The Cost of Outpatient Wound Care

Issue Number: 
Volume 3 Issue 4 - July/August 2009
Author(s): 
David Walker is President and CEO of Intellicure, Inc.

Our country’s healthcare is the most expensive in the world. While recent news reports have focused on efforts in Washington to make healthcare coverage universal, health-care reform is also aimed at bringing costs under control. Medical costs now consume more than one of every six dollars we earn. “The greatest threat to America’s fiscal health is not Social Security,” President Barack Obama said in a March speech at the White House. “By a wide margin, the biggest threat to our nation’s balance sheet is the skyrocketing cost of health care.”
A recent article in The New Yorker by Atul Gawande encapsulates the challenges we face in trying to control health care costs. It is entitled “The Cost Conundrum, what a Texas town can teach us about healthcare.” (http://www.newyorker.com/reporting/2009/06/01/090601fa_fact_gawande?curr...)
In 2006, Medicare spent fifteen thousand dollars per enrollee in McAllen, Texas, almost twice the national average. However, the income per capita is only twelve thousand dollars. In other words, in McAllen, Texas, Medicare spends three thousand dollars more per person than the average person earns. The article discusses the balance between meeting patient needs and having a medical practice, which is primarily seen as a “revenue stream.”
Wound centers are also faced with this challenge. They are businesses, which have to be financially successful. However, increasingly, wound care experts are being asked to understand and control the costs associated with wound healing. We are asked to determine which products and interventions work best and in what combinations. These are fundamentally questions about cost benefit and comparative effectiveness. And there is a national focus on these issues. The $787 billion economic stimulus bill approved by Congress will, for the first time, provide substantial amounts of money for the federal government to compare the effectiveness of different treatments. But if you had to answer a relatively simple question such as, “how much does it cost to get a venous leg ulcer healed in your clinic?” could you answer it? Without an understanding of “total cost,” you can’t decide whether a relatively expensive product saves money or costs money, or whether it is worth it to provide a service for which your reimbursement is low but the results seem to be good. We will first begin by understanding “total cost” (no matter who pays or who gets paid).
This article aims to enumerate the sources of “cost to the system” for a patient seen in an outpatient wound care center: facility charges, physician charges, labs, dressings, home health, pharmacy, and other related durable medical equipment charges.

Creating a Model
Let’s begin by designing a basic cost algorithm with the assumptions you would have to make if you were to try to estimate the real cost of caring for a patient. Then, to verify that our model is functioning, we will perform an actual data analysis using a real world dataset.
As we stated earlier, for this introductory foray into cost of care, we’re going to approach the issue from the viewpoint of the person paying the bills, the responsible party, whether that be the patient or the insurance company. In its simplest form, the responsible party is going to receive a number of bills from the different providers that rendered the care and the facilities where the care was provided. When we add up all of the bills submitted from all of the different care providers during the course of treatment we have the patient’s total cost of care. Doing the calculation this way is going to omit some potential costs to the patient, such as the cost of work missed by the patient or caregiver and perhaps any travel costs associated with receiving care, but I think that this method will give us a very good model on which we can base future discussions.
For our real world dataset, I have chosen a two-year slice of patients from 25 wound care centers from the Intellicure Research Consortium (“IRC”). As Kathy Schaum so eloquently points out in her “InBusiness” column in this same journal, there are at least six different payment models in this industry and those only account for the Medicare patients. To balance out any discrepancies in practice patterns and payment models, the centers I have selected include both free standing clinics and hospital based facilities; physician-directed nursing programs and physical therapy programs; third-party management and internal management; demographic service populations ranging from 100,000 to over 4 million patients; and practice settings, which include private physician offices, non-profit community hospitals, for profit hospitals, and academia.
With such a diverse base of operations represented, the first thing that we did was to create a formula for calculating the total cost of care in each of our unique wound care settings. Not actually being the responsible party, we don’t have access to the actual bills submitted by each of the providers, so we have had to extrapolate much of our calculations based upon the patient’s medical history, which is recorded in great detail in the electronic medical records of the IRC. We started by building a variable called the Visit Cost. This was the total amount of charges submitted by the provider (physician or physical therapist) and the facility for all evaluation and management (E/M) services and procedures performed during the visit.
With the visit costs accounted for, we analyzed the chart to see what costs were going to be incurred outside the scope of the wound care center. The first thing we analyzed here we titled the Non-Facility Dressing Costs (NFDC). This was done by first checking to see if Home Health services were ever ordered, changed, stopped, or noted as occurring in the medical record. If HH was being rendered, we accounted for their fees using the Home Health Prospective Payment System (HHPPS) rates, but if there was no HH in the record, we used the ordered frequency, duration between visits, noted compliance, and the average market costs of the products prescribed by the provider for the NFDC.
The final piece of the puzzle came from the grouping of ancillary services (laboratory, radiology, nuclear medicine, vascular testing, etc.), durable medical equipment (off-loading, negative pressure wound therapy, etc.), and pharmacy charges. In each of these categories, we used the medical record to assess whether or not the service was ordered and performed, and then calculated the costs using known market costs where appropriate and publicly available datasets to fill in the gaps.

Real World Cost Data
With our model built we began to analyze the dataset we described earlier. With our final parameters in place, the data rendered from the model was on 9,822 patients from 13 states representing all of the geographic regions in the U.S. These patients presented with 19,047 wounds and were seen in 92,668 unique patient visits.
The total cost of wound care calculated from the patients in the study was $54.3 million. There was at least one patient who did not have any dollar figure associated with their care, and there were a few patients with care totaling over $100,000. However, as we viewed the average dollar amount for cost of wound care, both globally, and at the clinic level, the mean was between $5,000 and $5,500 per patient.
For this brief analysis, we performed one slice of the dataset to report on cost by payer mix. This analysis by insurance type was quite interesting. One of the first things we noticed was that greater than 99% of care was delivered to patients covered by insurance with only 0.56% of patients classified as self pay. The next most striking observation was that patients covered by Medicare, which only represented 48% of the population, accounted for 58% of the cost. The average cost per patient for these patients was the highest of any category at $6,622 per patient and was a remarkable 2.6 times more than patients who presented with no insurance. Additional detailed data from this analysis is available with a paid print subscription.

What does it all Mean?
What these data show are that regardless of whether the wound healed, the leg was amputated, or the patient was lost to follow up, and regardless of what type of wound the patient had (diabetic foot ulcer or venous stasis ulcer), on average, about $5,000 is spent on every patient with a course of care at an outpatient wound center. This is taking into account the charges from the doctor, the cost of the dressings, the home nursing visits, the studies and labs, and the fees from the clinic. Naturally cost varies widely by diagnosis code (wound type) and outcome, but this is a rough average to keep in mind when you see a new patient. Every time you assess a new patient, think to yourself, “I am about to spend $5,000 on this patient. How can I spend it wisely?”
What’s more, it is clear that we spend more on Medicare patients by a wide margin. Why is that? We can query the data to determine whether they get more home nursing, different dressings or more or different procedures. Future articles will explore these and other aspects of cost.

David Walker is President and CEO of Intellicure, Inc. a specialized electronic medical records company focused on wound care, located in The Woodlands, Texas. For more information visit www.davidonwoundcare.com.