Skip to main content


Log in

Cost of practice in a tertiary/quaternary referral center: Is it sustainable?

  • Original Article
  • Published:
Techniques in Coloproctology Aims and scope Submit manuscript



Third-party payers are moving toward a bundled care payment system. This means that there will need to be a warranty cost of care—where the cost of complexity and complication rates is built into the bundled payment. The theoretical benefit of this system is that providers with lower complication rates will be able to provide care with lower warranty costs and lower overall costs. This may also result in referring riskier patients to tertiary or quaternary referral centers. Unless the payment model truly covers the higher cost of managing such referred cases, the economic risk may be unsustainable for these centers.


We took the last seven patients that were referred by other surgeons as “too high risk” for colectomy at other centers. A contribution margin was calculated using standard Medicare reimbursement rates at our institution and cost of care based on our administrative database. We then recalculated a contribution margin assuming a 3 % reduction in payment for a higher than average readmission rate, like that which will take effect in 2014. Finally, we took into account the cost of any readmissions.


Seven patients with diagnosis related group (DRG) 330 were reviewed with an average age of 66.8 ± 16 years, American Society of Anesthesiologists score 2.3 ± 1.0, body mass index 31.6 ± 9.8 kg/m2 (range 22–51 kg/m2). There was a 57 % readmission rate, 29 % reoperation rate, 10.8 ± 7.7 day average initial length of stay with 14 ± 8.6 day average readmission length of stay. Forty-two percent were discharged to a location other than home. Seventy-one percent of these patients had Medicare insurance. The case mix index was 2.45. Average reimbursement for DRG 330 was $17,084 (based on Medicare data) for our facility in 2012, with the national average being $12,520. The total contribution margin among all cases collectively was −$19,122 ± 13,285 (average per patient −$2,731, range −$21,905–$12,029). Assuming a 3 % reimbursement reduction made the overall contribution margin −$22,122 ± 13,285 (average −$3,244). Including the cost of readmission in the variable cost made the contribution margin −$115,741 ± 16,023 (average −$16,534).


Care of high-risk patients at tertiary and quaternary referral centers is a very expensive proposition and can lead to financial ruin under the current reimbursement system.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Subscribe and save

Springer+ Basic
EUR 32.99 /Month
  • Get 10 units per month
  • Download Article/Chapter or Ebook
  • 1 Unit = 1 Article or 1 Chapter
  • Cancel anytime
Subscribe now

Buy Now

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others


  1. Hackbarth JD, Reischauer R, Mutti A (2008) Collective accountability for medical care—toward bundled medicare payments. N Engl J Med 359:3–5

    Article  PubMed  CAS  Google Scholar 

  2. Medicare Payment Advisory Commission (MedPAC) (2009) Report to the congress: improving incentives in the medicare program.

  3. Birkmeyer JD, Gust C, Baser O et al (2010) Medicare payments for common inpatient procedures: implications for episode-based payment bundling. Health Serv Res 45:1783–1795

    Article  PubMed  PubMed Central  Google Scholar 

  4. Dimick JB, Weeks WB, Karia RJ, Das S, Campbell DA Jr (2006) Who pays for poor surgical quality? Building a business case for quality improvement. J Am Coll Surg 202:933–937

    Article  PubMed  Google Scholar 

  5. Miller DC, Ye Z, Birkmeyer JD (2013) Anticipating the effects of accountable care organizations for inpatient surgery. JAMA Surg 148:549–554

    Article  PubMed  Google Scholar 

  6. American College of Surgeons Bulletin. What surgeons should know: bundled payment. July 1, 2013.

  7. Calfee RP, Shah CM, Canham CD (2012) The influence of insurance status on access to and utilization of a tertiary hand surgery referral center. J Bone Joint Surg Am 94:2177–2184

    Article  PubMed  PubMed Central  Google Scholar 

  8. Centers for Medicare and Medicaid Services. Hospital inpatient prospective payment system readmission reduction program.

  9. Atkinson JG (2012) Flaws in the medicare readmission penalty. N Engl J Med 367:2056–2057

    Article  PubMed  CAS  Google Scholar 

  10. Vonlanthen R, Slankamenac K, Breitenstein S et al (2011) The impact of complications on cost of major surgical procedures: a cost analysis of 1200 patients. Ann Surg 254:907–913

    Article  PubMed  Google Scholar 

  11. Dimick JB, Pronovost PJ, Cowan JA et al (2003) Complications and costs after high-risk surgery: where should we focus quality improvement initiatives? J Am Coll Surg 196:671–678

    Article  PubMed  Google Scholar 

  12. Aust JP, Henderson W, Khuri S, Page CP (2005) The impact of operative complexity on patient risk factors. Ann Surg 241:1024–1027

    Article  PubMed  PubMed Central  Google Scholar 

  13. Senagore AJ (2006) Can reoperative surgery be profitable? Maximizing reimbursement. Clin Colon Rectal Surg 19:251–253

    Article  PubMed  PubMed Central  Google Scholar 

  14. Eappen S, Lane BH, Rosenberg B et al (2013) Relationship between occurrence of surgical complications and hospital finances. JAMA 309:1599–1606

    Article  PubMed  CAS  Google Scholar 

  15. Rona K, Choi J, Sigle G, Kidd S, Ault G, Senagore AJ (2012) Enhanced recovery protocol: implementation at a county institution with limited resources. Am Surg 78:1041–1044

    PubMed  Google Scholar 

  16. Delaney CP, Fazio VW, Senagore AJ, Robinson B, Halverson AL, Remzi FH (2001) ‘Fast track’ postoperative management protocol for patients with high-comorbidity undergoing complex abdominal and pelvic colorectal surgery. Br J Surg 88:1533–1538

    Article  PubMed  CAS  Google Scholar 

  17. Delaney CP, Pokala N, Senagore AJ et al (2005) Is laparoscopic colectomy applicable to patients with body mass index >30? A case-matched comparative study with open colectomy. Dis Colon Rectum 48:975–981

    Article  PubMed  Google Scholar 

  18. Blee TH, Belzer GE, Lambert PJ (2002) Obesity: is there an increase in perioperative complications in those undergoing elective colon and rectal resection for carcinoma? Am Surg 68:163–166

    PubMed  Google Scholar 

  19. Choban PS, Flancbaum L (1997) The impact of obesity on surgical outcomes: a review. J Am Coll Surg 185:593–603

    Article  PubMed  CAS  Google Scholar 

  20. Lane JC, Burch J, Burling D, Kennedy RH, Jenkins JT (2013) Requirement for postoperative imaging in an enhanced recovery programme. Colorectal Dis 15:231–235

    Article  PubMed  CAS  Google Scholar 

  21. Wolff BG, Michelassi F, Gerkin TM et al (2004) Alvimopan, a novel, peripherally acting u opioid antagonist: results of a multicenter, randomized, double-blind, placebo-controlled, phase III trial of major abdominal surgery and postoperative ileus. Ann Surg 240:728–734

    PubMed  PubMed Central  Google Scholar 

  22. Kiran RP, Delaney CP, Senagore AJ, Steel M, Garafalo T, Fazio VW (2004) Outcomes and prediction of hospital readmission after intestinal surgery. J Am Coll Surg 198:877–883

    Article  PubMed  Google Scholar 

  23. O’Brien DP, Senagore A, Merlino J, Brady K, Delaney C (2007) Predictors and outcome of readmission after laparoscopic intestinal surgery. World J Surg 31:2430–2435

    Article  PubMed  Google Scholar 

  24. Azimuddin K, Rosen L, Reed JF III, Stasik JJ, Riether RD, Khubchandani IT (2001) Readmissions after colorectal surgery cannot be predicted. Dis Colon Rectum 44:942–946

    Article  PubMed  CAS  Google Scholar 

  25. Lawrence JK, Keller DS, Samia H et al (2013) Discharge within 24 to 72 hours of colorectal surgery is associated with low readmission rates when using enhanced recovery pathways. J Am Coll Surg 216:390–394

    Article  PubMed  Google Scholar 

  26. Senagore AJ, Brannigan A, Kiran RP, Brady K, Delaney CP (2005) Diagnosis-related group assignment in laparoscopic and open colectomy: financial implications for payer and provider. Dis Colon Rectum 48:1016–1020

    Article  PubMed  Google Scholar 

  27. (2006) DRG handbook 2006 ed. Solucient LLC, Evanston

  28. Senagore AJ (2006) Practice and hospital economics. Clin Colon Rectal Surg 19:167–171

    Article  PubMed  PubMed Central  Google Scholar 

Download references

Conflict of interest


Author information

Authors and Affiliations


Corresponding author

Correspondence to K. G. Cologne.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Cologne, K.G., Hwang, G.S. & Senagore, A.J. Cost of practice in a tertiary/quaternary referral center: Is it sustainable?. Tech Coloproctol 18, 1035–1039 (2014).

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: