Technical Details

Methodology for Calculating Health Care Costs

This website displays health care costs for common procedural and acute episodes of care. An episode of care is defined as the combination of all health care services associated with a specific diagnosis or procedure from beginning to end. Grouping services and procedures together sheds light on the total cost of care.


The Wear the Cost website uses utilization and payment data Maryland Medical Care Data Base (MCDB) and Medicare fee for service claims data provided by the Centers for Medicare and Medicaid Services (CMS). The MCDB is a database run by the Maryland Health Care Commission (MHCC) that contains administrative and claims data on Maryland residents insured through public and private commercial health plans. This database captures information on utilization and payment for health care services rendered in all care settings – including hospitals, physician offices, ambulatory surgery centers, pharmacies, and long-term care facilities.

MHCC will further update the website as more years of data become available, to allow for year-over-year trend analyses.


To calculate the episodes of care, MCDB claims data were run through an episode grouper developed by HCI3 (now part of Altarum Institute) and enhanced by Remedy Partners. This tool uses an algorithm to group procedure and diagnosis codes into comparable buckets, or “episodes of care,” and then calculate the overall costs of these episodes. Using this methodology, average costs per episode were calculated for acute care hospitals in Maryland, and were risk adjusted for patient illness burden.

The methodology identifies facility and professional claims with anchor codes for the episodes, and then determines all episode related service costs in a look back and look forward timeframe. Only completed episodes are included in the analysis; consequently, procedures occurring in the last quarter of the calendar year are excluded from the annual analysis. Additionally, the episode grouper also applies guardrail filters when defining the unit of measurement which is a completed episode. These filters are:
Upper and lower age limit – Only episodes for patients within the age limit specified for each episode are included.
Lower and upper episode cost limit – The grouper includes low and high trim points that determine whether an episode is an outlier. Any episode that is below or above the outlier trim points is excluded from the analysis.
Coverage gap – Members with coverage gap are excluded from the analysis and only members that have full coverage are included.
Orphan Episodes – Only episodes that are attributable are included. This means episodes that do not have a facility claim either inpatient or outpatient are excluded as orphan episode.

The cost is calculated using the allowed amounts for all services related to the episode, including prescription drugs. Only services relevant to the episode are included. Risk-adjustment is done using multi-part regression models based on patient demographics, historical risk factors, and episode severity, with separate models for typical and potentially avoidable complications.


The following table lists the episode thresholds:

Episode   2014/2015 Threshold   2015/2016 Threshold   2016/2017 Threshold   2018/2019 Threshold   PAC Rate Threshold
Bariatric Surgery 5 20
Colorectal Resection 25 15 44
Coronary Angioplasty 25
C-Section 300 110
Gall Bladder Surgery 26 30 46
Hip Replacement 20 23 40 10 106
Hysterectomy 25 27 36 55 47
Knee Arthroscopy 120
Knee Replacement 20 21 65 20 86
Lumbar Laminectomy 30
Lumbar Spine Fusion 30 10
Tonsillectomy 40
Vaginal Delivery 60 61 29 40

Some hospitals did not meet these minimum episode limits, and were excluded from the website display; however the episodes for these hospitals were included in the calculation of all statewide average measures.

Hospitals that have not met PAC Rate Threshold will have the Potentially Avoidable Complication shown as “Unable to Calculate


Episode costs were divided into two categories: those related to expected components of a patient’s care (such as office visits, physician consultation and follow-up, surgery, and physical therapy), and those that were due to potentially avoidable complication (PACs). PACs were defined as events that could harm patients and that could be avoided – such as those due to guidelines not put into practice or followed mistakes made in the clinical setting, and other system failures. Episode costs for expected care and for PACs were then compared across Maryland hospitals to shed light on key differences in cost and quality.


MHCC employed a multi-step approach to ensuring data quality for this analysis. Claims data in MCDB was subject to several levels of data quality testing, both upon initial receipt from data submitters and on an ongoing basis. In addition, episode of care calculations run through the episode grouper are carefully checked by staff from MHCC and its analytic vendors. Finally, MHCC shared episode cost calculations and data displays with each hospital prior to publishing its findings, and gave them the opportunity to provide feedback. These data quality standards and practices help to ensure that the information on this website is valid and credible.

Technical Resources Back to the Top

Additional technical information on the methodology for grouping and analyzing episodes of care is available on Remedy’s website.

For questions related to the methodology, please contact us.