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Hospital outpatient services under Medicare, 1987.

Hospital outpatient services under Medicare, 1987

Introduction

The implementation (effective October 1, 1983) of the Medicare prospective payment system (PPS) for inpatient care provided to Medicare beneficiaries in participating short-sty hospitals has resulted in large increases in the utilization of hospital outpatient (HOP) services. As shown by Medicare program data in this article, there appears to be a shift from hospital inpatient to HOP care.

From 1984 through 1987, program payments for Medicare HOP services increased from $3.4 billion to $5.6 billion, an average annual rate of growth (AARG) of 18.2 percent. During the same period, program payments for Medicare hospital inpatient services increased fro $38.5 billion to $44.1 billion, an AARG of only 4.6 percent. Since the implementation of PPS, the HOP rate of growth (18.2 percent) is actually lower than for the pre-PPS years 1974-83 (26.4 percent), but the HOP rate is quadruple the rate of increase for hospital inpatient services for the period 1984-87.

In 1983, HOP program payments represented about 5.0 percent of all Medicare expenditures; by 1987, the proportion had increased to 7.4 percent. During the period 1984-87, total Medicare payments grew at an AARG of 8.6 percent compared with 19.0 percent during the period 1974-83.

Medicare is authorized to pay for ambulatory surgical procedures performed in ambulatory surgical centers (ASCs), HOP departments, and physician offices. In 1982, Medicare began paying the ASCs on the basis of prospective rates for four groups of surgical procedures. In ASCs, Medicare pays 100 percent of the prospective rates, waiving the usual Part B 20-percent coinsurance and deductible requirements. The HOP departments were reimbursed for surgical procedures, incuding those on the ASC list, on a reasonable cost basis, with beneficiairies paying a 20-percent coinsurance.

In an effort to control the rapid grwoth in HOP program payments, Congress passed the Omnibus Budget Reconciliation Act (OBRA) of 1986 (Public Law 99-509), which revised the Medicare reimbursement methodology for ambulatory surgery performed in HOP facilities. Instead of paying hospitals on a reasonable cost basis, OBRA mandated that the surgical procedures covered in participating ASCs were to be paid a blend of HOP costs and the ASC prospective payments rates. Surgical procedures not approved for ASCs continue to be paid on the traditional reasonable cost basis.

OBRA 1986 also directed the Secretary of Health and Human Services to develop by April 1989 a PPS for all ambulatory surgery performed by HOP departments. A PPS for all other types of HOP care was to be developed by January 1991. To support the development of these new systems, hospitals are required by OBRA to use the Health Care Financing Administration (HCFA) Common Procedure Coding Systems (HCPCS) to report claims for surgery and other designated outpatient services. The HCPCS is based on codes found in Physicians' Current Procedural Terminology, 4th Edition; it is intended to standardize the reporting of outpatient services by hospitals for development of a PPS and to enable comparisons of services among hospitals and other ambulatory settings.

Medicare's initiation of prospective payment for inpatient hospital services probably explains a significant portion of the continued rise in the use of outpatient hospital services. The incentives embedded in PPS encouraged hospitals to re-examine traditional modes of patient care. The ability of hospitals to treat more patients on an outpatient basis was facilitated by recent advances in medical technology; procedures such as cataract extraction, insertion of a pacemaker, and cardiac catheterization can now be performed efficiently and appropriately on an outpatient basis.

Utilization review policies have also influenced the Medicare patient case-mix in hospitals. For example, preadmission review for medical necessity, appropriateness, and quality of care encourage treatment in the most cost-effective setting consistent with the patient's safety. Public and private insurers have also encouraged the use of outpatient care as a means of containing the growth of health expenditures; that is, some insurers pay 100 percent of the charge for procedures that are performed on an outpatient basis, but require a coinsurance payment for those procedures requiring a hospital inpatient stay.

HCFA's goals and objectives related to the development and implementation of a PPS for ambulatory surgery and meical care may be summarized as follows:

* To control growth in Medicare expenditures.

* To select and use a patient classification system that is efficient, equitable, and responsive to changes in medical technology.

* To maintain and improve beneficiary access to quality care.

* To give providers of care incentives for the efficient delivery of services.

* To use payment rates that reflect identifiable and justifiable differences in resource costs.

The data are arrayed by: selected calendar years 1974-87 (Tables 1 and 2); sex, race, type of entitlement, and selected types of hospital outpatient services (Tables 3 and 4); beneficiary area of residence (Table 5); selected leading principal diagnoses (Table 6); and selected leading principal surgical procedures (Table 7).

Selected data highlights

Trend data shown in Table 1, for selected years 1974-87, compare the amounts of Medicare program payments for all Medicare services, total hospital services, and inpatient and outpatient hospital services. The relative growth in program payments during the period is presented through the use of indexes, with 1974 representing the base year (Figure 1). To illustrate the growth in the proportion of HOP program payments during the 1974-87 study period, HOP payments are presented as a percent of all Medicare payments, total hospital payments, and hospital inpatient payments. AARGs are also shown.

* From 1974 to 1983, program payments for all Medicare services increased from $11.2 billion to $53.4 billion, an AARG of 19.0 percent.

* Following the implementation of PPS, the escalation of program payments (from $59.1 billion in 1984 to $75.8 billion in 1987) for all Medicare services slowed to an AARG of 8.6 percent, an indication of the influence of the PPS.

* For hospital inpatient services during the 1974-83 period, program payments climbed from $7.8 billion to $34.3 billion, an AARG of 17.8 percent.

* The AARG for hospital inpatient payments decreased to 4.6 percent in the post-PPS years (1984-87).

* Program payments for HOP services increased from $323 million in 1974 to $2.7 billion in 1983, an AARG of 26.4 percent.

* Although the AARG in HOP payments increased at a slower rate (18.2 percent) during the post-PPS years 1984-87, the rate of increase was considerably higher than that for all Medicare services (8.6 percent) and hospital inpatient services (4.6 percent).

* To relative rate of growth in program payments (as measured by the index presented in Table 1) shows the HOP payments jumped from an index of 100 in 1974 to 1,734 in 1987, or by a factor of more than 17. In contrast, total Medicare payments increased by a factor of only 7 and total hospital payments by a fator of only 6.

* HOP program payments accounted for 2.9 percent of all Medicare program payments in 1974; the proportion had increased to 7.4 percent by 1987.

* As a proportion of the total hospital payments, HOP and 11.3 percent in 1987.

* As a proportion of hospital inpatient payments, HOP payments rose from 4.1 percent in 1974 to 12.7 percent in 1987.

Trends in the number of supplementary medical insurance (SMI) enrollees, type of enrollment, the amounts of HOP covered charges, and HOP program payments for the years 1974 through 1987 are shown in Table 2.

* The total number of SMI enrollees increased from 23.2 million in 1974 to 31.2 million in 1987, an AARG of 2.3 percent.

* Among the disabled -- including persons under 65 years of age with end stage renal disease (ESRD)--the rate of growth (3.7 percent) was 68 percent greater than the rate among the aged (2.2 percent) during the period 1974-87.

* From 1974 to 1987, covered charged for HOP services to Medicare beneficiaries increased from $535 million to $9.6 billion, an AARG of 24.9 percent.

* During the same period, program payments for HOP services increased from $323 million to $5.6 billion, an AARG of 24.5 percent.

* The average HOP program payment per enrollee increased from $14 in 1974 to $180 in 1987, an AARG of 21.7 percent.

* In 1987, the average HOP payment per enrollee was $417 for the disabled compared with $156 for the aged. This reflects the higher proportion of disabled ESRD enrollees who use outpatient renal dialysis.

In Table 3, the use of Medicare HOP services during 1987 is shown by types of service. The types of service are presented by sex, race, and type of enrollment. The pattern of use is measured by the amounts of covered charges, percent distribution of covered charges, and average charge per enrollee.

* Nearly 52 percent of all Medicare HOP charges ($9.6 billion) were for three services--radiology ($2.3 billion or 24.2 percent), renal dialysis ($1.4 billion or 14.2 percent), and laboratory ($1.3 billion or 13.0 percent) (Figure 2).

* HOP charges for operating room services ($936 million) accounted for about 10 percent of all HOP charges for Medicare beneficiaries, reflecting the significance of surgical procedures performed in an outpatient setting.

* By race and type of enrollment, substantial differences exist in the use of HOP services as measured by the average charge per enrollee. The total charge per enrollee for persons of races other than white ($465) was 60 percent higher than that for persons of the white race $(290). The total charge per disabled enrollee ($633) was 129 percent higher than that for the aged ($277). For the most part, these differences in the average charge per enrollee reflect the use of renal dialysis services by ESRD enrollees, who constitute a larger proportion of the disabled population than do the ESRD enrollees in the aged population.

* Renal dialysis accounted for about 47 percent of all HOP charges among the disabled, but only 7 percent among the aged. Similarly, charged for renal dialysis services represented 37 percent of all charges for persons of races other than white, compared with only 10 percent for white persons.

Hospital outpatient clinic and emergency room visits and charges under Medicare for 1987 are shown in Table 4, by sex, race, and type of enrollment.

* Users of HOP services in 1987 made 6.4 million visits to clinics and 8.7 million visits to emergency rooms, an average of 207 and 280 visits per 1,000 enrollees, respectively.

* Although data for 1983 are not shown in the table, the rate of use of clinic services by Medicare beneficiaries increased about 2 percent from 1983 (204 visits per 1,000 enrollees) to 1987 (207 visits per 1,000 enrollees).

* The rate or emergency room visits, however, showed an increased of about 36 percent from 1983 (206 visits per 1,000 enrollees) to 1987 (280 visits per 1,000 enrollees).

* The average HOP charge per visit for clinic services was $44, and the average charge per visit for emergency room services was $47.

* Substantial differences exist in the rate of use (visits per 1,000 enrollees) of clinic and emergency room services by race and type of entitlement. Persons of races other than white used clinic and emergency room services 4.2 times and 1.4 times more, respectively, than did white persons. This suggests that persons of races other than white in urban areas may be using HOP settings for primary care services to a greater extent than white persons. Disabled beneficiaries used clinic and emergency room services 2.7 times and 2.2 times more, respectively, than did aged beneficiaries.

HOP covered charges, program payments, and program payments per enrollee are shown in Table 5 by area of residence and type of enrollee. Calculations of rates per 1,000 enrollees are based on hospital insurance (HI) and/or SMI enrollment for 1987.

* In 1987, total HOP program payments in the United States were $5.6 billion; by region, the HOP program payments were highest in the South ($ 1.8 million) and lowest in the West ($ 1.0 billion).

* By State, California had the highest program payments ($603.5 million), and Alaska ($5.3 million) had the lowest.

* The average program payment per enrollee ranged from a low of $112 in Arkansas to a high of $277 in the District of Columbia (Figure 3).

* Although this is not shown in the table, ESRD enrollees (150,000) represented only about 0.05 percent of all Medicare HI and/or SMI enrollees (31.2 million), but they accounted for more than 20 percent ($1.1 billion) of all Medicare HOP program payments ($5.6 billion).

* The average HOP program payment per ESRD enrollee ($8,468) was nearly 50 times greater than the average HOP payment per enrollee ($173) for all Medicare enrollees.

* By region, the South had the lowest average program payment per enrollee ($165) for all types of enrollees, about 5 percent lower than the national average ($173). Whereas, the North Central displayed the highest average program payment per enrollee ($184), about 6 percent higher than the national average.

* The average program payment per aged enrollee ranged from a low of $72 in Hawaii to a high of $241 in Alaska, a difference of 235 percent.

* The average program payment per disabled enrollee ranged from a low of $62 in South Dakota to a high of $302 in Connecticut, a difference of 387 percent.

* By State, North Dakota had the lowest program payment per ESRD enrollee ($2,695), and Hawaii had the highest program payment per enrollee ($16,919), a difference of 528 percent.

For Medicare beneficiaries receiving HOP services in 1987, the 10 leading (most frequently reported) principal diagnoses are shown in Table 6. Data include the number of bills, amounts of covered charges and program payment, and average charges and program payments per bill.

* Among all Medicare beneficiaries using HOP services, the 10 leading principal diagnoses accounted for 29 percent (12.0 million) of all HOP billings (40.8 million) and 42 percent ($2.4 billion) of all HOP program payments ($5.6 billion).

* For the 10 leading principal diagnoses, the average program payment per bill ($198) was 45 percent higher than the average payment for all diagnoses ($137).

* Diabetes was the most frequently reported principal diagnoses (Figure 4), comprising 5 percent ($1.9 billion) of all billings and 1 percent ($61.7 million) of all program payments for HOP services. The average program payment per bill for beneficiaries with diabetes was $33, or about one-fourth that for all diagnoses ($137).

* Chronic renal failure (CRF) was the most costly leading principal diagnosis, accounting for 18 percent ($1.0 billion) of all HOP program payments. The average program payment per bill for CRF was $822, or six times higher than the average HOP payment for all diagnoses.

For 1987, Table 7 presents the leading (most frequently reported) principal surgical procedures performed on Medicare beneficiaries in HOP departments.

* HOP program payments for all surgical procedures amounted to $1.4 billion, an average of $324 per procedure.

* The 10 leading surgical procedures accounted for about 42 percent (1.8 million) of all HOP surgical procedures (4.2 million); however, these procedures accounted for more than three-fifths ($831 million) of all Medicare program payments for HOP surgery ($1.4 billion).

* The average program payment per procedure for the 10 leading surgical procedures ($466) was 44 percent higher than the average program payment for all surgical procedures ($324).

* The most frequent HOP surgical procedure was operation on lens (Figure 5), which accounted for 14 percent (589,000) of all procedures and 40 percent ($542 million) of all HOP program payments for surgical procedures ($1.4 billion).

* The average HOP program payment per procedure was highest for operations on lens ($921), almost three times higher than the average for all surgical procedures.

* The next highest average program payment per procedure was for operations on the breast ($493).

Definition of terms

Hospital outpatient services--Major hospital outpatient services covered by SMI include services in an emergency room or outpatient clinic, laboratory tests billed by the hospital, X-rays and other radiology services billed by the hospital, renal dialysis, medical supplies such as splints and casts, drugs and biologicals that cannot be self-administered, and blood transufusions. Surgical and anesthesiology services are also covered. Physical therapy services must be furnished under a plan set up and reviewed periodically by a physician. For outpatient speech pathology services, a speech pathologist can establish the plan of treatment.

Principal surgical procedure--The first-listed operative procedure recorded on the patient's bill (HCFA) Form 1453) and defined as surgery in the Health Care Financing Administration Common Procedure Coding System. Principal surgical procedures include incision, excision, amputation, introduction, endoscopy, repair, destruction, suture, or manipulation.

Aged beneficiaries--Persons 65 years of age or over entitled to monthly benefits or payments from the Social Security Administration (SSA) or the Railroad Retirement Board (RRB), persons uninsured for SSA or RRB benefits but transitionally insured for Medicare, and persons 65 years of age or over not include in the above groups who purchase HI and SMI coverage. Also included are persons dually entitled because they are 65 years of age or over and have ESRD.

Disabled beneficiaries--Persons under 65 years of age entitled to SSA disability benefits for at least 24 months, those who are dually entitled because they receive SSA disability benefits and have ESRD, and those deemed disabled solely because of ESRD.

Source and limitations of data

The HOP data in this article are derived from a 5-percent sample of bills for services performed in HOP departments during 1987. The bills were posted and tabulated by HCFA's central records as of December 1988. It is estimated that these bills represent about 98 percent of the eventual program payment for HOP services in 1987. Data for the years 1974-84 are based on bills recorded 12 months following the year of service. Sample counts are multiplied by a factor of 20 to estimate population totals. Therefore, the data are subject to sampling variability.

Payments for HOP services are based on interim rates that may be adjusted after the end of the hospital's accounting year, calculated on reasonable costs of operation. The HOP figures on this article reflect bills for covered services whether or not a reimbursement was made by the Medicare program.

Charges for outpatient services include the use of the hospitals' resources and staff, such as interns and resident physicians who are employed by the hospitals. Not included in these charges are the fees that may be charged by private physicians for services furnished to Medicare patients in the hospital outpatient department; such fees are billed separately to Medicare by the private physicians.

Acknowledgments

The Division of Reimbursement and Economic Studies made significant contributions to this article. A substantial portion of the background material presented in the first section of this article was based on information contained in the Secretary's Report to Congress: Development of Prospective Payment Methodology for Ambulatory Surgical Services (Department of Health and Human Services, 1989). The authors appreciate the comments and editorial services of Herbert Silverman and John Petrie of the Office of Research and Demonstrations and Joe Cramer of the Division of Hospital Experimentation. The authors would also like to thank Wili Kirby, Thaddeus Holmes, Diana Murphy, and Beverly Ramsey for providing the data files, graphic services, statistical services, and secretarial services, respectively.

Reference

Department of Health and Human Services: Office of Research and Demonstrations, Report to Congress: Development of Prospective Payment Methodology for Ambulatory Surgical Services, Health Care Financing Administration. Washington, D.C., April 1989.

Reprint requests: Viola B. Latta, 2502 Oak Meadows Building, 6325 Security Boulevard, Baltimore, Maryland 21207.
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Author:Helbing, Charles; Latta, Viola B.; Keene, Roger E.
Publication:Health Care Financing Review
Date:Jun 22, 1990
Words:3280
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