Cost Calculation Method

Cost Calculation Method

All estimations reflect discharge code MS-DRG 470 for Medicare Part A insurance coverage

MS-DRG 470: Major Joint Replacement or Reattachment of Lower Extremity w/o MCC

List of Complications and Comorbidities (CC) and Major Complications and Comorbidities (MCC)

The costs reflected in the 360 Orthopaedics Cost Estimator represent Medicare Part A Inpatient Prospective Payment System (IPPS) short term institutional claims during fiscal year 2014. Note that the 2014 data is the most recent available data. This information is provided through the Inpatient Public Use File (PUF) by the Centers for Medicare and Medicaid Services (CMS). Some definitions of figures within the Inpatient PUF include:

Average Total Payments: The average total payments to all providers for the MS-DRG including the MS- DRG amount, teaching, disproportionate share, capital, and outlier payments for all cases. Also included in average total payments are co-payment and deductible amounts that the patient is responsible for and any additional payments by third parties for coordination of benefits (COB).

Average Medicare Payments: The average amount that Medicare pays to the provider for Medicare’s share of the MS-DRG. Average Medicare payment amounts include the MS-DRG amount, teaching, disproportionate share, capital, and outlier payments for all cases. Medicare payments DO NOT include beneficiary co-payments and deductible amounts, nor any additional payments from third parties for coordination of benefits (COB).

Average Total Payments – Average Medicare Payments = deductible + coinsurance + COB

The estimated average cost per provider in the 360 Orthopaedics Cost Estimator is calculated by subtracting Average Medicare Payments from Average Total Payments. This figure represents the average amount the beneficiary will be responsible for paying through Medicare Part A for inpatient hospital services. Consider the following two common scenarios:

Scenario 1

The Medicare beneficiary is covered by Part A and no other private insurance. In this case, the average amount reflected in the 360 Orthopaedics Cost Estimator for the respective provider will be the sole responsibility of the beneficiary. This amount comes in the form of deductible + coinsurance.

Scenario 2

The Medicare beneficiary is covered by Part A in addition to a supplemental private health insurance plan. In this case, the average amount reflected in the 360 Orthopaedics Cost Estimator for the respective provider will be the responsibility of the beneficiary. However, the beneficiary will most likely receive additional payment help from the private insurance plan through coordination of benefits (COB). Because of this, the out-of-pocket costs for the beneficiary may not equal the total amount displayed with the Cost Estimator. Although the amount presented from the Cost Estimator will represent the average amount that must be paid by the beneficiary and private health insurance through deductible + coinsurance + COB.

Notable data limitations

  • The data in the Inpatient PUF may not be representative of a hospital’s entire population served.
  • The data in the file only has information for Medicare beneficiaries with Part A fee-for-service coverage, but hospitals typically treat many other patients who do not have that form of coverage.
  • The Inpatient PUF does not have any information on patients who are not covered by Medicare, such as those with coverage from other federal programs (like the Federal Employees Health Benefits Program or Tricare), those with private health insurance (such as an individual policy or employer-sponsored coverage), or those who are uninsured.
  • Even within Medicare, the Inpatient PUF does not include information for patients who are enrolled in any form of Medicare Advantage plan.
  • The file only contains cost and utilization information and the volume of procedures presented may not be fully inclusive of all procedures performed by the hospital.
  • The state of Maryland has a unique waiver that exempts it from Medicare’s prospective payment systems for inpatient care.