Cost analysis proves the value of better outcomes

Define time frame, count all costs, expert advises

One procedure provides better patient outcomes than another, but it’s more expensive. Is it worth the extra cost?

Conducting a cost-benefit analysis can provide the answer. Once the purview only of statisticians and academics, comparisons of costs and outcomes are now an element of survival in managed care.

At Promina Gwinnett Health System in Lawrenceville, GA, laser endoscopic coordinator Vangie Paschall, RN, CNOR, wanted to show surgeons that they could choose the laparoscopic approach to appendectomy without concern for cost implications.

By calculating OR, supply, and overhead costs, Paschall demonstrated that the laparoscopic procedure, used with uncomplicated appendectomies, took an average of 12 minutes more in the OR than the open version and cost just $200 more per procedure. (See chart, p. 105.)

That data gave physicians a greater sense of freedom to choose the surgical approach they felt was best for patients without concern about expense, says Paschall, who also chaired the advanced technology task force for Promina Health System in Atlanta. "It allowed me to justify the clinical outcomes and benefits of laparoscopic appendectomy," she says.

Have you counted everything?

Calculating true costs can be a daunting task. Paschall collected six months of data on OR time and inpatient stays. For more than a month, she worked with the materials manager and accounting department to obtain actual costs of equipment and supplies.

Defining the types of costs and the time frame in which they occur are also critical first steps, says Joseph Gardiner, PhD, director of the biostatistics unit in the department of epidemiology of Michigan State University in East Lansing.

"You have to fix the horizon and say I’m going to look at all the costs of providing the treatment for this period of time,’" says Gardiner, who studies the cost-effectiveness of health care.

Don’t be too narrow with the time frame, cautions Gardiner."Are there some post-treatment costs? Out-of-pocket costs? You want to make sure you’re capturing all the relevant costs," he says. "One treatment may have little expenditure early on but great expenditures later on."

A recent U.S. Public Health Service Panel on Cost-Effectiveness in Health and Medicine recommended that cost-effectiveness studies use cost, not charges.1 That becomes even more important as charges vary widely, depending on contracts with different payers. The panel also recommended that costs should include "resource use" such as caregiving and loss of work, and benefits should include an assessment of health-related quality of life.1

Here are some other guidelines suggested by Paschall and Gardiner when comparing costs and outcomes:

Begin with a search of the literature and continue to monitor published research. Patient mix or other variables could affect the outcomes and cost of a procedure, notes Gardiner. You should assess your outcomes in light of those reported by others, he says. Paschall found evidence that patients undergoing laparoscopic appendectomies spent less time in the hospital, required fewer doses of Demerol postoperatively, experienced less blood loss, and returned to work more quickly.2 Yet in this controversial procedure, some researchers have concluded that laparoscopic appendectomy didn’t produce significantly better outcomes at a reasonable cost.3

Set criteria for cases to include in the analysis. Paschall ruled out cases that involved complications, those in which patients had clinical symptoms but no appendicitis, and those with additional diagnoses. She compared uncomplicated open vs. uncomplicated laparoscopic appendectomy.

Calculate costs per unit of time. Paschall gathered information from vendor contracts on the cost of supplies and equipment. She determined, for example, that each time surgeons used a Bovie electrocautery unit in a case, it cost $2.22. To arrive at that figure, she counted her Bovies in her 28 ORs, divided the total cost of the Bovies by the number of procedures in which they were used, and divided that number by five (to amortize or spread the capital cost over the five-year expected life of the equipment).

She measured OR time and calculated staff and overhead costs per minute. For example, her OR overhead (electricity, water, and cleanup) turned out to be $2.72 per minute. Her personnel costs were $2.33 per OR minute.

From a review of hospital data, Paschall found that 71 open cases averaged 103.8 minutes of OR time, while 21 laparoscopic cases averaged 115.9 minutes. Both included 30 minutes for turnover.

Consider all relevant outcomes. Paschall’s measured inpatient stay. Patients with laparoscopic appendectomies had an average length of stay of 1.66 days vs. 2.26 for noncomplicated open procedures and 6.66 for complicated open procedures.

Inpatient costs, including dietary and nursing services, average $497.25 at Promina Gwinnett Health System. Therefore, laparoscopic inpatient costs totaled $825.43, compared to $1,123.79 for the open procedure.

Depending on the procedure analyzed, you may want to consider quality of life measures, such as a functional health status or return to work, as well as more easily quantifiable outcomes such a surgical complication and mortality rates, advises Gardiner.

A more costly procedure may be justified by savings that occur outside the health care arena. For example, one self-insured employer negotiating with Promina Gwinnett Health System preferred laparoscopic procedures because employees returned to work more quickly. "This [availability of laparoscopy] is what allowed us to get the contract with this company," says Paschall.

Weigh costs and outcomes, including a range of assumptions about outcomes. After showing physicians the cost-benefit analysis, Paschall noted a slight increase in laparoscopic appendectomies. The analysis provided just one other piece of information for physicians, who made their judgments based on patient needs.

In another procedure, such as a comparison of defibrillators vs. medical treatment of arrhythmia, the stakes are higher both in cost and outcome, notes Gardiner. If you calculated a mortality rate of 2% for a procedure, but the medical literature includes a finding as high as 6%, you should consider that as a worst-case scenario.

Ultimately, finding value for better outcomes is a judgment call. You should pose this question, says Gardiner: "If my patient mix is different, if the mortality rates are different, what would be my conclusion?"

[Editor’s note: For more information on calculating a cost-benefit analysis, contact Vangie Paschall, Laser Endoscopic Coordinator, Promina Gwinnett Health System, 1000 Medical Center Blvd., P.O. Box 348, Lawrenceville, GA 30245. Telephone: (770) 995-4188. Fax: (770) 682-2207.]


1. Weinstein MC, Siegel JE, Gold MR, et al. Recommendations of the panel on cost-effectiveness in health and medicine. JAMA 1996; 276:1,253-1,258.

2. Nowzaradan Y, et al. Laparoscopic appendectomy: treatment of choice for suspected appendicitis. Surg Laparosc Endosc 1993; 3:411-416.

3. McCahill LE, Pellegrini CA, Wiggins T, et al. A clinical outcome and cost analysis of laparoscopic versus open appendectomy. Am J Surg 1996; 171:533-537.