital using minutes in the LC room) represented 24% and 41%, respectively, of the above costs to the hospital. These are areas in which hospitals and surgeons can improve the surgical value package, that is, decrease costs while maintaining quality.

REFERENCES 1. Do CV, Doyle WF, Pearson JM The misunderstood economics of lap surgery. In Vivo Business Med. 1993;Dec. 1993:1-7. 2. Goodwin J, Traverso LW. A cost and outcome comparison of laparoscopic versus open tension free inguinal hernia repairs. Surg Endosc. 1995;9:213. 3. Seus JD, Wood T. Reaping maximum benefits from minimally invasive surgery. J Healthcare Materiel Management. 1994,12:2G24. 4. Walt A. Can cost containment be learned in a surgical residency? Am Co11 Surgeons Bulletin. 1994;79:8-12. 5. Fenster FL, Thirlby RC, Traverso LW. What symptoms does cholecystectomy cure? Insights from an outcome measurement project and review of the literature. 1995; 169:533-538. 6. Reichert M. Laparoscopic instruments: patient care, cost issues. AORN

J. 1993;57:637-655.

I. MacFadyen BV, Lenz S. The economic considerations in laparoscopic surgery. Surg Endosc. 1994:8:74X&7.52.

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