Medicare hospital outpatient services and costs: implications for prospective payment

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

Using this classification scheme, it is evident that HOPD volume is driven by routine visits, emergency department visits, standard imaging (e.g., X-rays), and laboratory tests (Table 6). To a lesser extent, consultations, advanced imaging (e.g., CAT scans), and other tests also account for significant HOPD volume. Charges, on the other hand, are dominated by cataract-lens procedures, advanced imaging, standard imaging, and laboratory tests. Routine visits, endoscopic procedures, and oncology services also account for significant proportions of charges.

Because their average charges are relatively lower, routine visit ($80.81), emergency department visit ($55.40), standard imaging ($107.66), and laboratory test ($95.28) services account for smaller proportions of charges than their volume would suggest. On the other hand, given their high average charges, cataract-lens ($1,157.88), advanced imaging ($424.28), and oncology ($490.83) services account for larger percentages of charges than their low volume would suggest. It is striking that cataract-lens procedures account for 12.6 percent of all HOPD charges with only 1.2 percent of volume.

Dialysis services require separate comment. The average charge ($1,508.20) suggests that HOPDs submit a single claim covering multiple treatment visits. Under Medicare payment policy, a single composite payment is made to facilities for dialysis services. Assuming the average wage-adjusted composite payment of $126 in 1987 suggests that a month's worth of treatment visits (about 12 visits) is reported on a single claim. A typical dialysis patient is expected to receive about 13 treatments per month (Held et al., 1990). If these visits were submitted as separate claims, approximately 11,000 additional dialysis claims (accounting for 2 percent of all claims) would be reported. Thus, because of HOPD billing practices, dialysis visits actually account for significantly more volume than one would gather from Table 6.

Using the Berenson and Holahan typology, we see that volume and spending do not always coincide. Volume is dominated by routine and emergency department visits (21.2 percent), advanced and standard imaging (29.9 percent), and tests (25.5 percent). Together, these service categories account for 76.6 percent of volume. Charges, on the other hand, are more dispersed: routine and emergency department visits (9.1 percent), cataract-lens surgery (12.6 percent), advanced and standard imaging (30.0 percent), endoscopic procedures (5.7 percent), oncology services (6.2 percent) and tests (16.0 percent). Together, these service categories account for 79.6 percent of charges.

Hospital-level analysis

In this section, we analyze differences in charges, costs, outliers, and case mix by various classes of hospitals (e.g., bed size, teaching status, urban-rural). We examine these characteristics at the hospital level for two reasons. First, the potential distributional impact of an HOPD PPS is an important policy consideration. Implicit in this analysis is the notion that certain hospitals are more or less efficient providers of services. Consequently, moving to a PPS that only adjusts for differences in case mix across hospitals is likely to result in "gainers" and "losers." The second reason, following from the first, is to explore the need for special hospital-type (e.g., urban-rural) adjustments under an HOPD PPS, if policymakers deem such adjustments legitimate. We recognize that a descriptive analysis alone cannot definitively address these issues and, as such, the results should be considered indicative rather than definitive.