Solving Medicare's Spine Surgery Burdens | Orthopedics This Week

Solving Medicare's Spine Surgery Burdens

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“The cost of living hasn’t affected its popularity.” The same could be said of spine surgery, and given the fact that we are living longer, the costs could grow considerably. As the population ages, physicians will likely perform more orthopedic spine procedures on patients covered by Medicare. But can the already-strained Medicare funds handle the burdens of increased costs and procedures? We’ll analyze our recently obtained inpatient MedPAR data (the Medicare Provider Analysis and Review file), to find the most common indications for inpatient spine surgeries, their costs and reimbursement. Then we’ll find where the spine treatment industry needs to grow in order to unburden Medicare of its impossible costs.

Common Indications for Spine Surgery in the Elderly

Using inpatient MedPAR records from 1Q08 through 3Q08, we can find the most common primary spine diagnoses in patients ages 65 and older (based on ICD-9 diagnosis codes). As this analysis is based on the inpatient file, it should be noted that these were the most common primary spine diagnoses where a hospital stay occurred. As displayed in Table 1, spinal stenosis (17.3%) is the most common reason for having an inpatient spine procedure for patients 65 and older, followed by vertebral compression fractures (14.6%). This stands in stark contrast to the population covered by private pay, where degenerative disc disease (DDD) and disc herniation are predominate inpatient diagnoses. The top five primary diagnoses relate to 55% of all inpatient stays for the elderly.

Table 1: Primary Inpatient Diagnoses (Patients ≥ age 65)

Diagnosis Code


% of Primary
Inpatient Diagnoses


Lumbar spinal stenosis



Pathological fracture of vertebrae



Lumbar disc herniation



Closed fracture of lumbar vertebra



Lumbar disc degeneration








Source: MedPAR inpatient file

Average Reimbursement by Indication

We can also use MedPAR records to gain a better understanding of the surgery costs associated with these top primary spine diagnoses. The mix of procedures that patients receive for treatment can significantly impact costs, and this analysis serves as a benchmark for the costs of each indication in general to the hospital.

Table 2 displays average charge and facility reimbursement data based on inpatient primary diagnoses in the Medicare population. Surgeries performed in response to a primary diagnosis of lumbar degenerative disc disease and lumbosacral spondylosis command the highest average charges, while disc herniation and vertebral fractures yield the lowest. The same holds true with average reimbursement. On average, facilities are being reimbursed 24%-27% of charges for surgeries relating to top spine indications.    

    Table 2: Average Reimbursement for Spine Indications

    Primary Diagnosis




    Avg. Facility Reimbursement


    Reimbursement as % of Charges

    Lumbar DDD

    $55, 381

    $55, 074

    $13, 332



    Lumbosacral Spondylosis

    $43, 737

    $43, 576

    $11, 063



    Lumbar Spinal Stenosis

    $39, 245

    $39, 055

    $10, 382



    Pathologic Fracture of Vertebrae

    $33, 169

    $33, 024

    $8, 959



    Lumbar Disc Herniation

    $33, 057

    $32, 892

    $8, 407



    Closed Lumbar Fracture

    $31, 052

    $30, 759

    $7, 458



    Source: MedPAR inpatient file
    *Average length of stay in days

    It should be noted that inpatient treatment for the most common spine diagnosis in the Medicare population, spinal stenosis, does not have the highest average charge per procedure. Average charges relating to stenosis are substantially less than degenerative disc disease. However, the volume of stenosis related procedures in this population offsets the lower cost per patient. Indications, procedure volumes, and lengths of stay per indication drive costs for hospitals. But what about procedure mix?

    Medicare Reimbursement and Treatment Alternatives

    Table 3: Procedure Reimbursement

    Primary Diagnosis

    Primary Procedure


    Avg. Charge




    Lumbar DDD

    Post. lum fusion


    $87, 491

    $21, 187


    Lumbosacral Spondylosis

    Post. lum fusion


    $83, 045

    $21, 946


    Closed Lumbar Fracture



    $38, 642

    $9, 429


    Pathologic Fracture of Vertebrae



    $36, 124

    $9, 202


    Lumbar Spinal Stenosis



    $25, 298

    $6, 055


    Lumbar Disc Herniation



    $22, 971

    $5, 781


    Source: MedPAR inpatient file
    *Percentage of the time the procedure is primary for that diagnosis

    An additional analysis shows the impact on charges and reimbursement when physicians treated lumbar spinal stenosis with spinal fusion as the primary procedure. Spine fusion yields higher costs and higher reimbursement. Average charges when physicians treated spinal stenosis with posterior lumbar fusion as the primary procedure were $72, 114, and reimbursement was $20, 877. The flow chart displays the costs of various treatment options.

    Chart 1: Primary Inpatient Procedures in Treating Lumbar Spinal Stenosis

    Source:  MedPAR inpatient file

    When developing devices and procedures for elderly patients, the spine treatment industry must also take into account the costs associated with an increased incidence of comorbidities and complications.

    Comorbidities in Lumbar Fusion: Medicare Versus Private Pay

    Perhaps the best example of the impact that comorbidites can have on hospital resource usage was the implementation of severity based DRG (Diagnosis Related Group) codes by CMS (Centers for Medicare and Medicaid Services). DRG codes place hospital procedures into groups based on a procedure’s expected resource usage. The prevalence of comorbidities should shift the DRG mix in providers treating the elderly.

    The incidence of diabetes in various spine surgeries is displayed in Chart 2. Patients are 2x to 3x more likely to have diabetes in the Medicare population. Decompression surgeries have the highest incidence of diabetes in patients covered by private insurers, in part due to its prevalence in 50 to 60 year olds covered by private pay. Increased risks associated with higher rates of comorbidities translate to a higher usage of hospital resources and increased costs. The spine treatment industry should, in turn, develop more technologies that improve outcomes in patients with comorbidities in order to decrease risk, cost and resource usage.

    Chart 2: Incidence of Diabetes in Spine Surgery

    Source:  MedPAR inpatient file and PearlDiver Patient Records Database

    Most Common Providers and Reimbursement: Lumbar Spine Fusion

    The cost of healthcare is not just a national issue—it’s a regional and state issue as well.

    Retiring to Florida

    Based on our MedPAR data, Florida performs more posterior lumbar fusions on the elderly than any other state. Considering the state’s popularity with retirees, especially in the pan-handle, this is not surprising. Texas, California, and Ohio are the next most common, respectively. Average reimbursement is just over $19, 000 in Florida and Texas, but rises to over $27, 000 in California, in part due to the cost of living adjustments. The national average reimbursement for lumbar spine fusion was $21, 781, while the national average charges were $80, 876. By centering cost-effective devices and procedures at high volume (and lower cost) providers, we could potentially lower the national average for charges and eases the burden that these expensive surgeries place on Medicare.

    Table 4: Common Providers of Posterior Lumbar Fusion in Elderly Patients (ICD-9 Code 81.08)




    Catholic Healthcare West California

    $23, 882

    Allina Health System

    $21, 602

    Methodist Healthcare System Of San Antonio, Ltd., L.L.P.

    $21, 419

    HCA Health Services of Tennessee, Inc.

    $18, 065

    HCA Health Services of Florida, Inc.

    $15, 969

    Sentara Hospitals Virginia

    $15, 962

    Source: MedPAR inpatient file

    Spine Care for the Aging

    We know the population is aging. What remains to be seen is how well the spine treatment industry and healthcare providers can respond to this demographic and handle the potential costs. Our analysis confirms that inpatient treatments will largely be centered on spinal stenosis, vertebral compression fractures, and late stage degenerative disc disease. The costs of treating elderly patients will fall squarely on Medicare, and given what we anticipate will be a difficult reimbursement environment, there is clear opportunity for the spine treatment industry to innovate more cost effective treatment options. Technologies that improve outcomes in patients with comorbidities undergoing surgery will also be in demand. Finally, a focus on getting cost-effective treatments and technologies to high volume providers could contribute to overall cost savings and help unburden Medicare of impossible costs.

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