March 2016

Coding Corner: Are Current Spinal Fusion Hospital Payment Diagnosis Related Groups (DRGS) Adequate?

S. Samuel Bederman, MD, PhD, FRCSC and David J. Wright M.Sc.

The SRS Coding Committee, with permission from the Presidential Line, agreed to support an investigation into variation in hospital costs within spinal fusion payment groups to determine whether hospitals are bearing undue financial burden, thus disincentivizing surgeons from performing these important procedures. We report our initial findings from this study.

As rates of spinal surgery have increased, hospital costs have more than tripled, resulting in a significant impact on total U.S. healthcare costs.1–6  Hospital reimbursement from Medicare and other payers to hospitals is provided as a fixed payment for each admission by assigning patients to a Diagnosis Related Group (DRG). Patients are assigned to DRGs according to the principal procedure performed as well as comorbidities or complications managed during the admission.7,8 This system assumes that procedures and patients can be grouped into relatively homogenous units of resource use such that a single payment will adequately cover the costs of hospitalization for most patients within a given DRG.8 However, several factors, including procedural complexity and unique patient characteristics, may contribute to variation within DRGs that lead to differences between hospital costs and payments. Predictable financial losses to hospitals may result in disincentives for the provision of care, potentially leading to disparities in access for some patients by limiting our ability to treat these patients.

Prior work in total hip arthroplasty (THA) revealed that procedural differences, such as those between primary and revision THA, were one source of variation not adequately accounted for in existing DRGs.9 Mean hospital cost, operative time, estimated blood loss, and length of stay were found to be significantly higher for revision THA than for primary THA, even though both procedures were reimbursed equally under a single DRG (DRG 209).9 The cost variation within this DRG, explained largely by procedural differences between primary and revision THA, raised concern for patient access to care as hospitals were deterred from performing revision procedures in an attempt to limit ongoing financial losses.10 Following this study, the Centers for Medicare and Medicaid Services (CMS) effectively “split” this DRG into separate “primary” and “revision” DRGs in an effort to create more homogenous payment groups with more equitable reimbursement. In doing so, the CMS established an effective benchmark for excessive within-DRG cost variation.11,12

A recent study simulating bundled payments in spine surgery suggested that wide cost variation may also exist within current spinal fusion DRGs.13 However, no study has examined current spinal fusion DRGs to determine the magnitude of cost variation within each group. As in total joint arthroplasty (TJA), wide cost variation within spinal fusion DRGs, if present, may lead to discrepancies between hospital costs and payments, placing undue financial burden on some hospitals and potentially compromising access to care for certain patients.

We investigated cost variation within spinal fusion DRGs with a retrospective analysis of the Healthcare Cost and Utilization Project (HCUP) Nationwide Inpatient Sample (NIS) for 2011 which contained over 8 million inpatient admissions from 1,049 hospitals.14

 Patients were grouped according to 2011 CMS Medicare Severity-Diagnosis Related Groups (MS-DRGs) and included all patients assigned to spinal fusion DRGs 453 to 460 and TJA DRGs 466 to 470 (Table 1). An aggregate of TJA DRGs 466 through 470 were used to re-create “DRG 209,” which served as a benchmark for cost variation in this study.  We measured variation using the coefficient of variation (CV), defined as the ratio of the standard deviation (SD) to the mean (CV=SD/mean x 100), for all direct hospital costs within each DRG.15–17

Table 1. Medical Severity-Diagnosis Related Groups included in this study.




Maj Joint/Limb Reattach Procs of Low Extremity (TJA2005)


Combined anterior/posterior spinal fusion with MCC (APF+MCC)


Combined anterior/posterior spinal fusion with CC (APF+CC)


Combined anterior/posterior spinal fusion without CC or MCC (APF)


Spinal fus exc cerv w spinal curv/malig/infec or 9+ fus with MCC (CF+MCC)


Spinal fus exc cerv w spinal curv/malig/infec or 9+ fus with CC (CF+CC)


Spinal fus exc cerv w spinal curv/malig/infec or 9+ fus without CC or MCC (CF)


Spinal fusion except cervical with MCC (SF+MCC)


Spinal fusion except cervical without CC or MCC (SF)


Revision of Hip or Knee Replacement with MCC (RTJA+MCC)


Revision of Hip or Knee Replacement with CC (RTJA+CC)


Revision of Hip or Knee Replacement without CC or MCC (RTJA)


Major Joint Replacement or Reattachment of Lower Extremity with MCC (TJA+MCC)


Major Joint Replacement or Reattachment of Lower Extremity without CC or MCC (TJA)

† DRG 209 only existed prior to 2004. For this study, DRG 209 was reconstructed by combining all current TJA DRGs back into one DRG. APF = “anterior/posterior fusion” (combined anterior/posterior spinal fusion). CF = “complex fusion” (spinal fusion except cervical with spinal curvature, malignancy, infection or 9+ fusion levels). SF = “spinal fusion” (spinal fusion except cervical). MCC = Major Complication or Comorbidity. CC = Complication or Comorbidity.

Variation (measured by CV) in cost within spinal fusion DRGs ranged from 44.2 for DRG 460 (Simple Fusion) to 52.6 for DRG 456 (Complex Fusion with Major Comorbidity/Complication). The benchmark group, DRG 209 (TJA2005), had a CV of only 38.2. When compared to this benchmark, all spinal fusion DRGs had significantly higher CVs (p-values < 0.0001).   The mean costs for spinal fusion DRGs ranged from $27,153 for DRG 460 to $77,965 for DRG 456 while the estimated cost for TJA DRG 209 was only $15,903.  In general, the cost variation as well as costs increased with increasing procedural and patient complexity (Figure 1).

Figure 1. CVs for DRGs grouped by procedural category and medical severity.

DRGs grouped by procedural category (x-axis) and medical severity (z-axis). CV is plotted on the y-axis. The control TJA DRG is highlighted in blue. CF = “complex fusion” (spinal fusion except cervical with spinal curvature, malignancy, infection or 9+ fusion levels). SF = “spinal fusion” (spinal fusion except cervical). MCC = Major Complication or Comorbidity. CC = Complication or Comorbidity. Without = without MCC or CC. Note that SF does not have a “CC” DRG in the 2011 MS-DRG coding.

As in TJA, procedural factors such as surgical approach, invasiveness, and complexity are sources of cost variation within spinal fusion DRGs that may serve as potential targets for coding changes that could be implemented to further homogenize spinal fusion payment groups. While it could be argued that procedural factors are already accounted for by procedural categories in current spinal fusion DRGs, this study demonstrates that current categories do not, in fact, define homogenous units of resource use, suggesting that reevaluation is warranted.

To further illustrate why there may be significant variation in current DRGs, consider a “standard fusion” (spinal fusion except cervical) procedural category (DRGs 459 and 460). This category makes no distinction between an eight-level fusion and a one-level fusion as long as both procedures are performed from a single (e.g. posterior) approach and do not involve curvatures, malignancies, or infections. Furthermore, even seemingly common procedures such as a single level fusion can have a wide range of outcomes based on procedural factors that are not captured in current DRGs. For example, in a study of patients undergoing one-level or two-level transforaminal lumbar interbody fusion (TLIF), hospital length of stay varied from 3 days for patients who received a minimally invasive TLIF to 4.2 days for those who received a traditional open TLIF.18 The increased length of stay associated with a traditional open TLIF might significantly increase total hospital costs. However, the current DRGs for single-level posterior fusion (DRG 459 or 460) make no distinction between these surgical approaches. Unlike TJA DRG 209, which could be re-categorized into separate DRGs based on clearly defined “primary” and “revision” procedural factors, it may not be feasible to categorize spinal fusion DRGs in a similar fashion given the multitude of different procedures utilized. Rather, it may be more appropriate to explore other procedural measures, such as the degree of surgical invasiveness, to more accurately define homogenous payment groups.19

In summary, this preliminary analysis demonstrates that current cost variation within spinal fusion DRGs is excessively high. Both patient medical severity (complications and comorbidities) and procedural factors (approach, invasiveness, complexity) appear to contribute to the high degree of cost variation within groups. As previously demonstrated in TJA aggregate DRG 209, this variation may be leading to differences between hospital costs and payments that places undue burden on some hospitals and potentially compromises access to care for patients.10 This study highlights the need for future work to identify potential changes in coding for current spinal fusion payment groups. By grouping patients into more homogenous units of resource use, a single fixed payment would more adequately cover the costs of hospitalization for patients within each group. In an atmosphere of healthcare reimbursement that is rapidly moving towards episode-based bundled payments, such efforts to homogenize payment groups will ensure equitable hospital reimbursement and improved patient access to care.


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Chair: Mathew D. Hepler, MD Committee: Christopher J. DeWald, MD; Nigel J. Price, MD; Samuel S. Bederman, MD, PhD, FRCSC; Shay Bess, MD; Barton L. Sachs, MD, MBA, CPE; Michael S. Chang, MD; R. Dale Blasier, MD; Richard J. Haynes, MD