Medicare's Outpatient Prospective Payment System and Hospital Admission Decisions (original) (raw)

Within 10 years of Medicare’s first full year of operation, rapid growth of Medicare’s hospital expenditures (increasing by 50% from 1967 to 1970, and more than doubling from 1970 to 1975) focused policymakers’ attention on its reimbursement policies. These policies included reimbursement at a rate of 2% over cost to hospitals. During the same decade, the concept of prospective payment was first articulated in a scholarly journal. This concept would pay a pre-calculated reimbursement based on categories of diagnoses: in essence, a budget for hospital services. By 1983, sufficient momentum had developed to fundamentally change payment policy at the national level, by implementing a prospective payment system for inpatient procedures. Depending on the effect of the incentives in play, this change in payment policy could influence whether some admissions are done on an inpatient or an outpatient basis. This study models admission type as a binary dependent variable in a difference-in-difference framework to assess the effect of the policy change for a collection of diagnoses. The primary data sets used in this paper are the State Inpatient Database (SID) and the State Ambulatory Surgery Database (SASD) from the state of New Jersey (1998-1999 and 2002-2003). The analysis supports the conclusions that (1) OPPS did not reduce the conditional probability of outpatient admission, (2) in a limited number of cases may have increased this probability, and (3) combining these two conclusions, support the conclusion that OPPS in fact did have a net positive impact on the movement toward outpatient admission