The Medicare Payment Advisory Commission (MedPAC) has released its annual data book on health care spending and the Medicare program. The data book covers national health care and Medicare spending, Medicare beneficiary demographics and financial liability, quality of care in the Medicare program, and trends in post-acute care, Medicare Advantage, and prescription drugs.

The data book also includes an analysis of inpatient and outpatient hospital services, including the following findings:

  • Declining aggregate Medicare margins. Between 2010-17, the aggregate Medicare margin decreased from -4.9% to -9.9%, with only one quarter of hospitals having positive Medicare margins in 2017. Rural and teaching hospitals have higher aggregate Medicare margins than urban hospitals and nonteaching hospitals, respectively. Hospitals that do not receive disproportionate share hospitals payments have the lowest aggregate Medicare margin. Despite negative Medicare margins for most hospitals, the hospital aggregate total margin (all-payer) continues to be positive, increasing from 6.4% in 2016 to 7.1% in 2017. However, the hospital aggregate total margin and operating margin is lower for major teaching hospitals than “other” teaching and nonteaching hospitals.
  • Outpatient payments and volume have grown faster than inpatient. MedPAC’s analysis found that Medicare fee-for-service (FFS) payments for hospital outpatient services grew faster than for inpatient services between 2010 and 2017, with outpatient spending increasing as a share of total Medicare spending during that period. For example, between 2016 and 2017, growth in outpatient spending (6.7%) significantly exceeded the growth in inpatient spending (1.5%).

Medicare FFS outpatient visits also increased between 2010 to 2017, partly due to an increase in observation visits that replaced short inpatient stays (1-3 days). During that period, outpatient observation visits per 1,000 beneficiaries increased by 23 while short inpatient stays per 1,000 beneficiaries fell by 26. However, this trend has slowed in recent years, with short inpatient stays actually increasing by three per 1,000 beneficiaries between 2016 and 2017 (during that time, the number of one-day inpatient stays increased by 6%). The number of hospital outpatient observation hours declined from 2016 to 2017 after continuous increases in prior years, driven by a decrease in the number of observation stays of over 48 hours.

MedPAC also notes that all-payer hospital outpatient visits grew 17.6% from 2010-17 while inpatient admissions declined 2.4%, although all-payer outpatient and inpatient service use both increased after 2014.

  • Off-campus hospital outpatient departments (HOPDs) provided less complex services than on-campus HOPDs. On average, services provided at off-campus HOPDs are less complex than services provided in on-campus outpatient departments. The services with the highest Medicare revenue in on-campus HOPDs are observation care, clinic visits, emergency department visits, and relatively complex procedures (i.e., endovascular procedures and implanting cardioverter-defibrillators), while the services with the highest Medicare revenue in off-campus HOPDs are clinic visits, imaging without contrast, and drug administration.