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The New Economics of Hernia Repair
Reimbursement is set to double. Find out if it makes more sense to perform cases via open or laparoscopic surgery.
David Moody
Publish Date: September 4, 2008   |  Tags:   General Surgery

To see a reimbursement rate more than double is incredible, yet that'll soon be the case with hernia repair, thanks to Medicare's revised payment system for ASCs. In 2007, Medicare's reimbursement rate for abdominal hernia repair was $630. This year, it's risen to $790. By the time the new payment system is fully implemented in 2011, it'll be $1,270. If you're not already hosting hernia cases, perhaps it's time to consider adding this potentially lucrative service line. Before you do so, however, you'll want to determine whether it makes more sense to perform cases open or laparoscopically. Remember that Medicare's hernia reimbursements are the same whether the repair is done via open or laparoscopic surgery.

Shift toward laparoscopic repair
It's still practical to repair hernias with traditional open surgery, but many are now frequently and easily treated laparoscopically. If you survey general surgeons as to which method is the better one, you'll find many firmly believe laparoscopic hernia repair is preferable to open surgery. While the open surgery presents patients with little discomfort and a swift recovery, laparoscopic repair results in even less discomfort and even speedier recovery.

The difference between the two methods is not so drastic as it is with gallbladder surgery, where the open procedure leaves the patient laid up and in considerable pain, while laparoscopic cholecystectomy can be performed as an outpatient procedure. But in the ambulatory surgery arena, the return to activity is everything, and physicians are telling us that, given the choice, patients choose the laparoscopic option.

That demand has a cost. While the two methods' outcomes are similar and their Medicare reimbursements the same, there is a radical difference in their case costs. Open hernia repair is an inexpensive procedure to perform, one easily covered by the allotted reimbursement. Laparoscopic hernia repair, on the other hand, carries an initial overhead for imaging equipment and specialized instruments as well as the continuing expense of disposable supplies.

Cost comparison
The cost of doing open hernia repair is relatively reasonable. At the 2007 reimbursement rate of $630, it may have been iffy whether a facility could make any money on it, but at the upcoming $1,270 rate, an ASC can actually turn a profit.

This is largely due to the fact that, with regard to surgical supplies, open hernia doesn't require much more than mesh. A basic, flat piece of surgical mesh costs about $30. A high-end, waterproof, breathable, laminate-style mesh can reach $1,000. Hernia plugs, which serve as bio-absorbable, three-dimensional mesh patches, range from $200 to $300.

If your facility, like ours, is owned in part by the operating surgeons, you can probably count on them to make budget-conscious decisions in terms of mesh selection. Otherwise, some research and reporting may be necessary. We did a QI study, comparing case costs and outcomes between experienced surgeons using meshes and plugs, and the less-expensive meshes finished favorably.

One of our surgeons routinely crafts his own plugs from flat pieces of $30 mesh. He says he sees no difference in performance. He's since taught other surgeons how to do this, and now we rarely use plugs for our hernia cases.

In comparison, laparoscopic hernia repair is more cost-intensive in terms of surgical supplies, with disposables and implants totaling as high as $1,300. Since Medicare's ASC reimbursement rate will only reach $1,270 at its full implementation, fiscal caution is required. The laparoscopic procedure's required supplies include:

  • three trocars at $65 to $90 each;
  • mesh that can be inserted and positioned through them, about $190;
  • a one-use stapling device to affix the mesh, about $463; and
  • a disposable balloon dissector that creates the internal space in which the surgeon performs the procedure, about $472.

Trays of specialized surgical instruments are also required. We bought two trays at $21,000 total.

Don't forget to budget in the investment you'll need to make into imaging equipment. If hernia repair is the only procedure you'll use laparoscopic cameras and video towers or carts for, it'll be a big expenditure and a big decision. When we upgraded our eight laparoscopic cameras and three monitors, it cost us $158,000.

If you host orthopedic, urological or gynecological procedures, though, your general surgeons will be able to share the equipment your facility already has (and use it for gallbladder procedures as well).

As with some other laparoscopic procedures, lap hernia repair requires an additional staff member in the OR to hold and operate the camera. Both of the surgeon's hands will be occupied by tools, and the scrub tech won't be able to divide her time. You'll need to train a couple of surgical personnel to serve as dedicated camera operators who can anticipate the surgeon's visual needs and react to his commands.

Lastly, there's always the chance that even if a laparoscopic procedure is requested and begun, it may be necessary for the surgeon to change course and complete the procedure as an open surgery. Such a change may be the result of anatomical factors, blood loss, equipment difficulties or simply the surgeon's judgment. In any result, the surgeon and staff should be prepared for such an eventuality and the patient should be notified of its possibility.

Medicare Reimbursement for Hernia Repair

Procedure

CPT Code

2008 rate

2011 rate

Inguinal hernia

49520

$1,063

$1,270

Femoral hernia

49550

$855

$1,270

Abdominal hernia

49560

$790

$1,270

Incisional hernia

49561

$1,321

$1,270

Epigastric hernia

49570

$790

$1,270

Umbilical hernia

49585

$790

$1,270

A reason greater than money
Don't go into laparoscopic hernia repair based on reimbursement alone. You won't make much money on it, and might in fact lose money. But if adding the procedure will draw patients, and if you've conducted a level-headed analysis of its prospects, it may prove financially feasible.

We've been doing open hernia repair at our surgery center since 2001 and laparoscopic repair since the beginning of this year. Before we added the lap procedure, we'd been seeing fewer and fewer hernia cases in our ORs, since more patients were choosing the lap option. Our physician-owners were consequently taking the cases to a local hospital that owns the needed equipment.

When the physician-owners described the amount of patient demand for the lap procedure to me, we projected the estimated case flow that adding the service would bring and calculated the necessary investments in equipment. (We had by this time entered into a joint venture with the hospital to which the surgeons had been taking the lap cases.)

While Medicare shows the trend that reimbursement for hernia repair is following, we actually don't do too many Medicare hernia cases. Most of our hernia patients are 20 to 50 years old, and either covered by private insurers or paying out of pocket.

The key is, whether you're reimbursed by Medicare or private payors, it's important to understand what your insurance contracts are going to pay you. If you don't have good contracts with insurers, you could lose money on procedures. If you lose money on procedures, you don't make more money by doing more of them, you just lose more money.

Cameras, monitors, trays
Equipping your facility for laparoscopic hernia repair may be another challenge you face. The fact that our surgeons had performed lap cases at the hospital made it easier for us to choose equipment and instruments when we decided to add the service. As with any equipment purchase, the challenge in buying laparoscopic cameras and monitors is getting all your surgeons to agree on their choices. You're fortunate if they all use the same equipment at the hospital and they all like it.

Similarly, our surgeons had worked with the trays of instruments the hospital had bought for laparoscopic surgery. They knew which devices were essential to have on hand and which they could do without. Working with our surgeons and our vendors, we cut the contents of the instrument trays we were purchasing in half.

The end result? Our estimates were accurate. We've gotten the patients our surgeons anticipated. And our laparoscopic hernia repair case volume quickly overtook the open case volume. At present, it makes up 75 percent of our hernia business.

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