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Medicare physician and hospital utilization and expenditure trends.

Medicare physician and hospital utilization and expenditure trends


Beginning in 1984, Medicare utilization and expenditure patterns for the services of physicians and other noninstitutional suppliers changed significantly. Medical services provided by physicians in inpatient hospitals declined sharply, and Medicare patients started receiving more care in outpatient hospital facilities and ambulatory surgical centers. Surgical care for less life-threatening illnesses, such as eye conditions, migrated from inpatient hospital settings to outpatient facilities and physicians' offices.

Although Part B, or supplementary medical insurance (SMI), benefit reimbursements for prepaid health care have risen rapidly in recent years, the fee-for-service sector still accounts for most Medicare expenditures. In this article, major trends in fee-for-service SMI allowed charges, benefit reimbursements, and utilization patterns through 1987 are examined.


Major regulatory and legislative changes in Medicare reimbursements for fee-for-service hospital and physician care were implemented in the period 1983-87. Utilization rates for inpatient hospital care, which had expanded almost continuously since the beginning of the Medicare program, abruptly declined after 1983, as utilization and expenditure rates for physicians and other suppliers of medical goods and services and outpatient facility care increased.

The prospective payment system (PPS), which began on October 1, 1983, was gradually phased in during fiscal year 1984. PPS radically changed the method of Medicare payment for inpatient hospital services from cost-based reimbursement, which had been in effect since the beginning of Medicare in 1966, to predetermined rates for diagnosis-related groups. A major PPS objective is to encourage noninpatient surgical care. In 1983, 23 percent of all SMI enrollees used at least one hospital day in the year. By 1986, the proportion had declined to 19 percent, a rate that remained stable through 1987 (Table 1). [Tabular data omitted]

In 1983, 44 percent of all users of SMI-reimbursed services had reimbursements both for physicians and other suppliers and for outpatient facility care. By 1987, the proportion had increased to more than 50 percent (Table 2). SMI enrollees using both physician and outpatient facility care increased from 28 percent in 1983 to 38 percent in 1987 (Table 1 and Figure 1). The joint use of outpatient facilities and of physicians and other suppliers increased both for patients who used inpatient facilities and for those who did not (Table 2). [Tabular data omitted]

Medicare spending for physicians and other suppliers and for outpatient facility services paralleled changes in utilization. In 1983, persons using the services both of outpatient facilities and of physicians and other suppliers accounted for 68 percent of all SMI reimbursements, a proportion that increased to 80 percent in 1987. SMI spending for hospitalized and nonhospitalized persons followed similar trends. Persons using both physician services and outpatient facilities accounted for 69 percent of SMI spending for hospitalized enrollees in 1983 and 82 percent in 1987; persons in the same category accounted for 68 percent of SMI spending for nonhospitalized enrollees in 1983 and 76 percent in 1987 (Table 3). (Spending for hospitalized persons shown in Table 3 includes both inhospital and out-of-hospital expenditures.) [Tabular data omitted]

Part A, or hospital insurance (HI), payments for inpatient hospital care are increasingly accompanied by SMI reimbursements for the joint use of physician or other supplier and outpatient facility services (Table 4). In 1983, 62 percent of inpatient hospital spending was for persons using inpatient, physician or other supplier, and outpatient hospital services; this proportion increased to 75 percent in 1987. A relatively small amount of HI spending for SMI enrollees, $260 million in 1987, was not accompanied by any physician expenditure. This may have occurred because all physician spending for a hospital stay that straddled 2 calendar years occurred in the earlier year or because the physician did not perform a reimbursable service during the year.

Table : Table 4 Amount and percent distribution of Medicare hospital insurance benefit payments for inpatient hospital care, by type of supplementary medical insurance benefits received: United States, calendar years 1983-87
 Type of benefit received
 Physician and Outpatient
Calendar year Total only outpatient only
 Amount in millions
1983 $33,818 $12,479 $21,111 $228
1984 37,878 13,084 24,484 310
1985 39,223 11,296 27,664 263
1986 41,431 11,055 30,096 281
1987 43,767 10,640 32,867 260
 Percent distribution
1983 100.0 36.9 62.4 0.7
1984 100.0 34.5 64.6 0.8
1985 100.0 31.3 68.0 0.7
1986 100.0 26.7 72.6 0.7
1987 100.0 24.3 75.1 0.6

NOTES: "Physicians" includes both physicians and other noninstitutional suppliers of medical goods and services. Only fee-for-service use is included. Totals do not necessarily equal the sum of rounded components. SOURCE: Health Care Financing Administration, Bureau of Data Management and Strategy: Data from the Medicare Statistical System.

Average combined HI and SMI reimbursements for hospital users with inpatient hospital and physician or other supplier or outpatient facility care reached $9,685 in 1987 (Table 5), 44 percent above 1983 levels. From 1983 to 1987, average SMI reimbursements for hospitalized persons increased 45 percent. The average SMI reimbursement is now about the same as the average HI reimbursement.

Table : Table 5 Total Medicare spending per person hospitalized, by type of supplementary medical insurance benefit and type of expense: United States, calendar years 1983-87
 Type of benefit received(1)
Calendar year Physician and
and type of expense Total only outpatient

Total $6,718 $5,213 $7,991
Physician or outpatient 1,860 1,270 2,360
Inpatient hospital 4,858 3,943 5,631

Total 7,640 5,910 8,929
Physician or outpatient 2,037 1,342 2,555
Inpatient hospital 5,603 4,568 6,374

Total 8,575 6,634 9,626
Physician or outpatient 2,243 1,397 2,701
Inpatient hospital 6,332 5,237 6,925

Total 9,109 6,879 10,209
Physician or outpatient 2,421 1,440 2,905
Inpatient hospital 6,688 5,439 7,304

Total 9,685 7,335 10,724
Physician or outpatient 2,697 1,592 3,190
Inpatient hospital 6,988 5,743 7,534

(1) Excludes hospitalized patients with outpatient hospital payments only. NOTES: "Physicians" includes both physicians and other noninstitutional suppliers of medical goods and services. Only fee-for-service use is included. Totals do not necessarily equal the sum of rounded components. SOURCE: Health Care Financing Administration, Bureau of Data Management and Strategy: Data from the Medicare Statistical System.

SMI reimbursements to physicians for inpatient hospital services, as a proportion of total SMI spending for hospitalized persons, decreased steadily during the period. The declining incidence of hospitalization further reduced the share of total SMI spending represented by reimbursements for physician services in inpatient hospitals. The marked decrease in the proportion of persons using inpatient care was accompanied by significant changes in the characteristics of inpatient hospitalizations that further altered utilization patterns of physician and other supplier services.


The period 1983-87 was characterized by decreased inpatient hospital utilization and by rapid growth in supplementary medical insurance reimbursements, particularly reimbursements for physicians and other suppliers of services in a non-inpatient hospital setting and for outpatient facility care.


The authors wish to thank members of the Division of Information Analysis of the Health Care Financing Administration for their support in the preparation of this article.

Technical note

Administrative data from the Health Care Financing Administration's Medicare Statistical System and Hospital Cost Report Information System were used in preparing this article. Data for all files and for all years are incomplete for a variety of reasons. Two salient reasons follow: * Administrative data files are edited for erroneous

records. Such editing may require reprocessing and

reentry into the statistical files used for this article.

Occasionally, reprocessed administrative records are

not included in statistical files. * In this article, an attempt was made to portray

trends based on the year in which a service was

rendered and an expense incurred. Frequently, long

lags exist between the time of the service, the time a

bill is submitted for the service, and the time the

bill is finally recorded in the administrative billing

system. Thus, statistical information derived from

the administrative billing system is likely to be

incomplete at any given time.

To adjust for these limitations, we estimated total utilization, charges, benefit expenditures, and person-use information to ensure internal consistency based on the best data sources available.
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Article Details
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Author:Edwards, Winston O.; Fisher, Charles R.
Publication:Health Care Financing Review
Date:Jan 1, 1989
Previous Article:Leading inpatient surgical procedures for aged Medicare beneficiaries, 1987.
Next Article:Revisions to the National Health Accounts and methodology.

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