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When Neurosurgeons Drop
What Role Might Microeconomics Play in Their Decision
RICHARD N.W. WOHNS,MD,MBA
Although neurosurgeons are popularly known as “brain”
surgeons, anecdotal evidence and some studies suggest that
at least a small number of neurosurgeons are relinquishing
cranial surgery privileges. A result of taking such action is
that the neurosurgeon involved no longer can cover emergency
call. While cranial surgery and emergency call long have been
accepted tenets of the neurosurgical profession, relinquishing cranial
surgery privileges is commonly thought to limit liability and
help control rising medical liability insurance costs, as well as ease
the surgeon’s demanding schedule.
However, the underlying reason why a neurosurgeon might
relinquish cranial surgery privileges may be because the microeconomics
of neurosurgical practice has changed. Diminished reimbursement,
particularly in the face of escalating overhead affected
by high medical liability insurance premiums, means that cranial
procedures now may consume more practice dollars than they generate.
To illuminate the issues underlying the contentious topic of
dropping cranial surgery privileges, a business perspective and
analysis can be applied.
Devaluation and Decline of Neurosurgical Reimbursement
Reimbursement for neurosurgical procedures has experienced an
overall decline in recent years. After reimbursement values reached
their maximum in 1997, cranial surgery values fell about 25 percent
and spinal surgery values, about 30 percent. The reimbursement
reductions primarily were due to Medicare’s transition to the
resource-based relative value scale between 1999 and 2002.
Since 1992, reimbursement for spinal procedures fell more than
for cranial procedures in most cases. An example of the reimbursement
decline for spinal procedures is the 30 percent reduction for
code 63047 (lumbar laminectomy) from $1,408 in 1992 to $1,010
in 2003. (Code 22612 for posterolateral fusion is an exception.
Reimbursement for this code increased from $1,255 in 1992 to
$1,372 in 2004.) Cranial surgery reimbursement remained
unchanged or even increased slightly from 1992 to 2004, but there
was a significant reduction in the real dollar value. This is due to
lack of any adjustment for inflation, cost of living or practice overhead
increase. Several examples of reimbursement for cranial procedures
per Current Procedural Terminology Code are: code 61313
(craniotomy for intracranial hemorrhage)—$1,600 in 1992, and
$1,662 in 2003; code 61312 (craniotomy for subdural hematoma)—
$1,605 in 1992, and $1,654 in 2004; and code 61512 (craniotomy for
meningioma)—$1,913 in 1992, and $2,315 in 2003.
The Cost of Lost Opportunity
In addition to the rate of reimbursement, the time and expense
involved in performing each surgical procedure must be assessed.
The time and expense spent in the total provision of cranial surgery
exceeds that spent in spinal surgery. Therefore, when neurosurgeons
forego the revenues generated from spinal surgeries to perform cranial
surgeries, they are experiencing the phenomenon of “opportunity
cost.” This particularly is the experience when emergency
cranial surgeries cause cancellation of elective spinal surgeries.
A neurosurgical practice that primarily focuses on spinal surgery
not only is efficient, but there also is very little adverse impact on
the profitability of a practice that does not include brain surgery
and emergency coverage. An analysis of the opportunity cost and
microeconomics of neurosurgical practice illustrates the contrast in
profitability between cranial and spinal surgery.
Marginal Revenue, Marginal Cost, and Profit Maximization
When businesses have a product with diminishing profitability and
other products with greater profitability, the decision often is made
to drop the less profitable product. The decision hinges on the marginal
revenue of the product, whether the business is running at
capacity, and the supply and demand for products. If the business
is not running at capacity and the devalued product helps to cover
fixed expenses, then good business practice supports continuing
with that product line. However, if the business is running at capacity
and there is strong demand for the products, then good business
practice supports dropping the less profitable product.
As the business increases its level of output, each additional unit
adds to the total revenue of the business. The additional revenue
attributable to producing one more unit of output is called marginal
revenue. As the business increases its level of output, each unit
increase in output increases the business’s total cost. The additional
cost of producing one more unit of output is called marginal cost.
In the special case in which the price of the commodity is given to
the business by the market, marginal revenue equals price. For
example, if the business produces plywood, and the market price of
plywood is $300 per 1,000 square feet, the marginal revenue from
each additional thousand square feet is $300. The business would
increase plywood production—and maximize profit—as long as
the marginal cost of each additional thousand square feet is less
than $300. The business would not increase production if cost of
each additional thousand square feet is more than $300 to produce.
The principle of profit maximization is germane to a neurosurgical
practice. The reasoning used by businesses that choose
30 AANS Bulletin • www.AANS.org