Determinants of Cost Variation in Total Hip and Knee Arthroplasty: Implications for Alternative Payment Models

Background: Alternative payment models have been proposed to deliver high-quality, cost-effective care. Under these models, payments may be shared between the hospital and the post-acute care services. Post-acute care services may account for one-third of the episode costs for total hip or knee arthroplasty (THA/TKA). Because hospitals or episode initiators bear notable financial risks in these payment models with minimal risk adjustment for complexity, it has been suggested these models may lead to prospective selection of healthier and younger patients. Studies evaluating the effect of patient demographics, medical complexity, and surgical characteristics on the cost of index hospitalization have been limited. We aimed to (1) quantify the impact of patient demographics, medical complexity, and surgical characteristics (type of anesthesia and operating time) on variation in direct cost of index hospitalization and (2) examine the association of these characteristics with discharge with home health services or to rehabilitation facility. Methods: Retrospective study of 3,542 patients admitted to our hospital for elective THA/TKA between 2012 and 2017. Multivariable generalized estimating equations were used for analysis. Results: Patient demographics and medical complexity accounted for 6.2% (THA) and 5.6% (TKA) of variation in direct cost of index hospitalization. Surgical characteristics accounted for 37.1% (THA) and 35.3% (TKA) of the cost variation. One thousand one hundred eighty-three (53.4%) patients were discharged with home health services, and 1,237 (29.4%) were discharged to rehabilitation facility. Patient demographics and higher medical complexity were markedly associated with discharge with home health services or to rehabilitation facility after THA/TKA. Discussion: Patient demographics and medical complexity had minimal impact on variation in direct cost of index hospitalization for elective THA/TKA compared with surgical characteristics but were markedly associated with discharge with home health services or to rehabilitation facility. Having additional risk adjustment in these payment models could mitigate concerns about access to care for higher risk, higher cost patients.