Medicare hospital outpatient services and costs: implications for prospective payment

Health Care Financing Review, Winter, 1992 by Mark E. Miller, Margaret B. Sulvetta

The principle that a small number of procedures drives spending is most true of surgery and radiology and least true of laboratory-pathology services. High-volume radiology and medicine procedures account for much of the aggregate HOPD volume (i.e., 53 percent of all HOPD claims). High-volume surgery procedures account for only 8 percent of HOPD claims, and high-volume laboratory-pathology procedures account for 18 percent of all HOPD claims.

Volume and charges

In the previous section, we examined individual procedures. In designing a policy, it is useful to have a complete picture of volume and spending in the HOPD. To obtain a complete picture, a typology that classifies the entire range of services into clinically meaningful groups (i.e., imaging, patient visits) is necessary. The existing Medicare type-of-service system is relatively simple and of limited application for research purposes (the major problem being that two categories - medical care and surgery - account for the majority of charges). To examine total HOPD volume and charges, we use a more useful classification scheme recently developed by Berenson and Holahan (1992).

Berenson and Holahan convened panels of physicians to categorize specific services into broad type-of-service categories based on HCPCS procedure codes. More than 7,000 HCPCS procedure codes were categorized into a new system of 21 type-of-service categories. The criteria used in development were completeness (i.e., all HCPCS codes were classified with little reliance on "other" categories) and category definitions that were mutually exclusive, clinically meaningful, stable over time, and relatively immune to changes in technology and practice patterns.

Berenson and Holahan's classification scheme includes four kinds of imaging services: standard imaging, advanced imaging (e.g., CAT scans, magnetic resonance imaging), sonographic imaging, and imaging involving a major procedure (e.g., cardiac catheterization). Medical services have been divided into office visits, hospital visits, home and nursing home visits, emergency department visits, specialist evaluation and management services, and consultations. Major surgery procedures have been divided into cardiovascular, orthopedic, and other. Ambulatory surgery procedures have been divided into those related to the eye and other. Minor procedures (e.g., skin biopsy and nail debridement), oncology (e.g., radiation treatment and chemotherapy injections), dialysis, and endoscopy services are classified separately. Laboratory tests and other tests (e.g., electrocardiography) comprise the final categories.

The Berenson-Holahan system was designed to categorize physician services in all settings. As a result, some of the categories include inpatient procedures making them less relevant to the HOPD, (e.g., major procedures). We therefore collapsed some of the Berenson and Holahan categories. Additionally, because cataract-lens procedures (HCPCS 66800-66999) account for such a significant proportion of Medicare HOPD spending, this category was separated from other eye procedures. Thus, we use the 19 type-of-service categories listed in Table 6: routine visits, emergency department visits, consultation or specialty services, other visits, cataract-lens procedures, other eye procedures, other ambulatory procedures, minor procedures, major procedures, endoscopic procedures, imaging procedures, advanced imaging, standard imaging, sonography, oncology services, dialysis services, laboratory tests, other tests, and other-unclassified.