A Comparison of Costs: How California Teaching Hospitals Achieved Slower Growth Than Nonteaching Hospitals in Operating Room Costs From 2005 to 2014

Purpose Historically, teaching hospitals have had higher costs than nonteaching hospitals, introducing potential financial risk in value-based payment models. This study compared risk-adjusted operating room (OR) costs between California teaching and nonteaching hospitals. Method Using 2,992 financial statements from fiscal years (FYs) 2005–2014, the authors extracted data for OR total costs, components of direct costs, and indirect costs. Cross-sectional and longitudinal models estimated OR costs per minute of surgery by teaching status, ownership, case mix index, and geographic area. Results Risk-adjusted cost was $9.44 per minute less in teaching than nonteaching hospitals in FY 2014 (95% CI, 3.03–15.85, P = .004). Between FY 2005 and FY 2014, OR costs grew more slowly at teaching hospitals because of slower wage growth and indirect costs per minute (−$0.13 and −$0.77 per minute per year, respectively, P = .005 and P < .001). Hourly pay rose more at teaching hospitals ($0.26 per hour per year, P = .008) but was offset by slower full-time equivalents growth (−0.002 per 10,000 OR minutes per year, P = .001). Between FY 2005 and FY 2014, operative volume increased at teaching hospitals and decreased at nonteaching hospitals. Conclusions By 2014, California teaching hospitals had lower OR costs per minute than nonteaching hospitals because of relative labor productivity gains and slower indirect cost growth. The latter likely resulted from a volume shift from nonteaching to teaching facilities. These trends will help teaching hospitals compete under value-based models. Implications for patients and nonteaching hospitals warrant evaluation.