In 2006, care provided to Medicare beneficiaries in the hospital outpatient setting accounted for 7 percent of total Medicare program spending (excluding beneficiary cost sharing), ranking it fourth (along with skilled nursing) after care provided in the inpatient setting (29 percent), by physicians (15 percent), and in other fee-for-service settings (i.e., hospice, rural health clinics) (13 percent) (MedPAC, 2007a). Overall spending by the Medicare program and beneficiaries on hospital outpatient services (excluding clinical laboratory services) nearly doubled between 1996 and 2006, reaching $31.6 billion (Figure 1.1) (MedPAC, 2007b). The CMS Office of the Actuary projects continued growth in total spending, averaging 10.4 percent per year from 2003 to 2008 (MedPAC, 2007b). A prospective payment system for hospital outpatient services (Outpatient Prospective Payment System [OPPS]) was implemented in August 2000 and the services paid under it represent approximately 90 percent of spending on all hospital outpatient services.
Figure 1.1. Spending on All Hospital Outpatient Services, 1996-2006 (MedPAC 2007)
Notes: Spending amounts are for services covered by the Medicare OPPS and those paid on separate fee schedules (e.g., ambulance services or durable medical equipment) or those paid on a cost basis (e.g., organ acquisition or flu vaccines). They do not include payments for clinical laboratory services. * Estimate Source: CMS, Office of the Actuary.
According to a recent Medicare Payment Advisory Committee (MedPAC) report, spending increases are the result of both an increase in the volume of outpatient services and the mix of services4 (MedPAC, 2007c). Outpatient service volume grew rapidly from 2001, the first full year of prospective payment in the outpatient hospital setting, to 2005; however, the rate of increase slowed from 11.9 percent in 2002 to 3 percent in 2005 (Figure 1.2) (MedPAC, 2007c). Most of the growth in volume during this period was the result of an increase in the number of services per beneficiary. In addition to increases in the use of services per beneficiary, the complexity of services increased, further contributing to the escalation in costs.
Figure 1.2. Annual Growth in the Number of Medicare Outpatient Services (MedPAC 2007)
Note: Data are for hospitals covered under the Medicare OPPS. Source: (MedPAC, 2007),
hospital outpatient claims from CMS. These MedPAC analyses exclude separately paid drugs and pass-through devices.
A wide variety of care is provided in the hospital outpatient setting under OPPS, including evaluation and management (E&M) visits, services/procedures (such as diagnostic imaging and other tests), and the provision of drugs/biologicals. While procedures constituted only 18 percent of the volume of care, they represented 47 percent of the payments in 2005 (MedPAC, 2007b) (Table 1.1). Imaging constituted the second largest category based on volume (19 percent) and spending (23 percent) in 2005.
The growth in the volume of and spending for hospital outpatient services highlights the importance of this care setting for Medicare beneficiaries. At present, there is no understanding of the quality of care delivered in this setting, and accountability for performance is only beginning to emerge through modifications to the Reporting Hospital Quality Data for Annual Payment Update Program (RHQDAPU Program). Given the likelihood for substantial deficits in care — both the under use and over use of services in this setting — important opportunities for quality improvement and potential cost reduction exist. The current absence of performance measurement and transparency in this setting hinders the ability to understand where deficits are occurring and how to adjust payment policies to drive improvements in care.