Hospital volume responses to Medicare's Outpatient Prospective Payment System: Evidence from Florida

• Published in: Journal of health economics Vol. 31; no. 5; pp. 730 - 743
• Main Authors: He, Daifeng, Mellor, Jennifer M.
• Format: Journal Article
• Language: English
• Published: Netherlands Elsevier B.V 01-09-2012; Elsevier Sequoia S.A
• Subjects: Ambulatory Care - economics; Demand inducement; Empirical Research; Evidence; Florida; Health administration; Health insurance; Health services; Hospital costs; Hospitals; Hospitals - utilization; Humans; Medical care; Medicare; Medicare - economics; Medicare payment reform; Models, Theoretical; Outpatient care facilities; Outpatient Prospective Payment System; Patients; Payments; Prospective Payment System - economics; Prospective payment systems; Reimbursement; Studies; Substitution; United States; Volume response; Florida; United States; United States > US; Volume response; Substitution; H51; H32; Medicare payment reform; I11; Outpatient Prospective Payment System; I12; Demand inducement
• ISSN: 0167-6296; 1879-1646
• DOI: 10.1016/j.jhealeco.2012.06.001

Effective in 2000, Medicare's Outpatient Prospective Payment System (OPPS) sets pre-determined reimbursement rates for hospital outpatient services, replacing the prior cost-based methods of reimbursement. Using Florida outpatient discharge data, we study the effect of OPPS on hospital outpatient volume. We find that on average Medicare rate cuts either decreased or had no significant effect on Medicare volume, but increased private fee-for-service (FFS) volume. We also find that responses vary with the hospital's “exposure” to Medicare payment changes, where exposure is measured as the baseline Medicare patient share. Compared to less exposed hospitals, highly exposed hospitals responded with larger increases in private FFS volume and with smaller decreases (in some cases, even increases) in Medicare volume when payment rates fell. Our results are consistent with provider demand inducement.