Hospital Cost Growth Down

Health Affairs

Volumn 15, Issue 3, 1996, Pages 134-139

  Guterman, Stuart ^a   Ashby, Jack ^a   Greene, Timothy ^a  

^a Prospective Payment Assess Commn   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

ARTICLE; COST; COST CONTROL; FINANCIAL MANAGEMENT; HOSPITAL COST; HUMAN; MEDICARE; PROSPECTIVE PAYMENT; REIMBURSEMENT; UNITED STATES;

COST ALLOCATION; COST CONTROL; FINANCING, PERSONAL; HOSPITAL COSTS; HUMANS; MEDICARE; PROSPECTIVE PAYMENT SYSTEM; REIMBURSEMENT MECHANISMS; UNITED STATES;

EID: 0005213705     PISSN: 02782715     EISSN: None     Source Type: Journal    
DOI: 10.1377/hlthaff.15.3.134     Document Type: Article

References (15)

1. See Prospective Payment Assessment Commission, Medicare and the American Health Care System (Washington: ProPAC, June 1996).
2. Initially, PPS applied only to inpatient operating costs, which include all Medicare-allowable routine and ancillary (but not capital) costs. PPS for inpatient capital costs took effect in FY 1992.
3. The degree of each hospital's cost response to PPS was related to the severity of anticipated pressure. See J. Feder, J. Hadley, and S. Zuckerman, "How Did Medicare PPS Affect Hospitals?" The New England Journal of Medicine 317, no. 14 (1987): 862-873.
4. American Hospital Association, National Hospital Panel Survey, December 1995.
5. The PPS inpatient margin is computed as [PPS inpatient payments-PPS inpatient costs]/[PPS inpatient payments]. The aggregate PPS inpatient margin is computed by summing PPS inpatient (operating plus capital) payments and costs for all hospitals.
6. The latest available data on PPS inpatient margins are from the Medicare Cost Reports filed by each hospital for the cost reporting period beginning during federal FY 1994. PPS inpatient margins for 1995 and 1996 were estimated by applying information on current payment and cost trends to that base. The payment trend is estimated using the FY 1995 and 1996 updates to the PPS operating and capital payment rates and ProPAC estimates of the increase in the PPS case-mix index. The cost trend is estimated using monthly data through December 1995 on total hospital expenses per adjusted admission from the AHA's National Hospital Panel Survey.
7. Data on total revenues and expenses per adjusted admission are from the AHA Annual Survey of Hospitals. Total revenues and expenses include all sources, including inpatient and outpatient acute care and postacute care based in the hospital, as well as hospital activities unrelated to patient care, such as parking, catering, and gift shop services. Adjusted admissions are a measure of the combined volume of inpatient and outpatient services provided by a hospital.
8. The cost growth figures cited here differ somewhat from those presented earlier. The earlier data describe the trend in Medicare inpatient operating costs per case, whereas these portray total hospital expenses per adjusted admission.
9. This measure includes not only Medicare inpatient operating costs, but also Medicare inpatient capital and outpatient costs, inpatient and outpatient costs for other patients, and non-patient care costs incurred by the hospital.
10. The total margin is computed as [total hospital revenues-total hospital expenses]/[total hospital revenues]. The aggregate total margin is computed by summing total hospital revenues and expenses for all hospitals.
11. See ProPAC, The Relationship of Hospital Costs and Payment by Source of Revenue, 1980-1991, Intramural Report 1-95-01 (Washington: ProPAC, October 1995).
12. The payment-to-cost ratio for each payer category is computed using the charges and payments by category reported by each hospital in the AHA Annual Survey of Hospitals. A hospital-level ratio of expenses to charges is then applied to the reported charges by category to derive an estimate of costs by category for each hospital. Payments and costs by category are aggregated for all hospitals, and the ratio of payments to costs is computed for each category. Values are imputed for hospitals that do not provide the data necessary to compute the relevant variables. This may affect the payment-to-cost ratios for each payer in each year but is unlikely to distort the patterns across payers or years.
13. Because Medicare and private payers account for similar shares of total hospital costs, a decrease in the ratio of payments to costs from one source can be offset by an about equal increase in the ratio from the other source.
14. The increased federal funding of Medicaid disproportionate-share payments came through the use of provider-specific taxes and donations to the state Medicaid programs, which since have been limited by federal law. See ProPAC, Analysis of Medicaid Disproportionate Share Payment Adjustments, Congressional Report C-94-01 (Washington: ProPAC, 1 January 1994).
15. The 97 percent Medicare payment-to-cost ratio in 1994 contrasts with the PPS margin of 4.7 percent in the same year. This is attributable to the broader scope of the payment-to-cost ratio, which reflects payments and costs for all Medicare services (inpatient and outpatient acute care, medical education programs, and hospital-based postacute care). Payments for outpatient services, medical education, and post- acute care tend to be below reported costs because of the use of fee schedules, discounts from cost-based rates, and payment limits. In addition, the payment-to-cost ratio reflects Medicare's share of all hospital costs, whereas the PPS margin is calculated using only Medicare-allowable costs, which are believed to be 3-5 percent lower.