Facility Cost Analysis in Outpatient Plastic Surgery: Implications for Aesthetic Surgery

Facility Cost Analysis in Outpatient Plastic Surgery: Implications for Aesthetic Surgery

Facility Cost Analysis in Outpatient Plastic Surgery: Implications for Aesthetic Surgery in The AcademicHealthCenter.

Salvatore J. Pacella, M.D., M.B.A.; Matthew Comstock, M.B.A., M.H.S.A. and William M. Kuzon, Jr. M.D., Ph.D.

Introduction:

Academic Health Centers often operate at substantial financial risk.[1] Because of high fixed costs associated with Academic Health Centers (AHCs), it is commonly assumed that AHCs cannot compete on price for aesthetic surgery compared to private outpatient surgical facilities in the marketplace.[2] The purpose of this investigation was to examine the economic patterns of outpatient aesthetic and reconstructive plastic surgical cases performed within an AHC. In addition, we introduce a standardized method to measure profitability of surgical cases performed in this setting.

Methods:

For FY 2003 & 2004, the University of Michigan Health System's accounting database was queried to identify all outpatient plastic surgery cases (aesthetic and reconstructive) from four surgical facilities. Total facility charges, costs, revenue and margin were calculated for each case. Total case length in minutes, defined as the time of patient entry to the time of patient exit from the operating room was also calculated for each case. Contribution margin, defined as total case revenue minus VDC, was calculated for each case. In addition, contribution margin was divided by total case length to calculate contribution margin per minute (CBM/min). CBM/min per case was then averaged for each procedure category to compare type of case (reconstructive, aesthetic) as well as type of surgical facility (ASCs, hospital-based facility) in which it was performed.

Results:

A total of 3603 cases (3457 reconstructive, 146 aesthetic) were identified. Payer mix included Blue Cross (36.6%), HMO (28.7%), other commercial payers (18.4%), Medicare/Medicaid (13.5%) and self-pay (2.8%). Aesthetic procedures yielded a higher average total contribution margin ($3,316) compared to reconstructive procedures ($1,462). CBM/min resulted in similar margins for both aesthetic ($25.68) and reconstructive ($26.86) cases(Figure 1). The most profitable (average CBM/min) cases were reconstructive laser procedures ($66.20), scar revisions ($36.01) and facial trauma ($32.17). The least profitable cases were facial skin grafts ($17.51), breast reduction ($17.46) and hand arthroplasty ($13.93). On average, cases performed at ASC facilities yielded higher average CBM/min ($28.59) compared to hospital-based facilities ($25.57). (Figure 2).

Figure 1: Contribution margin analysis of outpatient aesthetic and reconstructive cases.

Figure 2: Comparison of hospital and ASC-based outpatient surgical facilities.

Conclusion:

Within AHCs, aesthetic and reconstructive cases yield similar profitability when controlling for case duration. Utilization of standardized accounting (average CBM/min) can be an effective method for determining the most profitable and appropriate case mix. On average, cases performed at dedicated outpatient surgical facilities yield higher profitability.

References:

[1]Taheri PA. Butz DA. Dechert R. Greenfield LJ. How DRGs hurt academic health systems. Journal of the AmericanCollege of Surgeons. 193(1):1-8; discussion 8-11, 2001 Jul.

[2]Krieger LM. Lee GK. The economics of plastic surgery practices: trends in income, procedure mix, and volume.Plastic & Reconstructive Surgery. 114(1):192-9, 2004 Jul