GROWTH IN MEDICARE HOSPITAL OUTPATIENT CARE - IMPLICATIONS FOR PROSPECTIVE PAYMENT

Medicare hospital outpatient expenditures are growing rapidly, In resp onse, Congress mandated implementation of a prospective payment system (PPS). The potential cost control effectiveness of a PPS is assessed in this paper by decomposing growth in charges into changes in benefic iaries, prices, case mix, encounters per beneficiary, services per enc ounter, and intensity per service. This paper examines aggregate growt h rates and rates disaggregated by type of service, highlighting rapid growth in surgery and imaging services. Findings indicate that 69% of observed growth is attributable to factors that would be unaffected b y an encounter-based PPS (i.e., beneficiaries, prices, case mix, and e ncounters per beneficiary). We conclude that effective cost containmen t may require implementation of direct volume controls in addition to a PPS.