Trends in length of stay for Medicare patients: 1979-87 - Hospital Payment: Beyond the Prospective Payment System

Health Care Financing Review, Winter, 1993 by Gerald F. Kominski, Christina Witsberger

INTRODUCTION

During the 1970s, hospital LOS for the Medicare population declined at an average annual rate of 1.9 percent (Prospective Payment Assessment Commission, 1988). LOS began to decrease more rapidly among Medicare patients in the early 1980s but leveled off by 1986 and remained relatively constant during the late 1980s (Prospective Payment Assessment Commission, 1992). A number of significant changes in health care delivery and financing during the late 1970s and early 1980s had a substantial effect on the utilization of hospital inpatient care and thus LOS. Perhaps the most important factor was the Medicare PPS. PPS provides strong incentives for hospitals to reduce average LOS, and the rapid decline in LOS during the early 1980s is often cited as evidence of how rapidly hospitals responded to these incentives.

Other concurrent trends, however, also affected the utilization of hospital inpatient care beginning in the late 1970s and continuing through the late 1980s, including: (1) changes in case mix related to the adoption of new technologies; (2) increasing use of outpatient treatment, especially for surgical patients; (3) PPS incentives to substitute post-acute care services, such as skilled nursing facility care or home health care, for hospital inpatient care; (4) increased efforts, after the implementation of PPS, by peer review organizations PROS) to review the appropriateness of inpatient surgical admissions; and (5) changes in consumer demands on the health care system. Other recent studies have examined the impact of technology, outpatient shift, and the use of postacute care (Carter, Newhouse, and Relles, 1990; Kominski and Bradley, 1993; Neu and Harrison, 1988; Steiner and Neu, 1993; Jacobson, Kahan, and Noehrenberg, 1992).

This article focuses on trends in LOS for Medicare patients during the rapidly changing period from 1979 through 1987. Furthermore, we examine why LOS for Medicare patients began to level off after the introduction of PPS. Our results indicate that case-mix changes, especially among surgical cases, had a substantial effect on aggregate LOS. Furthermore, our findings refute a commonly held belief that PPS produced only a one-time savings in resource use (see, for example, Coulam and Gaumer, 1992).

Our analyses begin with overall trends in LOS and then focus on trends in LOS for surgical cases. Trends for surgical cases are of concern to policymakers for several reasons. Surgical cases accounted for about 30 percent of Medicare hospital admissions during the 1980s but almost 50 percent of payments for hospital inpatient care by 1987. The increased use of outpatient surgery has reduced the volume of simple surgical procedures performed on an inpatient basis, while technology diffusion has increased the availability of more complex surgical treatments. Therefore, greater use of outpatient surgery for short-stay procedures and increased use of complex, long-stay procedures are likely to result in higher inpatient costs per case. Policymakers should not necessarily conclude that higher costs per case indicate a failure of PPS incentives for efficiency, however.

Policymakers may also be interested in the indirect consequences of surgical LOSs on Medicare program expenditures. For example, declines in inpatient LOS for Medicare surgical patients resulted in a reduction in inpatient visits billed by physicians but an increase in followup visits in outpatient settings and in visits provided by physicians other than the primary surgeon (Kominski and Biddle, 1993). The reduction in inpatient visits represents an indirect impact of PPS on physician behavior and provides supporting evidence for reducing surgical global fee payments prior to the implementation of the Medicare fee schedule. Although PPS-related declines in LOS may have reduced continuity of care, they do not appear to have affected health outcomes, at least during the first 2 years of PPS (Kahn et al., 1990).

Previous work by Gornick (1982) using Medicare data showed a slight increase from 1967 to 1977 in the percentage of surgical hospitalizations and a slower rate of decline in average LOS for surgical cases than for non-surgical cases. Other researchers (Sloan and Valvona, 1986; Showstack et al., 1985) studied LOS or costs using non-medicare data on a limited number of surgical operations. These studies found that technology changes played a significant role in the cost and LOS of surgical cases. Our study provides more complete information on longitudinal trends in LOS for Medicare patients, especially those who undergo surgery, both before and after the implementation of PPS.

Geographic differences and changes in average LOS are of interest to policymakers as well. Numerous studies have documented geographic differences in practice patterns. Less attention has been paid to whether these differences have become more pronounced or have diminished as part of the substantial reductions in LOS in the early 1980s.

In this article, we examine several aspects of trends in hospital LOS from 1979 through 1987. First, we analyze trends in overall LOS for all Medicare patients and for medical and surgical cases separately. Second, we examine geographic differences in LOS trends for the four major census regions and for urban and rural areas. Finally, we focus on LOS trends for surgical cases only. In this phase of the analysis, we re-examine overall trends and trends across geographic regions controlling for changes in case mix.