A DATA BOOK

Health Care Spending 

and the 

Medicare Program 

J UNE 201 9

iii

The MedPAC Data Book provides information on national health care and Medicare spending as 

well as Medicare beneficiary demographics, dual-eligible beneficiaries, quality of care in the 

Medicare program, and Medicare beneficiary and other payer liability. It also examines provider 

settings—such as hospitals and post-acute care—and presents data on Medicare spending, 

beneficiaries’ access to care in the setting (measured by the number of beneficiaries using the 

service, number of providers, volume of services, length of stay, or through direct surveys), and 

the sector’s Medicare profit margins, if applicable. In addition, it covers the Medicare Advantage 

program and prescription drug coverage for Medicare beneficiaries, including Part D.

MedPAC began producing its annual Data Book at the suggestion of congressional staff. Some 

of the information it contains is derived from MedPAC’s March and June reports to the 

Congress; other information presented is unique to the Data Book. The information is presented 

in tables and figures with brief discussions. 

We produce a limited number of printed copies of this report. It is, however, available through 

the MedPAC website: www.medpac.gov. 

Changes in aggregate spending among the fee-for-service sectors presented in this Data Book 

reflect changes in Medicare enrollment between the traditional fee-for-service program and 

Medicare Advantage. Increased enrollment in Medicare Advantage may be a significant factor in 

instances in which Medicare spending in a given sector has leveled off or even declined. In these 

instances, fee-for-service spending per capita may present a more complete picture of spending 

changes. We present both measures (aggregate and per capita) where warranted.

v

............................................................................................................................

1-1 Medicare was the largest single purchaser of personal health care, 2017...........................................

1-2 Medicare spending is concentrated in certain services and has shifted over time.............................

1-3 Aggregate Medicare spending for FFS beneficiaries, by sector, 2010–2018 ...................................

1-4 Per capita Medicare spending for FFS beneficiaries, by sector, 2010–2018 ....................................

1-5 Medicare’s share of spending on personal health care varied by type of service, 2017 ....................

1-6 Health care spending growth rates have begun to gradually increase following recent slowdown ....

1-7 Despite recent slowdown in per beneficiary spending growth, total Medicare spending growth 

rate is projected to rise .................................................................................................................

1-8 Trustees project Medicare spending to continue to increase as a share of GDP ............................

1-9 Changes in spending per enrollee, Medicare and private health insurance, 1970–2017.................

1-10 Trustees and CBO project Medicare spending to exceed $1 trillion by the early part of the 

next decade ..............................................................................................................................

1-11 FFS program spending was highly concentrated in a small group of beneficiaries, 2016 ..............

1-12 Medicare HI Trust Fund is projected to be insolvent in 2026 under Trustees’ 

intermediate assumptions..........................................................................................................

1-13 General revenue is paying for a growing share of Medicare spending .........................................

1-14 Medicare enrollment is rising while the number of workers per HI beneficiary is declining .........

1-15 Medicare HI and SMI benefits and cost sharing per FFS beneficiary, 2017 .................................

2-1 Aged beneficiaries accounted for the greatest share of the Medicare population and 

program spending, 2016............................................................................................................

2-2 Beneficiaries younger than 65 accounted for a disproportionate share of Medicare 

spending, 2016 .........................................................................................................................

2-3 Beneficiaries who reported being in poor health accounted for a disproportionate share of 

Medicare spending, 2016 .....................................................................................................................

2-4 Enrollment in the Medicare program is projected to grow rapidly through 2030 ..........................

2-5 Characteristics of the Medicare population, 2016.......................................................................

3-1 Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 2016.......

3-2 Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 

by beneficiaries’ characteristics, 2016........................................................................................

3-3 Covered benefits and enrollment in standardized Medigap plans, 2018 .......................................
vi

3-4 Total spending on health care services for noninstitutionalized FFS Medicare beneficiaries, 

by source of payment, 2016 ......................................................................................................

3-5 Per capita total spending on health care services among noninstitutionalized FFS beneficiaries, 

by source of payment, 2016 ......................................................................................................

3-6 Cost of employer-sponsored commercial insurance has grown more than twice as fast 

as Medicare costs .....................................................................................................................

4-1 Dual-eligible beneficiaries accounted for a disproportionate share of Medicare spending, 2016 ...

4-2 Dual-eligible beneficiaries were more likely than non-dual-eligible beneficiaries to be under 

age 65 and disabled, 2016 .........................................................................................................

4-3 Dual-eligible beneficiaries were more likely than non-dual-eligible beneficiaries to report 

being in poor health, 2016.........................................................................................................

4-4 Demographic differences between dual-eligible beneficiaries and non-dual-eligible 

beneficiaries, 2016....................................................................................................................

4-5 Differences in Medicare spending and service use between dual-eligible beneficiaries 

and non-dual-eligible beneficiaries, 2016...................................................................................

4-6 Both Medicare and total spending were concentrated among dual-eligible beneficiaries, 2016.....

5-1 SNFs improved on some measures but not others from 2011 to 2017..........................................

5-2 Home health agencies’ assessment-based performance measures increased markedly from 

2014 to 2017, while claims-based performance measures were largely unchanged ......................

5-3 IRFs improved on risk-adjusted rates of discharge to the community and potentially avoidable 

rehospitalizations during the stay, 2012 to 2017.........................................................................

5-4 Dialysis quality of care: Some measures show progress, others need improvement, 2012–2016...

5-5 Small improvements in hospital patient experience measures, 2013‒2017...................................

6-1 Number of acute care hospital closures has exceeded openings each year since 2011...................

6-2 Employment for hospital industry has grown slower than rest of health care sector and 

rest of economy, 2010–2018 .....................................................................................................

6-3 Medicare’s FFS payments for hospital outpatient services have grown faster than for 

inpatient services, 2010–2017 ...................................................................................................

6-4 Urban acute care hospitals comprised half of hospitals but vast majority of Medicare 

FFS discharges, 2017................................................................................................................

6-5 Circulatory system was most common major diagnostic category among Medicare FFS 

discharges from acute care hospitals, 2010 and 2017..................................................................

6-6 All-payer hospital outpatient visits increased rapidly while inpatient admissions declined, 

2010–2017 ...............................................................................................................................
vii

6-7 Growth in Medicare outpatient services and decline in inpatient discharges per FFS 

beneficiary have slowed, 2010–2017.........................................................................................

6-8 Declines in both medical and surgical inpatient discharges per Medicare FFS beneficiary 

have slowed, 2010–2017...........................................................................................................

6-9 Average length of stay has decreased for Medicare FFS inpatients and increased for 

non-Medicare inpatients, 2010–2017.........................................................................................

6-10 Hospital emergency department use per Medicare FFS beneficiary increased, 2010–2017...........

6-11 Decline in share of Medicare Part A FFS beneficiaries with at least one acute inpatient stay 

slowed, 2010–2017...................................................................................................................

6-12 Number of outpatient observation visits per Medicare FFS beneficiary increased while short 

inpatient stays decreased, 2010–2017 ........................................................................................

6-13 Acute care hospital occupancy rates have increased slightly overall but declined slightly at rural 

hospitals, 2013–2017................................................................................................................

6-14 One-fifth of Medicare inpatient PPS payments were from special add-on payments, 2017...........

6-15 After falling to a low in 2017, Medicare disproportionate share and uncompensated care 

payments to acute care hospitals increased.................................................................................

6-16 Medicare FFS inpatients discharged from acute care hospitals to home self-care decreased 

slightly while discharges to post-acute care increased, 2012–2017..............................................

6-17 The aggregate Medicare margin for acute care hospitals has decreased since 2010 ......................

6-18 Rural hospitals continued to have a higher aggregate Medicare margin than urban 

hospitals in 2017.......................................................................................................................

6-19 Teaching hospitals had higher aggregate Medicare margins than nonteaching hospitals, 2017......

6-20 Hospital aggregate total margin increased in 2017 to 7.1 percent ................................................

6-21 Urban hospitals have the highest aggregate total margin, 2010–2017 ..........................................

6-22 The hospital aggregate total margin continued to be lower for major teaching hospitals than 

for other hospitals, 2010‒2017 ..................................................................................................

6-23 Financial pressure leads to lower costs.......................................................................................

6-24 Private-payer ratio of payments to costs for hospital services remained relatively 

flat, 2012‒2017 ........................................................................................................................

6-25 Rapid charge growth caused the markup of charges above costs for Medicare services to 

increase, 2010–2017 .................................................................................................................

6-26 Medicare payments to inpatient psychiatric facilities have been relatively flat, 2007–2017 ..........

6-27 A growing share of inpatient psychiatric facilities are for-profit, 2010–2017 ...............................

6-28 Almost three-quarters of IPF patients were classified into one diagnosis group, 2017 ..................

6-29 A majority of IPF users are under the age of 65, 2017 ................................................................

7-1 Medicare spending per fee-for-service beneficiary on services in the fee schedule for physicians 

and other health professionals, 2008–2018.................................................................................

7-2 Growth in the volume of clinician services per fee-for-service beneficiary, 2000–2017 ...............

7-3 Medicare beneficiaries’ ability to get timely appointments with physicians was comparable 

with privately insured individuals, 2015–2018...........................................................................

7-4 Medicare and privately insured patients who were looking for a new physician reported more 

difficulty finding one in primary care, 2015–2018......................................................................
viii

7-5 Medicare beneficiaries’ access to physician care was comparable with privately insured 

individuals, and minorities in both groups reported unwanted delays more frequently, 2018 ........

7-6 Minorities in Medicare were more likely to report problems finding a new specialist than 

White beneficiaries, 2018..........................................................................................................

7-7 Changes in physicians’ professional liability insurance premiums, 2011–2018............................

7-8 Number of E&M office visits billed by APRNs or PAs grew rapidly from 2010 to 2017 .............

7-9 Spending on hospital outpatient services covered under the outpatient PPS, 2008–2018 ..............

7-10 Most hospitals provide outpatient services.................................................................................

7-11 Payments and volume of services under the Medicare hospital outpatient PPS, by type of 

service, 2017 ............................................................................................................................

7-12 Hospital outpatient services with the highest Medicare expenditures, 2017 .................................

7-13 Off-campus provider-based departments provided a mix of services different from on-campus 

outpatient departments, 2017.....................................................................................................

7-14 Number of hospital outpatient observation hours declined in 2017 after nearly a decade 

of steady increases....................................................................................................................

7-15 Number of Medicare-certified ASCs increased by 9 percent, 2011–2017 ....................................

8-1 The number of post-acute care providers decreased slightly in 2018 .........................................

8-2 Medicare’s fee-for-service post-acute care expenditures have been relatively stable since 2012 .

8-3 Freestanding SNFs and for-profit SNFs accounted for the majority of facilities, Medicare 

stays, and Medicare spending..................................................................................................

8-4 SNF admissions and stays declined in 2017.............................................................................

8-5 Freestanding SNF Medicare margins remained high in 2017 ....................................................

8-6 Cost and payment differences explain variation in Medicare margins for freestanding SNFs 

in 2017...................................................................................................................................

8-7 Financial performance of relatively efficient SNFs in 2017 reflects a combination of lower 

cost per day and higher payment per day .................................................................................

8-8 Trends in the provision of home health care.............................................................................

8-9 Most home health episodes are not preceded by hospitalization or PAC stay.............................

8-10 Medicare margins for freestanding home health agencies, 2016 and 2017 .................................

8-11 Number of FFS IRF cases decreased in 2017 ...........................................................................

8-12 Most common types of FFS inpatient rehabilitation facility cases, 2017....................................

8-13 Inpatient rehabilitation facilities’ Medicare margins by type of facility, 2008–2017...................

8-14 Low standardized costs led to high margins for both hospital-based and freestanding 

IRFs, 2017 .............................................................................................................................
ix

8-15 The top 25 MS–LTC–DRGs accounted for almost 70 percent of LTCH discharges in 2017.......

8-16 The number of Medicare LTCH cases and users decreased by over 7 percent between 

2016 and 2017........................................................................................................................

8-17 The aggregate LTCH Medicare margin continued to fall in 2017..............................................

8-18 The volume and share of LTCH cases meeting the criteria for the standard LTCH PPS rate 

increased from 2016 to 2017...................................................................................................

9-1 Enrollment in MA plans, 2003–2019.......................................................................................

9-2 MA plans available to almost all Medicare beneficiaries ..........................................................

9-3 Average monthly rebate dollars, by plan type, 2014–2019........................................................

9-4 Changes in enrollment vary among major plan types................................................................

9-5 MA and cost plan enrollment by state and type of plan, 2019 ...................................................

9-6 MA plan benchmarks, bids, and Medicare program payments relative to FFS spending, 2019........

9-7 Enrollment in employer group MA plans, 2006–2019 ..............................................................

9-8 Number of special needs plan enrollees, 2010–2019.................................................................

9-9 Number of SNPs and SNP enrollment rose from 2018 to 2019 .................................................

9-10 Twenty most common condition categories among MA beneficiaries, as defined in the 

CMS–HCC model, 2017.........................................................................................................

9-11 Medicare private plan enrollment patterns, by age and Medicare–Medicaid dual-eligible 

status, December 2017............................................................................................................

10-1 Medicare spending for Part B drugs furnished by physicians, hospital outpatient 

departments, and suppliers, 2005–2017 ...................................................................................

10-2 Change in Medicare payments and utilization for separately payable Part B 

drugs, 2009–2016 .................................................................................................................

10-3 Top 10 Part B drugs paid based on ASP, by type of provider, 2016 and 2017............................

10-4 Growth in ASP for the 20 highest expenditure Part B drugs, 2005–2019...................................

10-5 Trends in Medicare Part B payment rates for two originator biologics and their 

biosimilar products.................................................................................................................

10-6 Price indexes for Medicare Part B drugs, 2005–2017 ...............................................................

10-7 In 2017, 88 percent of Medicare beneficiaries were enrolled in Part D plans or had other 

sources of creditable drug coverage .........................................................................................

10-8 Changes in parameters of the Part D defined standard benefit over time....................................

10-9 Characteristics of stand-alone Medicare PDPs .........................................................................

10-10 Characteristics of MA–PDs.....................................................................................................

10-11 Change in average Part D premiums, 2015–2019.....................................................................

10-12 More premium-free PDPs for LIS enrollees in 2019.................................................................

10-13 In 2019, most Part D enrollees are in plans that use a five-tier formulary structure.....................

10-14 In 2019, PDPs and MA–PDs apply some utilization management to about 45 percent 

of listed drugs.........................................................................................................................

10-15 Characteristics of Part D enrollees, 2017..................................................................................

10-16 Part D enrollment trends, 2007–2017.......................................................................................
x

10-17 Part D enrollment by region, 2017...........................................................................................

10-18 Components of Part D spending growth...................................................................................

10-19 The majority of Part D spending was incurred by just one-fifth of all Part D enrollees, 2017......

10-20 Characteristics of Part D enrollees, by benefit phase reached, 2017...........................................

10-21 Part D spending and use per enrollee, 2017..............................................................................

10-22 Trends in Part D spending and use per enrollee per month, 2007–2017.....................................

10-23 Top 15 therapeutic classes of drugs covered under Part D, by spending and volume, 2017.........

10-24 Part D patterns of prescribing by provider type, 2017...............................................................

10-25 Part D patterns of prescribing for selected specialties, 2017......................................................

10-26 Price growth for Part D–covered drugs, 2006–2017 .................................................................

10-27 Comparison of price growth for Part B and Part D biologics, 2006–2017..................................

11-1 Number of dialysis facilities is growing, and most facilities are for profit and freestanding.............

11-2 Medicare spending for outpatient dialysis services furnished by freestanding and 

hospital-based dialysis facilities, 2016 and 2017 ...............................................................................

11-3 The ESRD population is growing, and most ESRD patients undergo dialysis..................................

11-4 Asian Americans and Hispanics are among the fastest growing segments of the 

ESRD population ...............................................................................................................................

11-5 Characteristics of Medicare fee-for-service dialysis patients, 2017...................................................

11-6 Aggregate margins varied by type of freestanding dialysis facility, 2017 .........................................

11-7 Hospice spending and use increased in 2017.....................................................................................

11-8 Hospice use increased across beneficiary groups from 2000 to 2017................................................

11-9 Number of Medicare-participating hospices has increased due to growth in for-profit hospices......

11-10 Hospice cases and length of stay, by diagnosis, 2017........................................................................

11-11 Hospice average length of stay among decedents increased slightly in 2017....................................

11-12 Hospice length of stay among decedents, by beneficiary and hospice characteristics, 2017.............

11-13 More than half of Medicare hospice spending in 2017 was for patients with stays exceeding 

180 days.............................................................................................................................................

11-14 Hospice aggregate Medicare margins, 2012–2016 ............................................................................

11-15 Medicare margins were higher among hospices with more long stays, 2016....................................

11-16 Hospices that exceeded Medicare’s annual payment cap, selected years..........................................

11-17 Hospice live-discharge rates, 2013–2017...........................................................................................

11-18 Medicare spending for clinical laboratory services, 2005–2018........................................................
1

A Data Book: Health care spending and the Medicare program, June 2019 3

Chart 1-1. Medicare was the largest single purchaser of 

personal health care, 2017

Note: CHIP (Children’s Health Insurance Program), DoD (Department of Defense), VA (Department of Veterans Affairs). 

“Personal health care” is a subset of national health expenditures. It includes spending for all medical goods and services 

that are provided for the treatment of an individual and excludes other spending such as government administration, the 

net cost of health insurance, public health, and investment. “Out-of-pocket” spending includes cost sharing for both 

privately and publicly insured individuals. Premiums are included in the shares of each program (e.g., Medicare, private 

health insurance) rather than in the share of the out-of-pocket category. “Other third-party payers” includes worksite health 

care, other private revenues, Indian Health Service, workers’ compensation, general assistance, maternal and child 

health, vocational rehabilitation, other federal programs, Substance Abuse and Mental Health Services Administration, 

other state and local programs, and school health. Slices do not total 100 percent because of rounding.

Source: CMS Office of the Actuary, National Health Expenditure Accounts, “Table 6: Personal Health Care Expenditures; Levels, 

Percent Change and Percent Distribution, by Source of Funds: Selected Calendar Years 1970–2017,” released December 

2018.

• Medicare is the largest single purchaser of health care in the United States. (The share of 

spending accounted for by private health insurance (35 percent in 2017) is greater than 

Medicare’s share (22 percent in 2017). However, private health insurance is not a single 

purchaser of health care; rather, it includes many private plans, including traditional 

managed care, self-insured health plans, and indemnity plans.) Of the $3.0 trillion spent on 

personal health care in 2017, Medicare accounted for 22 percent, or $660 billion (this 

amount includes spending on direct patient care and excludes certain administrative and 

business costs).

• Thirty-five percent of spending was financed through private health insurance payers, and 

12 percent was consumer out-of-pocket spending.

• Medicare and private health insurance spending includes premium contributions from 

enrollees. 

Medicare

22%

Medicaid

18%

Other third-party 

payers

8%

Private health 

insurance

35%

Out of pocket

12%

CHIP, DoD, and VA

4%

Total = $3.0 trillion
4 National health care and Medicare spending

Chart 1-2. Medicare spending is concentrated in certain 

services and has shifted over time

Total spending 2009 = $496 billion Total spending 2018 = $737 billion

Note: DME (durable medical equipment), SNF (skilled nursing facility). All data are by calendar year. Dollar amounts are 

Medicare spending only and do not include beneficiary cost sharing. “Other” includes items such as laboratory services, 

physician-administered drugs, renal dialysis performed in freestanding dialysis facilities, services provided in freestanding 

ambulatory surgical center facilities, and ambulance. Components do not total 100 percent because of rounding.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• The distribution of Medicare spending among services has changed over time.

• In 2018, Medicare spending totaled $737 billion for benefit expenses. Managed care was

the largest spending category (32 percent), followed by inpatient hospital services (20

percent), prescription drugs provided under Part D (13 percent), and services reimbursed 

under the physician fee schedule (10 percent).

• Spending for inpatient hospital services was a smaller share of total Medicare spending in 

2018 than it was in 2009, falling from 26 percent to 20 percent. Spending on beneficiaries 

enrolled in managed care plans grew from 23 percent to 32 percent over the same period. 

Medicare managed care enrollment increased 82 percent between 2010 and 2018 (data not 

shown).

Inpatient 

hospital

20%

Outpatient 

hospital

8%

Physician fee 

schedule

10%

Prescription 

drugs 

provided 

under Part D

13%

SNF

4%

Home health

3%

Hospice

3%

DME

1%

Other

8%

Managed 

care

32%

Inpatient 

hospital

26%

Outpatient 

hospital

5%

Physician 

fee 

schedule

Prescription 12%

drugs provided 

under Part D

12%

SNF

5%

Home 

health

4%

Hospice

3%

DME

2%

Other

8%

Managed 

care

23%
A Data Book: Health care spending and the Medicare program, June 2019 5

Chart 1-3. Aggregate Medicare spending for FFS beneficiaries, 

by sector, 2010–2018

Note: FFS (fee-for-service). “Physician fee schedule” includes spending on services provided by physicians and other health 

professionals such as nurse practitioners, physician assistants, and physical therapists. Dollar amounts are Medicare 

spending only and do not include beneficiary cost sharing. Spending for Medicare Advantage enrollees is also not included.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• Medicare spending for FFS beneficiaries has increased since 2010 across most sectors,

even though spending growth has slowed recently. The slowdown is partly attributable to a 

decline in the growth of FFS enrollment since the number of Medicare Advantage enrollees

has increased.

• Spending growth for inpatient hospital services, the sector with the highest level of 

spending, averaged 1.4 percent per year from 2010 to 2014. Spending then declined slightly 

by 0.3 percent between 2014 and 2015 (calculated on unrounded numbers). This decline is 

partly attributable to a shift in service volume from the inpatient setting to the outpatient 

setting and to the decline in the growth of FFS enrollment, but it may also reflect broader 

economic conditions. Spending then increased by 1.9 percent per year on average between 

2015 and 2018 (calculated on unrounded numbers). Despite the slowdown, spending on 

inpatient hospital services increased, in aggregate, 11.5 percent from 2010 to 2018

(calculated on unrounded numbers).

• Spending growth for outpatient hospital services remained high throughout the period,

averaging 8.6 percent per year from 2010 to 2018. Aggregate spending on outpatient 

hospital services increased 93.5 percent ($29 billion to $55 billion) from 2010 to 2018

(calculated on unrounded numbers).

133 135 138 140 141 140

146 147 149

65 68 69 69 70 70 70 69 70

29 31 34 36

41 45 48

51

55

47 50 46 47 50 48 47 

47 47 

0

20

40

60

80

100

120

140

160

2010 2011 2012 2013 2014 2015 2016 2017 2018

Medicare spending (dollars in billions)

Calendar year

Inpatient hospital

Physician fee schedule

Outpatient hospital

Skilled nursing facilities and home health agencies
6 National health care and Medicare spending

Chart 1-4. Per capita Medicare spending for FFS beneficiaries, 

by sector, 2010–2018

Note: FFS (fee-for-service). “Physician fee schedule” includes spending on services provided by physicians and other health 

professionals such as nurse practitioners, physician assistants, and physical therapists. Dollar amounts are Medicare 

spending only and do not include beneficiary cost sharing. Spending for Medicare Advantage enrollees is also not included. 

Spending per beneficiary for inpatient hospital services equals spending for the sector (see Chart 1-3) divided by FFS 

enrollment in Medicare Part A. Spending per beneficiary for physician fee schedule services and outpatient hospital services 

equals spending for the sector (see Chart 1-3) divided by FFS enrollment in Medicare Part B. Spending per beneficiary for 

skilled nursing facilities and home health agencies equals spending for those sectors (see Chart 1-3) divided by total FFS 

enrollment.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• Medicare spending per beneficiary in FFS Medicare has increased substantially since 2010,

despite slowing down or declining recently in some sectors.

• Spending per beneficiary for inpatient hospital services, the sector with the highest level of 

spending, remained relatively stable from 2010 to 2014, fell by 0.9 percent from 2014 to 

2015, then increased by 1.5 percent per year on average from 2015 to 2018 (as a result of 

increased aggregate spending and increased FFS enrollment). Spending per beneficiary for 

inpatient hospital services increased, in aggregate, 4.0 percent from 2010 to 2018.

• Growth in spending per beneficiary for outpatient hospital services was rapid throughout the 

period, averaging 8.2 percent per year from 2010 to 2018. Spending per beneficiary for 

outpatient hospital services increased, in aggregate, 87.4 percent from 2010 to 2018.

3,737 3,740 3,722 3,745 3,752 3,718 3,806 3,830 3,885

2,010 2,084 2,107 2,081 2,114 2,113 2,064 2,066 2,119

888 956 1,032 1,095

1,241

1,346 1,422 1,534

1,663

1,317 1,360 1,242 1,240 1,243 

1,262 1,224 1,207 1,220 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2010 2011 2012 2013 2014 2015 2016 2017 2018

Medicare spending (dollars per capita)

Calendar year

Inpatient hospital

Physician fee schedule

Outpatient hospital

Skilled nursing facilities and home health agencies
A Data Book: Health care spending and the Medicare program, June 2019 7

Chart 1-5. Medicare’s share of spending on personal health 

care varied by type of service, 2017

Note: CCR (continuing care retirement), CHIP (Children’s Health Insurance Program). “Personal health care” is a subset of 

national health expenditures. It includes spending for all medical goods and services that are provided for the treatment of 

an individual and excludes other spending such as government administration, the net cost of health insurance, public 

health, and investment. “Other” includes private health insurance, out-of-pocket spending, and other private and public 

spending. Medicare’s share of spending is lower for other service categories included in personal health care that are not 

shown here, namely, other professional services; dental services; other health, residential, and personal care; and other 

nondurable medical equipment. Bars may not total 100 percent because of rounding.

Source: CMS Office of the Actuary, National Health Expenditure Accounts, historical data released December 2018.

• While Medicare’s share of total personal health care spending was 22 percent in 2017 (see 

Chart 1-1), its share of spending by type of service varied, with a slightly higher share of 

spending on hospital care (25 percent) and retail prescription drugs (30 percent) and a much 

higher share of spending on home health and hospice services (40 percent) relative to other 

types of care.

• Medicare’s share of spending on nursing homes and CCR facilities was smaller than 

Medicaid’s share because Medicare pays for nursing home services only for Medicare 

beneficiaries who require skilled nursing or rehabilitation services, whereas Medicaid pays

for custodial care (assistance with activities of daily living) provided in nursing homes for 

people with limited income and assets.

25 23

40

23

15

30

17

11

36

30

14

10

58

66

24

47

71

60

0

10

20

30

40

50

60

70

80

90

100

Hospital Clinician Home health

and hospice

Nursing home

and CCR

facilities

Durable

medical

equipment

Retail

prescription

drugs

Share of spending (in percent)

Medicare Medicaid and all CHIP Other
8 National health care and Medicare spending

Chart 1-6. Health care spending growth rates have begun to 

gradually increase following recent slowdown

Note: GDP (gross domestic product). 

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2019.

• Historically, health care spending has risen as a share of GDP, but in recent years its growth 

rate slowed. That general trend was true for health care spending by private sector payers 

as well as by Medicare and Medicaid. As shown in the chart above, health care spending as 

a share of GDP remained relatively constant between 2009 and 2013. Since then, health 

care spending as a share of GDP has begun gradually to rise again.

• As a share of GDP, total health care spending more than doubled from 1975 to 2015, 

increasing from 7.9 percent to 17.6 percent. Private health insurance spending, Medicare 

spending, and Medicaid all more than tripled over that same time period, increasing from 1.8

percent to 5.9 percent, from 1.0 percent to 3.6 percent, and from 0.8 percent to 3.0 percent, 

respectively, as a share of GDP.

0

5

10

15

20

25

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Share of GDP (in percent)

Calendar year

Total health care spending

Private health insurance spending

Medicare spending

Medicaid spending

Historical Projected
A Data Book: Health care spending and the Medicare program, June 2019 9

Chart 1-7. Despite recent slowdown in per beneficiary 

spending growth, total Medicare spending growth 

rate is projected to rise

Note: CBO (Congressional Budget Office). Bar totals reflect average annual change in total Medicare spending and may differ 

from the sum of annual change in spending per beneficiary and Medicare enrollment due to rounding. Trustees data are 

presented for calendar years. CBO data are presented for fiscal years.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019 and the Congressional Budget Office’s 

2019 Baseline.

• The growth in Medicare’s per beneficiary spending has fallen from average annual rates of 

10 percent in the 1980s and 6 percent and 7 percent in the 1990s and 2000s, respectively,

to 2 percent between 2010 and 2018. 

• For 2019 to 2028, the Trustees and CBO project that growth in per beneficiary spending will 

be higher than the recent lows but lower than the historical highs, with an average annual 

growth rate of 5 percent. 

• At the same time, the aging of the baby-boom generation is causing enrollment to increase. 

Over the last few years, the enrollment growth rate rose from about 1 percent to 2 percent 

per year historically to 3 percent and is projected to continue growing at a similar rate 

throughout the next decade.

• So, despite the slowdown in spending per beneficiary (relative to historical standards), 

growth in total spending over the next decade is projected by the Trustees and CBO to 

average 8 percent annually, which outpaces the projected average annual GDP growth of 

about 4 percent.

2 12

3 3 3

10

6

7

2

5 5

0

2

4

6

8

10

12

14

1980s 1990s 2000s 2010–2018 Trustees CBO

Average annual change (in percent)

Spending per beneficiary

Enrollment

12

9

4

8

7 8

Historical Projected, 2019−2028
10 National health care and Medicare spending

Chart 1-8. Trustees project Medicare spending to continue to 

increase as a share of GDP

Note: GDP (gross domestic product). Shares for 2025 and later are projections based on the Trustees’ intermediate set of 

assumptions. The Part D benefit began in 2006.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• Over time, Medicare spending has accounted for an increasing share of GDP. From 1 percent 

in 1975, it is projected to reach 6 percent of GDP in 2045.

• The Medicare Trustees project that spending will rise from 3.6 percent of GDP in 2015 to 5.7

percent of GDP by 2035, largely because of rapid growth in the number of beneficiaries, and 

then to 6.5 percent of GDP by 2075, with growth in spending per beneficiary becoming the 

greater factor in the later years of the forecast. The rapid growth in the number of 

beneficiaries began in 2011 and will continue through 2030 as members of the baby-boom 

generation reach age 65 and become eligible to receive benefits.

• Medicare spending is projected to continue rising as a share of GDP, but at a slower pace 

than in the past. The Office of the Actuary notes that these projections reflect Part A

payment update constraints that were specified by the Patient Protection and Affordable Care 

Act of 2010 (PPACA) and Part B payment update constraints that were specified by PPACA 

and the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).

1.0

1.7

2.4 2.6

3.6

4.5

5.7

6.0 6.1 6.3 6.5 6.5

0

1

2

3

4

5

6

7

1975 1985 1995 2005 2015 2025 2035 2045 2055 2065 2075 2085

Share of GDP (in percent)

Calendar year

Part D

Part B

Part A
A Data Book: Health care spending and the Medicare program, June 2019 11

Chart 1-9. Changes in spending per enrollee, Medicare and 

private health insurance, 1970–2017

Note: PHI (private health insurance). Medicare expenditures reported in this chart include both fee-for-service and Medicare 

Advantage plans.

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2013 and 2019.

• Rates of growth in per capita spending for Medicare and private health insurance have 

followed a similar pattern over the last four decades. For the past several years, rates of 

growth in per capita spending have been slower for both Medicare and private health 

insurance than in previous decades. 

• Differences between the rates of growth do appear to be somewhat more pronounced since 

the mid-1980s. Some analysts believe that those differences are attributable to the 

introduction of the prospective payment system in 1985 for hospital inpatient services. In 

their view, that payment system has allowed Medicare greater success than private payers 

in containing spending growth. Others maintain that the differences are due to the 

expansion of benefits offered by private insurers and to a decline in cost-sharing 

requirements. More recently, cost-sharing requirements have increased, coinciding with a 

decline in growth of per capita spending for private payers, followed by a period of growth.

• Comparisons are problematic because private insurers and Medicare do not buy the same 

mix of services and because Medicare covers an older population, which tends to be more 

costly. In addition, spending trends are also affected by changes in the generosity of 

covered benefits (e.g., introduction of Medicare’s Part D drug benefit in 2006) and changes 

in enrollees’ out-of-pocket spending.

-5

0

5

10

15

20

25

30

35

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Change in spending per enrollee (in percent)

Calendar year

 Medicare

 PHI Medicare PHI

1970–1979 13.1 14.9

1980–1989 10.0 13.3

1990–1999 6.0 5.7

2000–2009 7.3 7.4

2010–2017 1.5 3.7

1970–2017 7.8 9.3

Average annual percent change, by period
12 National health care and Medicare spending

Chart 1-10. Trustees and CBO project Medicare spending to 

exceed $1 trillion by the early part of the next decade

Note: CBO (Congressional Budget Office). All data are nominal, mandatory outlays (benefit payments plus mandatory 

administrative expenses) by fiscal year.

Source: Congressional Budget Office's May 2019 Baseline; the annual report of the Boards of Trustees of the Medicare trust funds 

2019.

• Medicare spending has more than doubled since 2005, increasing from $337 billion to $711

billion by 2018 (these data are by fiscal year and include benefit payments and mandatory 

administrative expenses).

• The Medicare Trustees and CBO project that spending for Medicare between 2019 and 

2028 will grow at an average annual rate of 8.4 percent or 7.9 percent, respectively.

Medicare spending will reach $1 trillion in 2022 under the Trustees’ projections and in 2023 

under CBO’s projections.

• Forecasts of future Medicare spending are inherently uncertain, and differences can stem 

from different assumptions about the economy (which affect annual updates to provider 

payments) and about growth in the volume and intensity of services delivered to Medicare 

beneficiaries, among other factors.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005 2010 2015 2020 2025

Dollars (in billions)

Fiscal year

Trustees

CBO

Actual Projected
A Data Book: Health care spending and the Medicare program, June 2019 13

Chart 1-11. FFS program spending was highly concentrated in a 

small group of beneficiaries, 2016

Note: FFS (fee-for-service). Analysis excludes beneficiaries with any group health enrollment during the year. Totals may not 

sum to 100 percent due to rounding.

Source: Medicare Current Beneficiary Survey, 2018.

• Medicare FFS spending is concentrated among a small number of beneficiaries. In 2016, 

the costliest 5 percent of beneficiaries accounted for 40 percent of annual Medicare FFS 

spending (calculated on unrounded numbers), and the costliest 25 percent accounted for 82

percent (calculated on unrounded numbers). By contrast, the least costly 50 percent of 

beneficiaries accounted for only 5 percent of FFS spending. 

• Costly beneficiaries tend to include those who have multiple chronic conditions, are using 

inpatient hospital services, are dually eligible for Medicare and Medicaid, and are in the last 

year of life. 

Least costly 50%

5

Next 25%

14

Next 15%

24

Next 5%

18

Next 4%

25

Costliest 1% 14

0

10

20

30

40

50

60

70

80

90

100

Percent of beneficiaries Percent of program spending

Percent

82
14 National health care and Medicare spending

Chart 1-12. Medicare HI Trust Fund is projected to be insolvent 

in 2026 under Trustees’ intermediate assumptions

Note: HI (Hospital Insurance). The primary source of income for HI is the payroll tax on covered earnings. Other HI income 

sources include (a) a portion of the federal income taxes that Social Security recipients with incomes above certain 

thresholds pay on their benefits and (b) interest paid on the U.S. Treasury securities held in the HI Trust Fund.

*Costs and income for 2018 represent actual (not projected) experience.

**Under the low-cost assumption, HI Trust Fund costs would be below income through the 75-year projection period

ending in 2093.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• The HI Trust Fund funds Part A, which helps pay for inpatient hospital stays and post-acute 

care such as that provided by skilled nursing facilities and hospice. Part A is funded through 

a dedicated payroll tax (i.e., a tax on wage earnings). 

• From 2008 to 2015, the HI Trust Fund ran an annual deficit (i.e., paid more in benefits than it 

collected in payroll taxes). In 2016 and 2017, the HI Trust Fund ran a surplus. However, a 

deficit returned in 2018, and both intermediate- and high-cost assumptions project that 

deficits will continue until HI Trust Fund assets are exhausted. HI Trust Fund assets are 

projected to be exhausted by 2026 under the Trustees’ intermediate assumptions. Under

high-cost assumptions, the HI Trust Fund could be exhausted as early as 2023. Under lowcost assumptions, it would remain able to pay full benefits indefinitely.

• The Trustees estimate that the payroll tax would need to be immediately increased from its 

current rate of 2.90 percent to 3.81 percent to balance the HI Trust Fund over the next 75 

years. Alternatively, Part A spending would need to be immediately reduced by 19 percent.

Costs below income Costs exceed income HI Trust Fund assets exhausted

High cost

Intermediate

Low cost

2018* 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 ................ ................ ................ ................ ................ 2093**

Calendar year Estimate
A Data Book: Health care spending and the Medicare program, June 2019 15

Chart 1-13. General revenue is paying for a growing share of 

Medicare spending

Note: GDP (gross domestic product). These projections are based on the Trustees’ intermediate set of assumptions. “Tax on 

benefits” refers to the portion of income taxes that higher income individuals pay on Social Security benefits, which is 

designated for Medicare. “State transfers” (often called the Part D “clawback”) refers to payments called for within the 

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 from the states to Medicare for assuming 

primary responsibility for prescription drug spending. “Drug fees” refer to the fee imposed by the Patient Protection and 

Affordable Care Act of 2010 on manufacturers and importers of brand-name prescription drugs. These fees are deposited 

in the Part B account of the Supplementary Medical Insurance Trust Fund. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• The Medicare Trustees project that Medicare’s share of GDP will rise to 5.5 percent by 2033

and to 5.9 percent by 2038.

• Beginning in 2009, general revenue transfers became the largest single source of Medicare 

income. General revenue transfers to the Part B account increased significantly in 2016, as 

required by the Bipartisan Budget Act of 2015 to compensate for premium revenue that was 

not received in 2016 due to the hold-harmless provision, which limited the Part B premium 

increase for a majority of beneficiaries. They are expected to continue to be a substantial 

share of Medicare financing, growing to about 49 percent by 2032, and then remaining 

stable throughout the 75-year budget period. 

• As Medicare becomes more dependent on general revenues, fewer resources will be 

available to invest in growing the economic output of the future or in supporting other 

national priorities.

0%

1%

2%

3%

4%

5%

6%

7%

1966 1976 1986 1996 2006 2016 2026 2036 2046 2056 2066 2076

Share of GDP

Calendar year

Historical Projected Total Medicare spending

General revenue transfers

State transfers and drug fees

Premiums

Tax on benefits Payroll taxes

Part A deficit

Dedicated 

revenues

2086
16 National health care and Medicare spending

Chart 1-14. Medicare enrollment is rising while the number of 

workers per HI beneficiary is declining

 Medicare HI enrollment Workers per HI beneficiary

Note: HI (Hospital Insurance). Hospital Insurance is also known as Medicare Part A. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• As the baby-boom generation ages, enrollment in the Medicare program is surging. By 

2031, Medicare is projected to have over 80 million beneficiaries—up from 61 million 

beneficiaries today.

• While Medicare enrollment is rising, the number of workers per beneficiary is rapidly 

declining. Workers pay for Medicare spending through payroll taxes and income taxes. 

However, the number of workers per Medicare beneficiary declined from 4.6 during the early 

years of the program to 3.0 today and is projected by the Medicare Trustees to fall to 2.5 by 

2027.

• These demographics threaten the financial stability of the Medicare program.

0

20

40

60

80

100

1970 1990 2010 2030

Enrollment (in millions)

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1970 1990 2010 2030

Workers per HI beneficiary
A Data Book: Health care spending and the Medicare program, June 2019 17

Chart 1-15. Medicare HI and SMI benefits and cost sharing

per FFS beneficiary, 2017

Average benefit in 2017

(in dollars)

Average cost sharing in 2017

(in dollars)

HI (Part A) $4,905 $422

SMI (Part B, excludes Part D) 5,628 1,440

Note: HI (Hospital Insurance), SMI (Supplementary Medical Insurance), FFS (fee-for-service). Dollar amounts are nominal for 

FFS Medicare only and do not include Part D. “Average benefit” represents amounts paid for covered services per FFS 

beneficiary and excludes administrative expenses. “Average cost sharing” represents the sum of deductibles, 

coinsurance, and balance billing paid for covered services per FFS beneficiary and excludes all monthly premiums.

Source: CMS Program Statistics, CMS Office of Enterprise Data and Analytics, CMS Chronic Conditions Data Warehouse.

• In calendar year 2017, the Medicare program made $4,905 in HI (Part A) benefit payments 

and $5,628 in SMI (Part B) benefit payments on average per FFS beneficiary. 

• Beneficiaries owed an average of $422 in cost sharing for HI and $1,440 in cost sharing for 

SMI in calendar year 2017. (Cost sharing excludes all monthly premiums.)

• To cover some of those cost-sharing requirements, about 90 percent of beneficiaries have 

coverage that supplements or replaces the Medicare benefit package, such as Medicare 

Advantage, Medicaid, supplemental coverage through former employers, and Medigap

coverage.

2

A Data Book: Health care spending and the Medicare program, June 2019 21

Chart 2-1. Aged beneficiaries accounted for the greatest 

share of the Medicare population and program 

spending, 2016

Percent of beneficiaries Percent of spending

Note: ESRD (end-stage renal disease). The “aged” category includes beneficiaries ages 65 and older without ESRD. The 

“disabled" category includes beneficiaries under age 65 without ESRD. The “ESRD” category includes beneficiaries with 

ESRD, regardless of age. Results include fee-for-service, Medicare Advantage, community-dwelling, and institutionalized 

beneficiaries. Totals may not sum to 100 percent due to rounding.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2016.

• In 2016, beneficiaries ages 65 and older without ESRD composed 84.1 percent of the 

beneficiary population and accounted for 75.0 percent of Medicare spending. Beneficiaries 

under 65 with a disability and beneficiaries with ESRD accounted for the remaining 

population and spending.

• A disproportionate share of Medicare expenditures is devoted to Medicare beneficiaries with

ESRD. On average, these beneficiaries incur spending that is more than six times greater 

than spending for aged beneficiaries (ages 65 years and older without ESRD) and more 

than four times greater than spending for beneficiaries under age 65 with disability (nonESRD). In 2016, $67,116 was spent per ESRD beneficiary versus $10,182 per aged 

beneficiary and $15,437 per beneficiary under age 65 enrolled because of disability (data 

not shown).

Aged

84.1%

Disabled 

15.2%

ESRD 

0.8%

Aged

75.0%

Disabled

20.5%

ESRD

4.4%

Total beneficiaries: 58.6 million Total spending: $669 billion
22 Medicare beneficiary demographics

Chart 2-2. Beneficiaries younger than 65 accounted for a 

disproportionate share of Medicare spending, 2016

Percent of beneficiaries Percent of spending

Note: Results include fee-for-service, Medicare Advantage, community-dwelling, and institutionalized beneficiaries. Totals may 

not sum to 100 percent due to rounding.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2016.

• Beneficiaries younger than 65 made up 15.4 percent of the beneficiary population in 2016 

but accounted for 21.9 percent of Medicare spending. 

• In 2016, average Medicare spending per beneficiary was $11,408. 

• For the aged population (65 and older), per capita expenditures increase with age. In 2016, 

per capita expenditures were $8,631 for beneficiaries 65 to 74 years old, $12,305 for those 

75 to 84 years old, and $14,676 for those 85 or older (data not shown).

• In 2016, per capita expenditures for Medicare beneficiaries under age 65 who were enrolled 

because of end-stage renal disease or disability were $16,238 (data not shown). 

65-74

48.3%

75-84

24.7%

85+

11.5%

Under 

65

15.4%

65-74

36.6%

75-84

26.7%

85+

14.8%

Under

65

21.9%

Average per capita = $11,408
A Data Book: Health care spending and the Medicare program, June 2019 23

Chart 2-3. Beneficiaries who reported being in poor health 

accounted for a disproportionate share of 

Medicare spending, 2016

Percent of beneficiaries Percent of spending

Note: Results include fee-for-service, Medicare Advantage, community-dwelling, and institutionalized beneficiaries. Totals may 

not sum to 100 percent due to rounding and exclusion of an “other” category.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2016.

• In 2016, most beneficiaries reported fair to excellent health. Only 6 percent reported poor

health. 

• Medicare spending is strongly associated with self-reported health status. In 2016, per 

capita expenditures were $6,418 for those who reported excellent or very good health, 

$13,675 for those who reported good or fair health, and $23,393 for those who reported

poor health (data not shown).

Good or 

fair 

health

46.2%

Excellent

or very

good 

health

47.8%

Poor 

health

6.0% Excellent

or very

good 

health

27.2%

Good or 

fair 

health

60.0%

Poor health

12.8%

Average per capita = $11,408
24 Medicare beneficiary demographics

Chart 2-4. Enrollment in the Medicare program is projected to 

grow rapidly through 2030

Note: Enrollment numbers are based on Part A enrollment only. Beneficiaries enrolled only in Part B are not included.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• The total number of people enrolled in the Medicare program will increase from about 60

million in 2018 to about 79 million in 2030.

• The rate of increase in Medicare enrollment will accelerate until 2030 as more members of 

the baby-boom generation become eligible, at which point it will continue to increase, but

more slowly, after the entire baby-boom generation has become eligible.

20.1

28.0

33.7

39.3

47.4

62.9

79.2

86.4 90.0

96.4

103.5

109.9

115.1

0

20

40

60

80

100

120

140

1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090

Beneficiaries (in millions)

Historic Projected
A Data Book: Health care spending and the Medicare program, June 2019 25

Chart 2-5. Characteristics of the Medicare population, 2016

Percent of the Percent of the

Medicare Medicare

Characteristic population Characteristic population

Total (53.7 million) 100% Living arrangement

Institution 3%

Sex Alone 28

Male 45 With spouse 49

Female 55 Other 20

Race/ethnicity Education

White, non-Hispanic 75 No high school diploma 17

African American, High school diploma only 27

non-Hispanic 10 Some college or more 54

Hispanic 9

Other 7 Income status

Below poverty 15

Age 100–125% of poverty 7

<65 16 125–200% of poverty 17

65–74 47 200–400% of poverty 28

75–84 26 Over 400% of poverty 32

85+ 11

Supplemental insurance status

Health status Medicare only 14

Excellent or very good 45 Managed care 35

Good or fair 48 Employer-sponsored insurance 22

Poor 7 Medigap 16

Medigap with employerResidence sponsored insurance 1

Urban 80 Medicaid 12

Rural 20 Other 1

Note: Age and health status values may slightly differ from previous figures, because only beneficiaries with complete 

characteristic data were included in this analysis. Totals may not sum to 100 percent due to rounding and exclusion of an 

“other” category. “Urban” indicates beneficiaries living in metropolitan statistical areas (MSAs). “Rural” indicates 

beneficiaries living outside MSAs. In 2016, poverty was defined as income of $11,511 for people living alone and $14,522

for married couples. Poverty thresholds are calculated by the U.S. Census Bureau 

(https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-poverty-thresholds.html). Some 

beneficiaries may have more than one type of supplemental insurance.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2016.

• Most Medicare beneficiaries are female and White. 

• About one-fifth of beneficiaries live in rural areas. 

• Twenty-eight percent of the Medicare population lives alone.

• Seventeen percent of beneficiaries do not have a high school diploma.

• Most Medicare beneficiaries have some source of supplemental insurance. Managed care

plans are the most common source of supplemental coverage. 

3

A Data Book: Health care spending and the Medicare program, June 2019 29

Chart 3-1. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, 2016

Note: Beneficiaries are assigned to the supplemental coverage category they were in for the most time in 2016. They could 

have had coverage in other categories during 2016. “Other public sector” includes federal and state programs not 

included in other categories. Analysis includes only beneficiaries not living in institutions such as nursing homes. It 

excludes beneficiaries who were not in both Part A and Part B throughout their enrollment in 2016 or who had Medicare 

as a secondary payer.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Survey file 2016.

• Most beneficiaries living in the community (noninstitutionalized) have coverage that supplements 

or replaces the Medicare benefit package. In 2016, 88 percent of beneficiaries had supplemental 

coverage or participated in Medicare managed care.

• About 38 percent of beneficiaries had private sector supplemental coverage such as Medigap 

(about 19 percent) or employer-sponsored retiree coverage (about 18 percent).

• About 12 percent of beneficiaries had public sector supplemental coverage, primarily Medicaid.

• About 39 percent of beneficiaries participated in Medicare managed care. This care includes 

Medicare Advantage, health care prepayment, and cost plans. These types of arrangements 

generally replace Medicare’s fee-for-service coverage and often add more coverage.

• The numbers in this chart differ from those in Chart 2-5, Chart 4-1, and Chart 4-4 because of 

differences in the populations represented in the charts. This chart excludes beneficiaries in 

long-term care institutions, while Chart 2-5 and Chart 4-4 include all Medicare beneficiaries, and 

Chart 4-1 excludes beneficiaries in Medicare Advantage. 

Medigap

19.2%

Employersponsored 

insurance

18.4%

Medicaid

Other public sector 11.1%

0.5%

Medicare managed 

care

38.5%

No supplemental 

coverage

12.3%
30 Medicare beneficiary and other payer financial liability

Chart 3-2. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, by 

beneficiaries’ characteristics, 2016

Number of Employer- Medicare Other

beneficiaries sponsored Medigap managed public Medicare

(thousands) insurance insurance Medicaid care sector only

All beneficiaries 47,002 18% 19% 11% 39% 1% 12%

Age

<65 7,093 5 4 38 34 1 17

65–69 10,937 18 20 7 41 0 14

70–74 10,823 20 23 6 40 1 10

75–79 7,684 22 22 6 41 0 10

80–84 5,314 25 21 6 37 0 10

85+ 5,151 22 23 7 35 1 12

Income-to-poverty ratio

≤1.00 7,801 4 7 41 36 0 11

1.00 to 1.25 3,687 7 10 28 40 1 14

1.25 to 1.50 3,306 9 17 14 46 1 13

1.50 to 2.00 5,559 13 20 5 44 1 17

>2.00 26,649 26 24 1 37 0 12

Eligibility status

Aged 39,677 21 22 6 39 0 11

Disabled 6,968 5 4 38 34 1 17

ESRD 357 16 23 16 19 3 22

Residence

Urban 37,241 18 18 10 42 0 11

Rural 9,755 19 25 14 25 1 16

Sex

Male 20,950 19 18 10 37 1 15

Female 26,052 18 20 12 40 0 10

Health status

Excellent/very good 21,341 22 22 5 39 0 11

Good/fair 22,274 16 17 15 38 0 13

Poor 3,167 8 12 28 36 1 15

Note: ESRD (end-stage renal disease). Beneficiaries are assigned to the supplemental coverage category they were in for the 

most time in 2016. They could have had coverage in other categories during 2016. “Medicare managed care” includes 

Medicare Advantage, cost, and health care prepayment plans. “Other public sector” includes federal and state programs 

not included in other categories. “Urban” indicates beneficiaries living in metropolitan statistical areas (MSAs) as indicated 

by core-based statistical areas. “Rural” indicates beneficiaries living outside MSAs, which includes both micropolitan 

statistical areas and rural areas as indicated by core-based statistical areas. Analysis excludes beneficiaries living in 

institutions such as nursing homes. It excludes beneficiaries who were not in both Part A and Part B throughout their 

enrollment in 2016 or who had Medicare as a secondary payer. The number of beneficiaries differs among boldface 

categories because we excluded beneficiaries with missing values. Numbers in some rows do not sum to 100 percent 

because of rounding.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Survey file 2016.

• Beneficiaries most likely to have employer-sponsored supplemental coverage are those who are age 65

or older, have income above twice the poverty level, are eligible because of age, and report better than 

poor health.

• Medigap is most common among those who are age 65 or older, have income higher than 1.25 times 

the poverty level, are eligible because of age, are rural dwelling, and report better than poor health. 

• Medicaid coverage is most common among those who are under age 65, have income lower than 1.5 

times the poverty level, are eligible because of disability or ESRD, are rural dwelling, and report poor 

health. 

• Lack of supplemental coverage (Medicare coverage only) is most common among beneficiaries who 

are under age 65, are eligible because of disability or ESRD, are rural dwelling, are male, and report 

poor health.
A Data Book: Health care spending and the Medicare program, June 2019 31

Chart 3-3. Covered benefits and enrollment in standardized 

Medigap plans, 2018

 Medigap standardized plan type

High 

deductible

Benefit A B C D F F G K L M N 

Part A hospital costs ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓

Part B cost sharing ✓ ✓ ✓ ✓ ✓ ✓ ✓ 50% 75% ✓ $20/$50

Blood (first 3 pints) ✓ ✓ ✓ ✓ ✓ ✓ ✓ 50% 75% ✓ ✓

Hospice cost sharing ✓ ✓ ✓ ✓ ✓ ✓ ✓ 50% 75% ✓ ✓

SNF coinsurance ✓ ✓ ✓ ✓ ✓ 50% 75% ✓ ✓

Part A deductible ✓ ✓ ✓ ✓ ✓ ✓ 50% 75% 50% ✓

Part B deductible ✓ ✓ ✓ 

Part B excess charges ✓ ✓ ✓ 

Foreign travel emergency ✓ ✓ ✓ ✓ ✓ ✓ ✓

Lives covered

(in thousands) 125 225 700 150 6,750 275 2,300 75 50 5 1,350

Percent change

2016–2018 –20% –17% –21% –18% 1% 18% 82% 8% 0% –13% 17%

Note: SNF (skilled nursing facility). Three states (Massachusetts, Minnesota, and Wisconsin) have different plan types and are 

not included in this chart. The ✓indicates that the plan covers all cost sharing. Percentages indicate that the plan covers 

that share of the total cost sharing. The $20/$50 indicates that the plan covers all but $20 for physician office visits and all 

but $50 for emergency room visits. 

Source: MedPAC analysis of National Association of Insurance Commissioners data, 2019.

• Medicare beneficiaries purchase Medigap plans, also known as Medicare supplementary insurance 

plans, to cover fee-for-service Medicare cost sharing. Statute specifies 11 standardized plans. States 

enforce the standards based on model regulations developed by the National Association of 

Insurance Commissioners (NAIC). Three states (Massachusetts, Minnesota, and Wisconsin) have 

waivers from these standards and have different standard plan types not included in this chart.

• Plan F, which covers all Medicare cost sharing, is the most popular plan, with 6.8 million enrollees. 

However, because Congress was concerned about the overutilization of Medicare services, 

legislation will prohibit the sale of new Plan F policies beginning in 2020. As a result, insurers have 

begun to direct beneficiaries into other plan types, namely plans G, K, and N, which do not cover the 

Part B deductible.

• During 2018, almost 14 million beneficiaries enrolled in Medigap plans (including those in 

Massachusetts, Minnesota, and Wisconsin). Of all Medicare beneficiaries, about one-fifth were 

enrolled in Medigap plans. 
32 Medicare beneficiary and other payer financial liability

Chart 3-4. Total spending on health care services for 

noninstitutionalized FFS Medicare beneficiaries, by 

source of payment, 2016

Note: FFS (fee-for-service). “Private supplements” includes employer-sponsored plans and individually purchased coverage. 

“Public supplements” includes Medicaid, Department of Veterans Affairs, and other public coverage. “Beneficiaries’ direct 

spending” is on Medicare cost sharing and noncovered services, but not supplemental premiums. Analysis includes only 

FFS beneficiaries not living in institutions such as nursing homes. We excluded Medicare Advantage enrollees.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost Supplement file, 2016.

• Among FFS beneficiaries living in the community (noninstitutionalized), the total cost of health care 

services (beneficiaries’ direct spending as well as expenditures by Medicare, other public sector 

sources, and all private sector sources on all health care goods and services) averaged about 

$15,000 in 2016. Medicare was the largest source of payment: It paid about 67 percent of the health 

care costs for FFS beneficiaries living in the community, an average of $10,063 per beneficiary. The 

level of Medicare spending in this chart differs from the level in Chart 2-1 because this chart excludes 

beneficiaries in Medicare Advantage and those living in institutions, while Chart 2-1 represents all 

Medicare beneficiaries.

• Private sources of supplemental coverage—primarily employer-sponsored retiree coverage and 

Medigap—paid about 13 percent of beneficiaries’ costs, an average of $1,998 per beneficiary.

• Beneficiaries paid about 14 percent of their health care costs out of pocket, an average of $2,137 per 

beneficiary.

• Public sources of supplemental coverage—primarily Medicaid—paid about 6 percent of beneficiaries’ 

health care costs, an average of $867 per beneficiary.

Medicare

67%

Beneficiaries' 

direct spending

14%

Private 

supplements

13%

Public 

supplements

6%

Per capita total spending = $15,065
A Data Book: Health care spending and the Medicare program, June 2019 33

Chart 3-5. Per capita total spending on health care services 

among noninstitutionalized FFS beneficiaries, by 

source of payment, 2016

Note: FFS (fee-for-service). Analysis excludes those who are not in FFS Medicare and those living in institutions such as 

nursing homes. “Out-of-pocket" spending includes Medicare cost sharing and noncovered services, but not supplemental 

premiums.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost Supplement file, 2016.

• Total spending on health care services varied dramatically among FFS beneficiaries living in 

the community in 2016. Per capita spending for the 10 percent of beneficiaries with the 

highest total spending averaged $72,217. Per capita spending for the 10 percent of 

beneficiaries with the lowest total spending averaged $379.

• Among FFS beneficiaries living in the community, Medicare paid a larger share as total 

spending increased, and beneficiaries’ out-of-pocket spending was a smaller share as total 

spending increased. For example, Medicare paid 67 percent of total spending for all 

beneficiaries, but paid 77 percent of total spending for the 10 percent of beneficiaries with 

the highest total spending. Beneficiaries’ out-of-pocket spending covered 14 percent of total 

spending for all beneficiaries, but only 8 percent of total spending for the 10 percent of 

beneficiaries with the highest total spending (data not shown).

$379 $1,776

$4,670

$10,895

$24,211

$72,217

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

<10 10–25 25–50 50–75 75–90 >90

Dollars

Groups of beneficiaries ranked by total spending (percentile ranges)

Medicare

Supplemental payers

Out of pocket
34 Medicare beneficiary and other payer financial liability

Chart 3-6. Cost of employer-sponsored commercial insurance 

has grown more than twice as fast as Medicare 

costs 

Note: HMO (health maintenance organization), PPO (preferred provider organization), FFS (fee-for-service). Medicare spending 

is reported including the effects of the sequester that began in March 2013, which reduced program spending by 2 

percent. 

Source: Employer-sponsored premium data are from Kaiser Family Foundation surveys, 2008 through 2017. Medicare spending 

figures are from Part A and Part B program spending data from CMS actuaries; Part D spending per capita figures

through 2016 are from MedPAC analysis of claims and reinsurance data for individuals with Part D coverage. Part D 

spending for 2017 is a projection.

• Medicare costs have risen more slowly than commercial insurance premiums in part due to slower 

price growth for Medicare services.

• Per capita costs in FFS Medicare grew by 16 percent from 2008 to 2017. This 16 percent growth rate 

is the cumulative growth in the CMS actuaries’ estimated cost of Part A and Part B benefits and the 

Commission’s estimates of the cost of Part D premiums and reinsurance from 2008 to 2017. The 

Medicare FFS growth rate also was not adjusted for enhancements of the Part D benefit that included 

a shrinking of the coverage gap.

• In the commercial sector, employer-sponsored HMO premiums grew by 48 percent and PPO 

premiums by 45 percent over the same period, despite the rapidly increasing deductibles reported in 

the Kaiser Family Foundation survey. While deductibles grew rapidly for both employer-sponsored 

HMOs and PPOs, they tended to grow fastest for PPOs, possibly explaining why PPO premiums 

grew at a slightly slower rate than HMO premiums. 

• None of the growth rates that we discuss have been adjusted for changes in demographics. We note 

that the average age of Medicare FFS beneficiaries declined by 0.3 years over this period.

0%

10%

20%

30%

40%

50%

60%

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Percent

Employer-sponsored HMO premium

growth for a single person

Employer-sponsored PPO premium

growth for a single person

Medicare per capita FFS cost growth

(Part A, Part B, Part D), including the

sequester
4

A Data Book: Health care spending and the Medicare program, June 2019 37

Chart 4-1. Dual-eligible beneficiaries accounted for a 

disproportionate share of Medicare spending, 2016

Percent of FFS beneficiaries Percent of FFS spending

Note: FFS (fee-for-service). “Dual-eligible beneficiaries” are defined as beneficiaries who were eligible for both Medicare and 

Medicaid for at least one month during the year.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, 2016.

• Dual-eligible beneficiaries are those who qualify for both Medicare and Medicaid. Medicaid 

is a joint federal and state program designed to help people with low incomes obtain needed 

health care. 

• Dual-eligible beneficiaries account for a disproportionate share of Medicare FFS 

expenditures. Although they were 19 percent of the Medicare FFS population in 2016, they 

represented 33 percent of aggregate Medicare FFS spending. 

• On average, Medicare FFS per capita spending is more than twice as high for dual-eligible 

beneficiaries compared with non-dual-eligible beneficiaries: In 2016, $18,280 was spent per 

dual-eligible beneficiary, and $8,817 was spent per non-dual-eligible beneficiary (data not 

shown).

• In 2016, average total spending⎯which includes Medicare, Medicaid, supplemental 

insurance, and out-of-pocket spending across all payers⎯for dual-eligible beneficiaries was 

$28,970 per beneficiary, about twice the amount for other Medicare beneficiaries (data not 

shown).

Dual 

eligible

19%

Non-dual 

eligible

81%

Dual 

eligible

33%

Non-dual 

eligible

67%
38 Dual-eligible beneficiaries

Chart 4-2. Dual-eligible beneficiaries were more likely than 

non-dual-eligible beneficiaries to be under age 65 

and disabled, 2016

Dual-eligible beneficiaries Non-dual-eligible beneficiaries

Note: Beneficiaries who are under age 65 generally qualify for Medicare because they are disabled. Once disabled beneficiaries 

reach age 65, they are counted as aged beneficiaries. “Dual-eligible beneficiaries” are defined as beneficiaries who were 

eligible for both Medicare and Medicaid for at least one month during the year. Totals may not sum to 100 percent due to 

rounding. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, 2016.

• Disability is a pathway for individuals to become eligible for both Medicare and Medicaid 

benefits. 

• Dual-eligible beneficiaries are more likely than non-dual-eligible beneficiaries to be under

age 65 and disabled. In 2016, 43 percent of dual-eligible beneficiaries were under age 65 

and disabled compared with 10 percent of the non-dual-eligible population. 

Under 65 

(disabled)

43%

65-74

29%

75-84

19%

85+

10%

Under 65 

(disabled)

10%

65-74

51%

75-84

28%

85+

11%
A Data Book: Health care spending and the Medicare program, June 2019 39

Chart 4-3. Dual-eligible beneficiaries were more likely than 

non-dual-eligible beneficiaries to report being in 

poor health, 2016

Dual-eligible beneficiaries Non-dual-eligible beneficiaries

Note: “Dual-eligible beneficiaries” are defined as beneficiaries who were eligible for both Medicare and Medicaid for at least one 

month during the year.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, 2016.

• Dual-eligible beneficiaries are more likely than non-dual-eligible beneficiaries to report being 

in poor health. In 2016, 16 percent of dual-eligible beneficiaries reported being in poor 

health compared with 5 percent of non-dual-eligible beneficiaries. 

• Just over half of non-dual-eligible beneficiaries (51 percent) reported being in excellent or 

very good health in 2016. In comparison, about one-fifth (21 percent) of dual-eligible 

beneficiaries reported being in excellent or very good health.

Poor 

health

16%

Good or 

fair health

63%

Excellent 

or very 

good 

health

21%

Poor 

health

5%

Good or 

fair health

44%

Excellent 

or very 

good 

health

51%
40 Dual-eligible beneficiaries

Chart 4-4. Demographic differences between dual-eligible

beneficiaries and non-dual-eligible beneficiaries, 2016

Percent of dual- Percent of non-dualCharacteristic eligible beneficiaries eligible beneficiaries

Sex

Male 39% 47%

Female 61 53

Race/ethnicity

White, non-Hispanic 52 81

African American, non-Hispanic 19 8

Hispanic 18 6

Other 11 6

Limitations in ADLs

No limitations in ADLs 46 73

Limitations in 1–2 ADLs 26 18

Limitations in 3–6 ADLs 28 9

Residence

Urban 79 80

Rural 21 20

Living arrangement

Institution 10 1

Alone 32 27

With spouse 18 57

With children, nonrelatives, others 39 15

Education

No high school diploma 39 12

High school diploma only 31 27

Some college or more 30 61

Income status

Below poverty 53 6

100–125% of poverty 20 4

125–200% of poverty 19 17

200–400% of poverty 7 33

Over 400% of poverty 1 40

Supplemental insurance status

Medicare or Medicare/Medicaid only 55 16

Medicare managed care 36 35

Employer-sponsored insurance 2 27

Medigap 3 20

Medigap/employer <1 1

Other* 3 1

Note: ADL (activity of daily living). “Dual-eligible beneficiaries” are defined as beneficiaries who were eligible for both Medicare and 

Medicaid for at least one month during the year. “Urban” indicates beneficiaries living in metropolitan statistical areas (MSAs). 

“Rural” indicates beneficiaries living outside of MSAs. In 2016, poverty was defined as annual income of $11,511 for people living 

alone and $14,522 for married couples. Totals may not sum to 100 percent due to rounding and exclusion of an “other” category. 

Poverty thresholds are calculated by the U.S. Census Bureau (https://www.census.gov/data/tables/time-series/demo/incomepoverty/historical-poverty-thresholds.html). 

*Includes public programs such as the Department of Veterans Affairs and state-sponsored drug plans.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, 2016.

• Dual-eligible beneficiaries qualify for Medicaid due in part to low incomes. In 2016, 53 percent of dual-eligible 

beneficiaries lived below the federal poverty level, and 92 percent lived below 200 percent of the poverty level. 

Compared with non-dual-eligible beneficiaries, dual-eligible beneficiaries are more likely to be female, be African 

American or Hispanic, lack a high school diploma, have greater limitations in activities of daily living, and live in an 

institution. They are less likely to have supplemental employer-sponsored or Medigap coverage.
A Data Book: Health care spending and the Medicare program, June 2019 41

Chart 4-5. Differences in Medicare spending and service use 

between dual-eligible beneficiaries and non-dualeligible beneficiaries, 2016

Dual-eligible Non-dual-eligible

Service beneficiaries beneficiaries

Average FFS Medicare payment for all beneficiaries

Total Medicare FFS payments $18,280 $8,817

Inpatient hospital 4,043 2,284

Physiciana3,178 2,611

Outpatient hospital 2,166 1,456

Home health 728 369

Skilled nursing facilityb1,221 420

Hospice 479 206

Prescribed medicationc6,429 1,466

Share of FFS beneficiaries using service

Share using any type of service 97.0% 86.2%

Inpatient hospital 23.2 12.9

Physiciana92.5 82.8

Outpatient hospital 79.1 62.5

Home health 13.1 7.5

Skilled nursing facilityb6.2 3.3

Hospice 3.5 2.0

Prescribed medicationc79.7 57.1

Note: FFS (fee-for-service). Data in this analysis are restricted to beneficiaries in FFS Medicare. “Dual-eligible beneficiaries” are 

defined as beneficiaries who were eligible for both Medicare and Medicaid for at least one month during the year. 

Spending totals derived from the Medicare Current Beneficiary Survey (MCBS) do not necessarily match official estimates 

from CMS Office of the Actuary. Total payments may not equal the sum of line items due to omitted “other” category. 

a

Includes a variety of medical services, equipment, and supplies.

b

Individual short-term facility (usually skilled nursing facility) stays for the MCBS population.

c Data from Medicare Advantage–Prescription Drug plans and stand-alone prescription drug plans.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, 2016.

• In 2016, average per capita Medicare FFS spending for dual-eligible beneficiaries was more 

than twice that for non-dual-eligible beneficiaries⎯$18,280 compared with $8,817. 

• For each type of service, average Medicare FFS per capita spending was higher for dualeligible beneficiaries than for non-dual-eligible beneficiaries.

• Higher average per capita FFS spending for dual-eligible beneficiaries is a function of higher 

use of these services by dual-eligible beneficiaries compared with their non-dual-eligible 

counterparts. Dual-eligible beneficiaries are more likely than non-dual-eligible beneficiaries 

to use each type of Medicare-covered service.
42 Dual-eligible beneficiaries

Chart 4-6. Both Medicare and total spending were concentrated 

among dual-eligible beneficiaries, 2016

Note: “Total spending” includes Medicare, Medicaid, supplemental insurance, and out-of-pocket spending. “Dual-eligible 

beneficiaries” are defined as beneficiaries who were eligible for both Medicare and Medicaid for at least one month during 

the year.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, 2016.

• Annual Medicare fee-for-service spending on dual-eligible beneficiaries is concentrated 

among a small number. The costliest 5 percent of dual-eligible beneficiaries accounted for 

35 percent of Medicare spending and 26 percent of total spending on dual-eligible 

beneficiaries in 2016. In contrast, the least costly 50 percent of dual-eligible beneficiaries 

accounted for only 7 percent of Medicare spending and 19 percent of total spending on 

dual-eligible beneficiaries. 

• On average, total spending (including Medicaid, Medigap, etc.) for dual-eligible beneficiaries 

in 2016 was about twice that for non-dual-eligible beneficiaries—$28,970 compared with 

$15,079, respectively (data not shown).

7

50

19

25

30

27

33

15

28

35

5

26

0

10

20

30

40

50

60

70

80

90

100

Medicare spending for dualeligible beneficiariesShare of dual-eligible

beneficiaries

Total spending for dual-eligible

beneficiaries

Percent
5

A Data Book: Health care spending and the Medicare program, June 2019 45

Chart 5-1. SNFs improved on some measures but not others 

from 2011 to 2017

Measure 2011 2013 2015 2017

Discharged to the community 33.5% 35.7% 38.8% 40.0%

Potentially avoidable readmissions 

 During SNF stay 12.4 11.2 10.4 10.9

 During 30 days after discharge from SNF 5.9 5.5 5.0 6.1

Rate of improvement in one or more mobility ADLs 43.6 43.7 43.6 43.9

Rate of no decline in mobility 87.2 87.1 87.1 87.0

Note: SNF (skilled nursing facility), ADL (activity of daily living). High rates of discharge to the community indicate better quality.

High readmission rates indicate worse quality. All rates were risk adjusted. The rate of improvement in mobility ADLs is 

the average of the rates of improvement in bed mobility, transfer, and ambulation, weighted by the number of stays 

included in each measure. Stays with improvement in one, two, or three mobility ADLs are counted in the improvement 

measures. “Rate of no decline in mobility” is the share of stays with no decline in any of the three ADLs. Rates are the 

average of facility rates and calculated for all facilities with 25 or more stays, except the rate of potentially avoidable 

readmissions during the 30 days after discharge, which is reported for all facilities with 20 or more stays. Measures 

exclude hospital-based swing-bed units. 

Source: MedPAC analysis of Medicare claims and Minimum Data Set data for 2011–2017. 

• Quality measures for SNFs draw on two sources, claims for payment submitted by SNFs 

and patient assessment data collected by SNFs. Evidence that patient assessment–based 

functional measures of quality should be interpreted carefully, given evidence that the 

patient assessment information reported by inpatient rehabilitation facilities and home health 

agencies may reflect financial considerations.

• Rates of claims-based, risk-adjusted community discharge and potentially avoidable 

readmission during the SNF stay improved between 2011 and 2017. A greater share of 

beneficiaries was discharged to the community (40.0 percent compared with 33.5 percent). 

A lesser share of beneficiaries was readmitted to an acute care hospital during the SNF stay 

(10.9 percent compared with 12.4 percent). The share of beneficiaries readmitted to an 

acute care hospital in the 30 days after discharge increased between 2015 and 2017, 

putting the rate higher than in 2011.

• Both readmission rates include only patients readmitted to a hospital with the principal 

diagnosis of a potentially avoidable condition. The 13 potentially avoidable conditions are 

congestive heart failure, electrolyte imbalance/dehydration, respiratory infection, sepsis, 

urinary tract or kidney infection, hypoglycemia or diabetic complications, anticoagulant 

complications, fractures and musculoskeletal injuries, acute delirium, adverse drug 

reactions, cellulitis/wound infections, pressure ulcers, and abnormal blood pressure. 

• The two patient assessment–based, risk-adjusted measures of change in functional status 

were essentially unchanged between 2011 and 2017. The mobility measures are 

composites of the patients’ abilities in bed mobility, transfer, and ambulation, and they reflect

the likelihood that a patient will change, given his or her functional ability at admission. A 

facility admitting patients with worse prognoses will have lower expected rates of achieving 

these outcomes, and this difference will be reflected in the risk-adjusted rates. 
46 Quality of care in the Medicare program

Chart 5-2. Home health agencies’ assessment-based 

performance measures increased markedly from 

2014 to 2017, while claims-based performance 

measures were largely unchanged

Measure 2014 2015 2016 2017

Average share of an agency’s beneficiaries who:

Used emergency department care 12.0% 12.2% 12.1% 12.7%

Had to be admitted to the hospital 15.4 15.5 16.2 15.4

Average share of a home health agency’s beneficiaries with improvements in: 

Walking 61 63 69 74

Transferring 55 59 65 72

Note: All data pertain to fee-for-service beneficiaries only and are risk adjusted for differences in patient condition among home 

health patients. 

Source: MedPAC analysis of Medicare claims data and Outcome and Assessment Information Set data provided by the University 

of Colorado.

• Quality measures for home health care draw on two sources, claims for payment submitted 

by HHAs and other patient assessment data collected by HHAs. In recent years, quality 

measures based on claims have indicated little change in quality, while measures based on 

patient assessment data have indicated improved quality. The claims-based rates of 

hospitalization and emergency department use have not changed significantly from 2014 to 

2017, while the patient assessment–based functional improvement rates have improved. 

From 2014 and 2017, average rates of beneficiaries with improvement in transferring 

improved from 55 percent to 72 percent. These divergent trends raise concerns about the 

objectivity of the patient assessment data and suggest that the functional measures of 

quality, such as walking and transferring, should be interpreted carefully.

• Medicare implemented a value-based purchasing program for home health agencies in nine 

states in 2018. In 2019, agencies in these states will receive bonuses or penalties of up to 5

percent depending on their performance on 16 measures, including the functional and 

emergency department use measures listed above.
A Data Book: Health care spending and the Medicare program, June 2019 47

Chart 5-3. IRFs improved on risk-adjusted rates of discharge to 

the community and potentially avoidable 

rehospitalizations during the stay, 2012 to 2017

Measure 2012 2013 2014 2015 2016 2017

Potentially avoidable rehospitalizations 

during IRF stay 2.8% 2.6% 2.7% 2.6% 2.7% 2.6%

Potentially avoidable rehospitalizations 

during 30 days after discharge from IRF 4.8 4.8 4.7 4.3 4.7 4.7

Discharged to the community 74.2 74.9 75.2 75.0 75.9 76.0

Discharged to a SNF 6.9 6.9 7.1 7.0 6.8 6.8

Note: IRF (inpatient rehabilitation facility), SNF (skilled nursing facility). High rates of rehospitalization and discharge to a SNF 

indicate worse quality. High rates of discharge to the community indicate better quality. Rates are the average of the 

facility rates and are calculated for all facilities with 25 or more stays.

Source: Analysis of Medicare claims data and Inpatient Rehabilitation Facility‒Patient Assessment Instrument data from CMS. 

• Between 2012 and 2017, the national average rate of risk-adjusted potentially avoidable 

rehospitalizations during IRF stays declined from 2.8 percent to 2.6 percent. (Lower rates 

are better.) The national average rate of risk-adjusted potentially avoidable 

rehospitalizations within 30 days after discharge from an IRF declined from 4.8 percent to 

4.3 percent in 2015, then rose to 4.7 percent in 2016 and 2017. 

• The rehospitalization rates count only stays readmitted to a hospital with the principal 

diagnosis of a potentially avoidable condition. The potentially avoidable rehospitalizations we 

measure are respiratory-related illness (pneumonia, influenza, bronchitis, chronic obstructive 

pulmonary disease, and asthma); sepsis; congestive heart failure; fractures or fall with a major 

injury; urinary tract or kidney infection; blood pressure management; electrolyte imbalance; 

anticoagulant therapy complications; diabetes-related complications; cellulitis or wound 

infection; pressure ulcer; medication error or adverse drug reaction; and delirium.

• Between 2012 and 2017, the national average for the risk-adjusted community discharge 

rate increased from 74.2 percent to 76.0 percent. (Higher rates are better). Our measure of 

community discharge does not give IRFs credit for discharging a Medicare beneficiary to the 

community if the beneficiary is subsequently admitted to an acute care hospital within 30 

days of the IRF discharge. Between 2012 and 2014, the national risk-adjusted rate of 

discharge to a SNF increased from 6.9 percent to 7.1 percent, but subsequently declined to 

6.8 percent in 2017 (lower rates are better). 
48 Quality of care in the Medicare program

Chart 5-4. Dialysis quality of care: Some measures show 

progress, others need improvement, 2012–2016

Outcome measure 2012 2014 2016

Share of in-center hemodialysis patients:

Receiving adequate dialysis 97% 97% 98%

Managing anemia 

Mean hemoglobin <10 g/dL 22 26 27

Mean hemoglobin 10 to <12 g/dL 71 69 68

Mean hemoglobin ≥12 g/dL 7 5 5

Dialyzed with an AV fistula 60 62 63

Share of peritoneal dialysis patients:

Receiving adequate dialysis 90 91 93

Managing anemia

Mean hemoglobin <10 g/dL 30 34 34

Mean hemoglobin 10 to <12 g/dL 63 61 60

Mean hemoglobin ≥12 g/dL 7 5 5

Share of all dialysis patients wait-listed for a kidney 17.6 17.3 15.3

Renal transplant rate per 100 dialysis-patient years 3.5 3.4 3.5

Annual mortality rate per 100 patient years* 17.0 16.5 16.4

Total hospital admissions per patient year* 1.9 1.7 1.7

Hospital days per patient year* 12.0 11.4 11.3

Note: g/dL (grams per deciliter [of blood]), AV (arteriovenous). The rate per patient year is calculated by dividing the total 

number of events by the fraction of the year that patients were followed. Data on dialysis adequacy, anemia management, 

and fistula utilization represent the share of patients meeting CMS’s clinical performance measures. The United States 

Renal Data System adjusts data by age, gender, race, and primary diagnosis of end-stage renal disease. 

*Lower values suggest higher quality.

Source: Compiled by MedPAC with data from Fistula First, the United States Renal Data System, and institutional outpatient files 

from CMS. 

• Quality of dialysis care is mixed. Performance has improved on some measures, but 

performance on others remains unchanged or has declined.

• All hemodialysis patients require vascular access—the site on the patient’s body where blood 

is removed and returned during dialysis. Between 2012 and 2016, use of arteriovenous 

fistulas, considered the best type of vascular access, increased from 60 percent to 63 percent 

of hemodialysis patients. Between 2012 and 2016, overall adjusted mortality rates decreased 

by 4.0 percent (from 17.0 percent to 16.4 percent). 

• Between 2012 and 2016, the proportion of hemodialysis patients receiving adequate dialysis 

remained high, and overall rates of hospitalization declined. 

• Other measures suggest that improvements in dialysis quality are still needed. We looked at 

access to kidney transplantation because it is widely believed to be the best treatment option 

for individuals with end-stage renal disease. Between 2012 and 2016, the proportion of 

dialysis patients accepted on the kidney transplant waiting list declined, and the renal 

transplant rate per 100 dialysis-patient years did not change. 
A Data Book: Health care spending and the Medicare program, June 2019 49

Chart 5-5. Small improvements in hospital patient experience 

measures, 2013‒2017

H‒CAHPS® measure 2013 2014 2015 2016 2017

Percentage point 

change,

2013−2017

Hospital rating 71% 71% 72% 73% 73% 2

Communication with nurses 79 79 80 80 80 1

Communication with doctors 82 82 82 82 82 0

Responsiveness of hospital staff 68 68 68 69 70 2

Communication about medicines 64 65 65 65 66 2

Cleanliness of hospital environment 74 74 74 75 75 1

Quietness of hospital environment 61 62 62 63 62 1

Discharge information 86 86 87 87 87 1

Recommend the hospital 71 71 72 72 72 1

Care transition* 51 52 52 52 53 2

Note: H‒CAHPS®(Hospital Consumer Assessment of Healthcare Providers and Systems®). H‒CAHPS is a standardized 32-item 

survey of patients' evaluations of hospital care. The survey items are combined to calculate measures of patient experience for 

each hospital. The H‒CAHPS measures included in the table are the “top-box,” or the most positive, response to H‒CAHPS 

survey items. The top-box response is “Always” for four H‒CAHPS composite measures (communication with nurses, 

communication with doctors, responsiveness of hospital staff, and communication about medicines) and two individual items 

(cleanliness of hospital environment and quietness of hospital environment), “Yes” for the discharge information composite, “‘9’ 

or ‘10’ (high)” for the hospital rating item, “Definitely yes” for the recommend the hospital item, and “Strongly agree” for the care 

transition composite. Each year’s results are based on a sample of hospital surveys of their patients from January to 

December. About 4,239 hospitals are included, and, on average, these hospitals had patient-level survey response rates of 28 

percent. 

Source: CMS summary of H‒CAHPS public report of survey results tables. 

• In 2008, CMS began publicly reporting H‒CAHPS results on the Hospital Compare 

website. In 2013, Medicare began the hospital value-based purchasing program, which 

makes incentive payments to hospitals based on the outcomes of certain quality 

measures. This program incorporates results from H‒CAHPS. 

• The share of patients who rated their hospital a 9 or 10 on a 10-point scale increased from 

71 percent in 2013 to 73 percent in 2017. 

• All but one of the hospital patient experience measures improved slightly from 2013 to 2017. 

6

A Data Book: Health care spending and the Medicare program, June 2019 53

Chart 6-1. Number of acute care hospital closures has

exceeded openings each year since 2011

Note: Data are for general short-term acute care hospitals, including critical access hospitals. “Rural” refers to a county not in a 

core-based statistical area. The Commission’s reported number of open and closed hospitals can change from year to 

year based on hospitals that enter Medicare as an acute care facility and later convert to a more specialized type of 

facility, such as a long-term care hospital.

Source: MedPAC analysis of Provider of Service file from CMS, data from the Health Resources and Services Administration, and

internet searches.

• While hospital closures are still relatively rare events, there have been more acute care 

hospital closures than openings each year since 2011. 

• In 2017, 18 of the approximately 4,700 acute care hospitals participating in the Medicare 

program closed, and 5 hospitals opened. Among the 18 closures, 8 were in rural counties. 

Rural hospital closures could in part reflect low inpatient occupancy (see Chart 6-13). All five

openings were in urban counties.

29

14

17

14

9

13

11

5

11

16

22

30

24

28

19 18

3

6

7 12

13

13

13

8

0

5

10

15

20

25

30

35

2010 2011 2012 2013 2014 2015 2016 2017

Number of hospitals

Fiscal year

Newly opened hospitals Closed hospitals Rural closed hospitals
54 Acute inpatient services

Chart 6-2. Employment for hospital industry has grown slower 

than rest of health care sector and rest of economy, 

2010–2018

Note: “Cumulative percent change” is the total percentage change from 2010. “Total nonfarm employment” is defined as all 

employment not of or relating to farms or farming.

Source: MedPAC analysis of Bureau of Labor Statistics, Current Employment Statistics data set as of March 2019.

• The Bureau of Labor Statistics survey of current employment data indicates that the number 

of individuals directly employed within the hospital industry increased 9.1 percent from 

January 2010 to December 2018. Employment in the rest of the health care sector 

increased 22.6 percent, and employment across the rest of the economy (nonfarm minus 

health care) increased 15.5 percent as it recovered from the recession of 2009. 

• In the most recent year (from 2017 to 2018), hospital employment increased 2.5 percent, the 

rest of the health care sector increased 4.3 percent, and employment across the rest of the 

economy (nonfarm minus health care) increased 3.1 percent. 

• From 2016 to 2018, the number of hospital staff in health care practitioner and technical 

occupations overall increased 3 percent (data not shown). Within this category, larger-thanaverage increases occurred for physicians and surgeons (12 percent); diagnostic-related 

technologists and technicians (5 percent); therapists (4 percent); and registered nurses (3

percent). Clinical laboratory technologists and technicians were among the few occupations 

in this category with a decline in employment (‒4 percent). 

• From 2016 to 2018, the number of hospital staff in nonclinical occupations increased for just 

a few occupational categories: secretaries and administrative assistants (2 percent) and 

building cleaning workers (1 percent) (data not shown). 

15.5%

22.6%

9.1%

-5%

0%

5%

10%

15%

20%

25%

Jan 2010

Apr 2010

Jul 2010

Oct 2010

Jan 2011

Apr 2011

Jul 2011

Oct 2011

Jan 2012

Apr 2012

Jul 2012

Oct 2012

Jan 2013

Apr 2013

Jul 2013

Oct 2013

Jan 2014

Apr 2014

Jul 2014

Oct 2014

Jan 2015

Apr 2015

Jul 2015

Oct 2015

Jan 2016

Apr 2016

Jul 2016

Oct 2016

Jan 2017

Apr 2017

Jul 2017

Oct 2017

Jan 2018

Apr 2018

Jul 2018

Oct 2018

Cumultative percent change

Total nonfarm employment, excluding health care

Health care employment, excluding hospitals

Hospital employment
A Data Book: Health care spending and the Medicare program, June 2019 55

Chart 6-3. Medicare’s FFS payments for hospital outpatient 

services have grown faster than for inpatient 

services, 2010–2017

Note: FFS (fee-for-service). Analysis includes inpatient services covered by the acute inpatient prospective payment system 

(PPS) and psychiatric, rehabilitation, long-term care, cancer, and children’s hospitals and units covered by their respective 

payment systems; outpatient services covered by the outpatient PPS; and other outpatient services. Payments include 

program outlays and beneficiary cost sharing, including hospital cost sharing for beneficiaries eligible for Medicare 

because of end-stage renal disease. 

Source: CMS, Office of the Actuary.

• Aggregate Medicare FFS inpatient spending was $157 billion and outpatient spending was 

$64 billion in 2017. From 2016 to 2017, inpatient spending increased 1.5 percent, while 

outpatient spending increased nearly 6.7 percent.

• Inpatient spending increased as much between 2015 and 2017 ($7 billion) as it did between 

2010 and 2015. 

• Outpatient spending has increased as a share of total Medicare hospital spending in the 

past seven years. In 2010, outpatient spending accounted for approximately 20 percent of 

all Medicare spending for hospital services; by 2017, outpatient spending grew to almost 29

percent of total Medicare hospital spending. 

143 144 144 146 147 150 155 157

37 40 43 46 52 56 60 64

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017

Billions of dollars

Calendar year

Outpatient

Inpatient
56 Acute inpatient services

Chart 6-4. Urban acute care hospitals comprised half of 

hospitals but vast majority of Medicare FFS 

discharges, 2017

Acute care hospitals Medicare FFS discharges

Share of Number Share of

Hospital group Number total (thousands) total

All PPS and critical access 4,559 100% 9,502 100%

PPS hospitals 3,212 70.5 9,198 96.8

 Urban 2,430 53.3 8,258 86.9

 Rural 782 17.2 939 9.9

 Large urban 1,262 27.7 4,039 42.5

 Other urban 1,168 25.6 4,219 44.4

 Rural referral 88 1.9 217 2.3

 Sole community 363 8.0 481 5.1

 Medicare dependent 133 2.9 97 1.0

 Other rural, <50 beds 108 2.4 43 0.5

 Other rural, ≥50 beds 90 2.0 101 1.1

 Nonprofit 1,883 41.3 6,481 68.2

 For-profit 846 18.6 1,648 17.3

 Government 483 10.6 1,068 11.2

 Major teaching 310 6.8 1,701 17.9

 Other teaching 778 17.1 3,600 37.9

 Nonteaching 2,124 46.6 3,897 41.0

Critical access hospitals 1,347 29.6 304 3.2

Note: FFS (fee-for-service), PPS (prospective payment system). Data are for general short-term acute care hospitals covered 

under the inpatient PPS and critical access hospitals with complete 2017 cost reports. “Large urban” areas are those with 

populations of more than 1 million. “Major teaching hospitals” are defined by a ratio of interns and residents to beds of at 

least 0.25. Components may not sum to totals due to rounding. 

Source: MedPAC analysis of hospital cost report and impact file data from CMS.

• In 2017, there were almost 9.2 million discharges among Medicare FFS beneficiaries as 

3,212 acute care PPS hospitals and another 304,000 discharges at 1,347 small, rural

hospitals designated as critical access hospitals.

• Urban PPS hospitals comprised half (53 percent) of the acute care hospitals but the vast 

majority (about 87 percent) of Medicare FFS discharges. 

• About 91 percent of rural hospitals were paid through the critical access hospital program or 

one of three other special PPS payment provisions for rural hospitals (sole community 

hospitals, Medicare-dependent hospitals, and rural referral centers). Collectively, these four 

types of hospitals accounted for 88 percent of all rural Medicare FFS discharges.
A Data Book: Health care spending and the Medicare program, June 2019 57

Chart 6-5. Circulatory system was most common major 

diagnostic category among Medicare FFS 

discharges from acute care hospitals, 2010 and 2017

 Share of Medicare FFS discharges Percentage

MDC point

number MDC name 2010 2017 change

5 Circulatory system 24% 20% –3

8 Musculoskeletal system 12 14 2

4 Respiratory system 15 14 –1

6 Digestive system 11 10 –1

18 Infectious and parasitic diseases 5 10 5

1 Nervous system 8 8 0

11 Kidney and urinary tract 7 8 1

10 Endocrine, nutritional and metabolic 4 4 0

7 Hepatobiliary system and pancreas 3 3 0

9 Skin, subcutaneous tissue and breast 3 2 0

 Total 91 92 1

Note: FFS (fee-for-service), MDC (major diagnostic category). Data are for inpatient discharges of Medicare FFS beneficiaries

from general short-term acute care hospitals covered under the inpatient prospective payment system and critical access 

hospitals. Components may not sum to totals due to rounding.

Source: MedPAC analysis of MedPAR data from CMS.

• In 2017 (and 2010), 10 major diagnostic categories accounted for over 90 percent of all 

Medicare FFS discharges from acute care hospitals.

• The circulatory system was the most common major diagnostic category among Medicare 

FFS discharges; however, its share declined from 24 percent to 20 percent between 2010 

and 2017.

• Between 2010 and 2017, the major diagnostic category with the largest increase was 

infectious and parasitic diseases, which increased from 5 percent to 10 percent of Medicare 

FFS discharges, due to growth in the number of FFS beneficiaries hospitalized with

septicemia or severe sepsis.
58 Acute inpatient services

Chart 6-6. All-payer hospital outpatient visits increased rapidly 

while inpatient admissions declined, 2010–2017

Note: “Cumulative percent change” is the total percentage change from 2010. “Outpatient visits” include all clinic visits, referred 

visits, observation services, outpatient surgeries, and emergency department visits, regardless of the number diagnostic 

and/or therapeutic treatments the patient received during the visit. Data are for community hospitals (nonfederal shortterm general and specialty hospitals), estimated from those who responded to the American Hospital Association (AHA) 

survey. The AHA began, with the 2019 edition of Hospital Statistics, using a new methodology to classify facilities as 

hospitals. As a result of the application of the new, broader hospital definition, the number of community hospitals in each 

of 2013 to 2017 increased by approximately 400.

Source: MedPAC analysis of Hospital Statistics data from the American Hospital Association.

• In 2017, there were nearly 766 million outpatient visits and 34 million inpatient admissions 

across all patients at community hospitals (nonfederal short-term general and specialty 

hospitals) (data not shown). 

• All-payer hospital outpatient visits grew rapidly between 2010 and 2017, while inpatient 

admissions declined overall. From 2010 to 2017, the number of outpatient visits increased 

about 18 percent. By contrast, over the same period, the number of all-payer inpatient 

admissions declined more than 2 percent. 

• All-payer outpatient and inpatient service use both increased from 2014 to 2017. Over this 

period, the number of outpatient visits increased by 10.1 percentage points, while the 

number of inpatient admissions increased 2.2 percentage points.

0.0% 0.7%

3.6% 5.0%

7.5%

12.2%

16.2% 17.6%

0.0% -0.9% -2.1% -3.1% -4.6% -3.8% -3.2% -2.4%

-20%

-10%

0%

10%

20%

30%

40%

2010 2011 2012 2013 2014 2015 2016 2017

Cumulative percent change

Fiscal year

Total outpatient visits

Total inpatient admissions
A Data Book: Health care spending and the Medicare program, June 2019 59

Chart 6-7. Growth in Medicare outpatient services and decline 

in inpatient discharges per FFS beneficiary have 

slowed, 2010–2017

Note: FFS (fee-for-service). “Cumulative percent change” is the total percentage change from 2010. Years for outpatient 

services are calendar years, and years for inpatient discharges are fiscal years. Data for outpatient services include 

hospitals paid under the outpatient prospective payment system and critical access hospitals; data for inpatient 

admissions include hospitals paid under the inpatient prospective payment system.

Source: MedPAC analysis of hospital outpatient claims and MedPAR data from CMS.

• In 2017, Medicare FFS beneficiaries received approximately 170 million outpatient services

and had 9 million inpatient discharges at hospitals paid under the prospective payment 

systems (data not shown).

• From 2010 to 2017, the number of Medicare outpatient visits per FFS beneficiary increased 

21.6 percent. By contrast, over the same period, the number of Medicare inpatient 

discharges per FFS beneficiary declined 14.2 percent.

• Between 2016 and 2017, both outpatient services and inpatient discharges per FFS 

beneficiary increased by about 0.7 percentage points. These small increases reflect a 

discontinuation of long-term trends where outpatient use increased while inpatient use 

decreased. 

0.0%

4.4%

8.9%

13.0%

17.0%

19.3% 20.8% 21.6%

0.0% -1.7%

-6.5%

-9.5%

-12.5% -12.9%

-14.8% -14.2%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

2010 2011 2012 2013 2014 2015 2016 2017

Cumulative percent change

Year

Outpatient serivces per FFS Part B beneficiary

Inpatient discharges per FFS Part A benefciary
60 Acute inpatient services

Chart 6-8. Declines in both medical and surgical inpatient 

discharges per Medicare FFS beneficiary have 

slowed, 2010–2017

Note: FFS (fee-for-service). Data are for short-term general hospitals covered under the inpatient prospective payment system 

and critical access hospitals. Discharges are per 1,000 Medicare FFS Part A beneficiaries.

Source: MedPAC analysis of MedPAR data from CMS.

• From 2010 to 2017, the volume of medical inpatient discharges per 1,000 Medicare FFS 

beneficiaries declined 16.5 percent (from 212 to 177) and the volume of surgical inpatient 

discharges declined 14.7 percent (from 80 to 68).

• However, between 2016 and 2017, the volume of medical discharges per 1,000 Medicare 

FFS beneficiaries increased from 174 to 177, reflecting a discontinuation of long-term 

trends. This increase is in part attributable to an increase in the number of admissions for 

circulatory and respiratory diagnoses (the two largest medical major diagnostic categories).

• Between 2016 and 2017, the volume of surgical discharges decreased slightly from 69 to 68 

per 1,000 Medicare FFS beneficiaries.

• Together, these two trends resulted in an increase in the overall average patient case mix

for Medicare inpatient discharges of 0.6 percent between 2016 and 2017 (data not shown).

212 211

199 192

182 184

174 177

80 76 72 69 67 66 69 68

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017

Discharges per 1,000 Medicare beneficiaries

Fiscal year

Medical

Surgical
A Data Book: Health care spending and the Medicare program, June 2019 61

Chart 6-9. Average length of stay has decreased for Medicare 

FFS inpatients and increased for non-Medicare 

inpatients, 2010–2017

Note: FFS (fee-for-service). Average length of stay is calculated from discharges and patient days (excluding swing bed days). 

Data are for a consistent cohort of general short-term acute care hospitals covered by the inpatient prospective payment 

system.

Source: MedPAC analysis of hospital cost report data from CMS.

• From 2010 to 2017, the average length of stay for Medicare FFS inpatients declined 6.7 

percent, from 4.73 days to 4.42. By contrast, the average length of stay for non-Medicare 

inpatients increased 2.6 percent over the same time period, from 3.91 days to 4.01 days.

• Together, these two trends led to the difference in average length of stay between Medicare 

FFS and non-Medicare inpatients decreasing from almost a day in 2010 to less than half a

day in 2017.

4.73 4.72 4.65 4.64 4.58 4.57 4.48 4.42

3.91 3.90 3.89 3.94 4.02 4.04 4.04 4.01

0

1

2

3

4

5

6

2010 2011 2012 2013 2014 2015 2016 2017

Inpatient days

Fiscal year

Medicare FFS

Non-Medicare
62 Acute inpatient services

Chart 6-10. Hospital emergency department use per Medicare 

FFS beneficiary increased, 2010–2017

Note: FFS (fee-for-service), ED (emergency department). Years for outpatient ED visits are calendar years, and years for ED 

visits resulting in an inpatient admission are fiscal years. Data for outpatient ED visits include hospitals paid under the 

outpatient prospective payment system and critical access hospitals; data for ED visits resulting in an inpatient admission

include hospitals paid under the inpatient prospective payment system and critical access hospitals. Components may not 

sum to totals due to rounding.

Source: MedPAC analysis of standard analytical file of outpatient claims and MedPAR data from CMS.

• In 2017, Medicare FFS beneficiaries accounted for 28 million visits to hospital EDs (data not 

shown). Among these visits, over 17 million were outpatient ED visits—visits that did not 

result in an inpatient admission—and over 10 million were inpatient ED visits—visits that did 

result in inpatient admissions. 

• From 2010 to 2017, the number of ED visits per 1,000 FFS beneficiaries increased from 666 

to 720, or 8 percent. During this period, there was an 11 percent increase in outpatient ED 

visits per 1,000 FFS beneficiaries (from 409 to 455) and a 3 percent increase in ED visits 

resulting in inpatient admissions per 1,000 FFS beneficiaries (from 257 to 264). 

• From 2010 to 2017, the number of outpatient ED visits billed at the highest of the five ED 

payment levels (Level 5) increased as a share of all ED visits, climbing from 20 percent to 

29 percent (data not shown). By contrast, during the same period, ED visits coded in the 

three lowest ED payment levels decreased from 33 percent to 28 percent.

257 261 256 251 251 257 255 264

409 421 435 433 443 454 448 455

666 683 691 684 694 711 703 720 

0

100

200

300

400

500

600

700

800

2010 2011 2012 2013 2014 2015 2016 2017

ED visits per 1,000 FFS beneficiaries

Year

ED visits resulting in an inpatient admission Outpatient ED visits
A Data Book: Health care spending and the Medicare program, June 2019 63

Chart 6-11. Decline in share of Medicare Part A FFS

beneficiaries with at least one acute inpatient stay

slowed, 2010–2017

Note: FFS (fee-for-service). Data are for general short-term acute care hospitals covered by the inpatient prospective payment 

system. 

Source: MedPAC analysis of MedPAR data from CMS. 

• From 2010 to 2017, the share of Medicare Part A FFS beneficiaries who had at least one

acute inpatient stay declined 3 percentage points, from 21.5 percent to 18.5 percent. 

• From 2016 to 2017, the share of Medicare Part A FFS beneficiaries who had at least one

acute care hospitalization remained steady at 18.5 percent.

• Medicare Part A FFS beneficiaries who had at least one acute care hospitalization in 2017

had an average of 1.68 hospitalizations over the course of the year (data not shown). 

• A portion of the long-term decline in beneficiaries’ utilization of inpatient services could 

reflect the increase in the number of cases in which beneficiaries are served in outpatient 

observation status (see Chart 6-12). 

21.5% 21.2%

20.2% 19.7% 19.0% 19.0% 18.5% 18.5%

0%

5%

10%

15%

20%

25%

2010 2011 2012 2013 2014 2015 2016 2017

Percent

Fiscal year
64 Acute inpatient services

Chart 6-12. Number of outpatient observation visits per 

Medicare FFS beneficiary increased while short 

inpatient stays decreased, 2010–2017

Note: FFS (fee-for-service). Observation visits are payable visits with a length of stay of at least eight hours. Years for outpatient 

visits are calendar years, and years for inpatient stays are fiscal years. Data for outpatient observation visits include 

hospitals paid under the outpatient prospective payment system and critical access hospitals; data for inpatient stays 

include hospitals paid under the inpatient prospective payment system. 

Source: MedPAC analysis of standard analytical file outpatient claims and hospital cost report data from CMS. 

• In 2017, Medicare beneficiaries had approximately 1.7 million outpatient observation visits

and 4.7 million inpatient stays of 1–3 days (data not shown). 

• From 2010 to 2017, the number of outpatient observation visits per 1,000 beneficiaries 

increased by 23 visits. By contrast, the number of inpatient stays of 1–3 days per 1,000 FFS 

beneficiaries decreased 26 stays over the same period. These trends suggest that 

outpatient observation visits may account for a portion of the decline in short inpatient stays. 

• In 2017, approximately 13 percent of all outpatient observation visits were 48 hours or 

longer, the same percentage as in 2016 (data not shown). 

• Between 2016 and 2017, the number of one-day inpatient stays increased 6 percent (data 

not shown).

28 31

38 42 45 47 49 51

151 149

132 127 122 123 122 125

0

50

100

150

200

2010 2011 2012 2013 2014 2015 2016 2017

Stays or visits per 1,000 FFS beneficiaries

Year

Observations visits Inpatient stays of 1-3 days
A Data Book: Health care spending and the Medicare program, June 2019 65

Chart 6-13. Acute care hospital occupancy rates have increased 

slightly overall but declined slightly at rural 

hospitals, 2013–2017

Note: Hospital “occupancy rates” are defined as total bed days (including swing bed days) and observation bed days used, 

minus nursery bed days used, divided by total bed days available. Data are for a consistent cohort of approximately 4,130

general short-term acute care hospitals covered under the inpatient prospective payment system and critical access 

hospitals. 

Source: MedPAC analysis of hospital cost report data from CMS.

• In the aggregate, acute care hospital occupancy rates increased slightly between 2013 and 

2017, from 60 percent to 62 percent. 

• Occupancy rates are generally higher for urban than rural hospitals, and the differences 

increased since 2013. Between 2013 and 2017, the aggregate occupancy rate for urban 

hospitals increased from 63 percent to 66 percent, while the aggregate occupancy rate for 

rural hospitals decreased from 42 percent to 40 percent. 

63% 64% 65% 66% 66%

60% 60% 62% 62% 62%

42% 41% 41% 40% 40%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2013 2014 2015 2016 2017

Occupancy rate

Fiscal year

Urban

All

Rural
66 Acute inpatient services

Chart 6-14. One-fifth of Medicare inpatient PPS payments were 

from special add-on payments, 2017

Share of total inpatient PPS payments

 Additional Total

Inpatient PPS rural or payments

hospital group Base IME DSH UC Outlier isolated* (millions)

All PPS 80.7% 5.6% 3.0% 5.0% 4.5% 1.6% $118,318

Urban 80.8 6.0 3.1 5.2 4.8 0.8 109,061

Rural 80.4 1.0 1.6 2.8 1.1 11.9 9,258

Large urban 80.1 6.6 3.2 5.7 5.2 0.1 55,393

Other urban 81.4 5.4 2.9 4.7 4.3 1.5 53,667

Rural referral 89.2 1.1 3.1 5.1 2.0 0.1 2,024

SCH (federal rate) 81.3 5.1 3.6 5.7 2.4 2.7 1,074

SCH (HSP rate) 74.8 0.0 0.0 0.0 0.2 25.2 4,183

Medicare dependent 79.3 0.1 1.9 3.9 1.1 14.2 824

Other rural, <50 beds 82.5 0.1 2.1 4.8 1.3 9.0 335

Other rural, ≥50 beds 86.0 1.9 2.8 5.8 1.4 2.4 818

Nonprofit 81.4 5.8 2.8 4.5 4.4 1.5 84,217

For-profit 85.1 2.5 3.3 5.7 3.2 1.0 18,890

Government 71.6 8.3 3.5 7.0 6.3 3.0 15,211

Major teaching 67.8 16.0 3.5 6.2 7.0 0.2 31,150

Other teaching 83.5 3.7 3.1 5.0 3.9 1.2 44,975

Nonteaching 87.4 0.0 2.5 4.1 3.2 3.1 42,194

Note: PPS (prospective payment system), IME (indirect medical education), DSH (disproportionate share hospital), UC 

(uncompensated care), SCH (sole community hospital), HSP (hospital-specific payment). Payments reflect 2017 payment 

rules applied to actual number of cases in 2017. Component do not sum to totals because other inpatient PPS payment 

components, such as new technology and quality payments, are not included in table. 

*“Additional rural or isolated” payments include SCH, Medicare-dependent hospital, and low-volume add-on payments. For 

SCHs paid the HSP, this category includes all payments above the federal base rate, including the payments attributable to 

the costs associated with residency programs, low-income patients, and outlier cases. 

Source: MedPAC analysis of MedPAR and impact file data from CMS.

• In 2017, Medicare payments to PPS hospitals for inpatient care to fee-for-service (FFS) 

beneficiaries were approximately $118 billion. 

• Base Medicare severity–diagnosis related group payments accounted for about 81 percent of 

these payments. Special add-on payments—including IME, DSH, UC, and outlier payments, 

as well as additional payments to rural or isolated hospitals—accounted for almost 20 percent.

Payment adjustments for three quality programs—value-based payments or penalties, 

penalties for excess readmissions, and penalties for hospital-acquired conditions—reduced 

payments by about 1 percent (data not shown).

• In 2017, Medicare payments to critical access hospitals (CAHs) for inpatient care of FFS 

beneficiaries was approximately $2.8 billion (data not shown). Cost-based reimbursement for 

CAHs results in payments significantly above what CAHs would be paid under the inpatient 

PPS.
A Data Book: Health care spending and the Medicare program, June 2019 67

Chart 6-15. After falling to a low in 2017, Medicare 

disproportionate share and uncompensated care 

payments to acute care hospitals increased 

Note: DSH (disproportionate share hospital). Data are for general hospitals covered by the inpatient prospective payment system. 

Data represent CMS’s estimated operating DSH payments and final uncompensated care payment levels.

Source: CMS hospital inpatient prospective payment systems for acute care hospitals final rules from fiscal years 2012 to 2019. 

• In 2012, hospitals received almost $12 billion in aggregate Medicare DSH payments. The 

traditional DSH payment formula was based on hospitals’ share of Medicaid patients and 

Medicare patients with Supplemental Security Income (SSI).

• Beginning in 2014, DSH payments were calculated as 25 percent of the operating DSH 

payment the hospital would have received under the traditional DSH formula in effect before

2014. DSH-eligible hospitals are also eligible to receive uncompensated care payments. 

These payments are calculated as a fixed pool of dollars equal to 75 percent of the estimated 

total DSH payments hospitals would have received under the traditional DSH formula, times a 

factor that increases in proportion to the estimated percentage of the population without 

insurance relative to 2013. These payments are distributed based on the share of 

uncompensated care each hospital provides.

• Aggregate DSH payments have been approximately $3 billion to $4 billion per year since the 

policy change and have been increasing steadily. For fiscal year (FY) 2019, CMS has 

estimated $4.1 billion in DSH payments. The increase in DSH payments between 2018 and 

2019 is due to CMS-estimated growth in inpatient discharges for FY 2019 and the annual 

update to inpatient prospective payment system rates. 

• The amount of uncompensated care payments declined about $3 billion between 2014 and 

2017 due to declines in the share of the population without insurance. Conversely,

uncompensated care payments increased from 2017 to 2019 due to increases in both estimated 

total DSH payments under the traditional formula and estimated uninsured percentage. 

• On net, the sum of DSH and uncompensated care payments increased $0.7 billion between 

2012 and 2019 to $12.4 billion.

3.2 3.3 3.4 3.6 3.9 4.1

9.0 7.6 6.4 6.0 6.8

8.3

11.7 12.1 12.2

10.9

9.8 9.6

10.7

12.4

0

2

4

6

8

10

12

14

16

2012 2013 2014 2015 2016 2017 2018 2019

Billions of dollars

Fiscal year

DSH payments Uncompensated care payments
68 Acute inpatient services

Chart 6-16. Medicare FFS inpatients discharged from acute care 

hospitals to home self-care decreased slightly while 

discharges to post-acute care increased, 2012–2017

Percentage

point change

Destination 2012 2016 2017 2012–2017

Home self-care 48.0% 45.7% 45.3% –2.7

Post-acute care 40.9 43.2 43.5 2.6

 Skilled nursing facility or swing bed 20.3 20.8 20.7 0.4

 Home with home health care 15.9 17.2 17.9 2.0

 Inpatient rehabilitation facility or unit 3.5 4.0 3.8 0.3

 Long-term care hospital 1.2 1.1 1.1 –0.1

 

Hospice, medical facility or home 2.7 3.0 3.1 0.4

Other inpatient hospital 2.8 2.7 2.7 –0.1

Nursing home or intermediate care facility 1.5 1.3 1.2 –0.2

Died in hospital 3.3 3.2 3.2 –0.1

Left against medical advice 0.8 0.8 0.9 0.1

Other 0.1 0.2 0.1 0.0

Note: FFS (fee-for-service). Data are for discharges from short-term general acute care hospitals. Numbers may not sum due to 

rounding.

Source: MedPAC analysis of MedPAR data from CMS.

• From 2012 to 2017, the share of FFS inpatients discharged to home under self-care 

decreased 2.7 percentage points, while the share discharged to post-acute care increased 

2.6 percent. The majority of this increase was from those discharged home with organized 

home health care.

• In 2017, about 45 percent of Medicare FFS inpatients at acute care hospitals were 

discharged to home under self-care, without any organized post-acute care; and another 43 

percent were discharged to post-acute care services. 

• In 2017, 0.15 percent of FFS inpatients at acute care hospitals were discharged or 

transferred with a planned acute care readmission (data not shown).
A Data Book: Health care spending and the Medicare program, June 2019 69

Chart 6-17. The aggregate Medicare margin for acute care

 hospitals has decreased since 2010

Note: Data are for general short-term acute care hospitals covered by the inpatient prospective payment system and exclude 

Maryland and critical access hospitals. A margin is calculated as revenue minus costs, divided by revenue. Margins are 

based on Medicare-allowable costs. Overall Medicare margins cover the costs and payments of acute inpatient, 

outpatient, inpatient psychiatric and rehabilitation unit, skilled nursing facility, and home health services, as well as 

graduate medical education, bad debts, Medicare payments for health information technology, and uncompensated care 

payments. 

Source: MedPAC analysis of Medicare cost report data from CMS.

• The aggregate Medicare margin incorporates payments and costs for acute inpatient, 

outpatient, skilled nursing, home health care, and inpatient psychiatric and rehabilitative 

services, as well as direct graduate medical education, bad debts, Medicare payments for 

health information technology, and—starting in 2014—uncompensated care payments.

• The aggregate Medicare margin decreased from ‒4.9 percent in 2010 to –9.9 percent in 

2017.

• In 2017, 25 percent of hospitals had aggregate Medicare margins of 0.6 percent or higher, 

and another 25 percent had margins of –21.3 percent or lower (data not shown). About 25 

percent of hospitals had positive Medicare margins in 2017.

-4.9

-5.7 -5.5

-5.1

-5.8

-7.6

-9.6

-9.9

-12

-10

-8

-6

-4

-2

0

2010 2011 2012 2013 2014 2015 2016 2017

Margin (percent)

Fiscal year
70 Acute inpatient services

Chart 6-18. Rural hospitals continued to have a higher 

aggregate Medicare margin than urban hospitals in 

2017

Note: Data are for general short-term acute care hospitals covered by the inpatient prospective payment system and exclude 

Maryland and critical access hospitals. A margin is calculated as revenue minus costs, divided by revenue. Margins are 

based on Medicare-allowable costs. Overall Medicare margins cover the costs and payments of acute inpatient, 

outpatient, inpatient psychiatric and rehabilitation unit, skilled nursing facility, and home health services, as well as 

graduate medical education, bad debts, Medicare payments for health information technology, and uncompensated care 

payments.

Source: MedPAC analysis of Medicare cost report data from CMS.

• The aggregate Medicare margin was higher for urban hospitals than for rural hospitals

before 2004 (data not shown); however, since 2005, the aggregate Medicare margin for 

rural hospitals has exceeded that for urban hospitals. The higher rural margins reflect 

special rural add-on payments. In 2017, the difference between urban and rural hospital 

margins was about 1.8 percentage points.

• The aggregate Medicare margin includes inpatient and outpatient services, but not 

laboratory services. The rural margin rose to 2.7 percent in 2013 in part because of lowvolume add-on payments and health information technology payments. However, in 2014,

the rural margin fell to –3.5 percent because some unprofitable services that had been paid 

as laboratory services shifted into the outpatient payment system. These outpatient tests 

were a disproportionately large share of rural hospital payments, causing rural margins to 

fall faster than urban margins. 

-5.1

-6.0 -5.9 -5.9 -5.8

-7.9

-9.9 -10.0

-2.6 -2.6

-1.0

2.7

-3.5

-4.9

-7.5

-8.2

-12

-10

-8

-6

-4

-2

0

2

4

2010 2011 2012 2013 2014 2015 2016 2017

Margin (percent)

Fiscal year

Urban

Rural
A Data Book: Health care spending and the Medicare program, June 2019 71

Chart 6-19. Teaching hospitals had higher aggregate Medicare 

margins than nonteaching hospitals, 2017

Aggregate

Share of Medicare

Hospital group hospitals margin

All hospitals 100% –9.9%

Major teaching 11 –9.0

Other teaching 24 –8.2

Nonteaching 65 –12.1

Both teaching and DSH 31 –8.3

Teaching only 3 –15.0

DSH only 53 –11.4

Neither teaching nor DSH 12 –16.1

Note: DSH (disproportionate share hospital). Data are for general short-term acute care hospitals covered by the inpatient 

prospective payment system and exclude Maryland and critical access hospitals. A margin is calculated as revenue minus 

costs, divided by revenue. Margins are based on Medicare-allowable costs. Overall Medicare margins cover the costs and 

payments of acute inpatient, outpatient, inpatient psychiatric and rehabilitation unit, skilled nursing facility, and home 

health services, as well as graduate medical education, bad debts, Medicare payments for health information technology, 

and uncompensated care payments. Components may not sum to 100 percent due to rounding. 

Source: MedPAC analysis of 2017 Medicare cost report data from CMS.

• Teaching hospitals (both major teaching and other teaching) had higher aggregate overall 

Medicare margins in 2017 compared with nonteaching hospitals. Their better financial 

performance was largely due to the additional payments they received from the IME and 

DSH adjustments to their inpatient payments. 

• Hospitals that do not receive DSH payments had the lowest aggregate Medicare margin. In 

2017, the aggregate Medicare margin of these hospitals was –15.0 percent (hospitals that 

received IME payments only) and –16.1 percent (hospitals that did not receive either IME or 

DSH payment), well below the aggregate margin of hospitals that receive both IME and 

DSH payments (–8.3 percent).

• Teaching hospitals (major teaching and other teaching) have a higher aggregate Medicare 

margin than nonteaching hospitals, while major teaching hospitals have a lower aggregate 

total margin than both other teaching and nonteaching hospitals (see Chart 6-22). 
72 Acute inpatient services

Chart 6-20. Hospital aggregate total margin increased in 2017 to 

7.1 percent

Note: Data are for general short-term acute care hospitals covered by the inpatient prospective payment system and include critical 

access hospitals. A margin is calculated as revenue minus costs, divided by revenue. “Total margin” includes all patient 

care services funded by all payers, plus nonpatient revenue such as investment income. Analysis excludes Maryland 

hospitals.

Source: MedPAC analysis of Medicare cost report data from CMS.

• The aggregate total hospital margin for all payers⎯Medicare, Medicaid, other government, 

and private payers⎯reflects the relationship of all hospital revenues to all hospital costs, 

including inpatient, outpatient, post-acute, and nonpatient services. The total margin also 

includes nonpatient revenue such as investment income. Other types of margins we track—

including the aggregate Medicare margin—are operating margins that do not include 

investment income. 

• From 2013 to 2015, the aggregate total margin was close to 7 percent, a level higher than 

the prior two decades. The all-payer margin decreased slightly to 6.4 percent in 2016, but 

increased to 7.1 percent in 2017.

6.3

6.0

6.4

7.2 7.1

6.8

6.4

7.1

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014 2015 2016 2017

Margin (percent)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2019 73

Chart 6-21. Urban hospitals have the highest aggregate total

margin, 2010–2017

Note: Data are for general short-term acute care hospitals covered by the inpatient prospective payment system and include critical 

access hospitals. A margin is calculated as revenue minus costs, divided by revenue. “Total margin” includes all patient 

care services funded by all payers, plus nonpatient revenue such as investment income. Analysis excludes Maryland 

hospitals.

Source: MedPAC analysis of Medicare cost report data from CMS.

• Urban hospitals have a higher aggregate total margin than rural hospitals. In 2017, the 

aggregate total margin was 7.3 percent for urban hospitals and 5.7 percent for rural 

hospitals. The rural hospital aggregate total margin of 5.7 percent is the highest margin 

since 2007 (not all data shown).

• In general, the aggregate total margin for critical access hospitals has historically been lower 

than for other urban or rural hospitals.

• The aggregate total margin for critical access hospitals generally has remained between 3.3 

percent and 3.6 percent since 2010.

5.3

4.7 5.0 4.9 4.8 4.8 4.6

5.7

6.4 6.1

6.6

7.4 7.3 7.0

6.6

7.3

3.3 3.4 3.6 3.6 3.4

4.4

3.6 3.6

0

1

2

3

4

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015 2016 2017

Margin (percent)

Fiscal year

Rural

Urban

Critical access hospitals
74 Acute inpatient services

Chart 6-22. The hospital aggregate total margin continued to be 

lower for major teaching hospitals than for other 

hospitals, 2010‒2017

Note: Data are for general short-term acute care hospitals covered by the inpatient prospective payment system and include critical 

access hospitals. A margin is calculated as revenue minus costs, divided by revenue. Total margin includes all patient 

care services funded by all payers, plus nonpatient revenue such as investment income. Analysis excludes Maryland 

hospitals. “Major teaching” hospitals are defined by a ratio of interns and residents to beds of 0.25 or greater, while “other 

teaching” hospitals have a ratio of greater than 0 and less than 0.25. 

Source: MedPAC analysis of Medicare cost report data from CMS.

• The aggregate total margin for major teaching hospitals has consistently been lower than 

that for other teaching and nonteaching hospitals. In 2017, the aggregate total margin for 

major teaching hospitals was 5.5 percent, lower than the aggregate total margin for other 

teaching hospitals (7.3 percent) and nonteaching hospitals (8.6 percent).

• Major teaching hospitals have lower operating margins than other teaching and nonteaching 

hospitals (data not shown). However, teaching hospitals have a higher aggregate Medicare 

margin than nonteaching hospitals due in large part to extra payments they receive through 

indirect medical education and disproportionate share adjustments and uncompensated 

care payments (see Chart 6-19). 

7.5

7.1 7.3

8.4

8.8

7.8

7.4

8.6

6.4 6.3

6.8 7.0

7.5 7.3 7.0 7.3

5.0

4.4

5.2

6.0

4.9

5.3

4.9

5.5

0

1

2

3

4

5

6

7

8

9

10

2010 2011 2012 2013 2014 2015 2016 2017

Margin (percent)

Fiscal year

Other teaching

Nonteaching

Major teaching
A Data Book: Health care spending and the Medicare program, June 2019 75

Chart 6-23. Financial pressure leads to lower costs

Level of financial pressure, 2014–2016

High pressure Low pressure

(non-Medicare Medium (non-Medicare

margin ≤ 1%) pressure margin > 5%)

Number of hospitals 700 362 1,736

Financial characteristics, 2017 (medians)

Non-Medicare margin

(private, Medicaid, uninsured) –3% 3% 14%

Standardized cost per discharge 

(as a share of the national median)

For-profit and nonprofit hospitals 0.94 0.98 1.03

Nonprofit hospitals 0.95 0.99 1.05

For-profit hospitals 0.88 0.94 0.96

Annual growth in cost per

discharge, 2015–2017 2.0% 2.6% 2.3%

Overall 2017 Medicare margin (medians) –2% –6% –11%

Patient characteristics (medians)

Total hospital discharges in 2017 3,347 6,483 7,872

Medicare share of inpatient days 39% 37% 37%

Medicaid share of inpatient days 8% 7% 6%

Medicare case-mix index 1.43 1.53 1.65

Note: Standardized costs are adjusted for hospital case mix, wage index, outliers, transfer cases, interest expense, and the 

effect of teaching and low-income Medicare patients on hospital costs. The sample includes all hospitals that had 

complete cost reports on file with CMS by October 2018. “High-pressure” hospitals are defined as those with a median 

non-Medicare profit margin of 1 percent or less from 2014 to 2016 and a net worth (assets – liabilities) that grew by less 

than 1 percent per year over that period if the hospital’s Medicare profits had been zero. “Low-pressure” hospitals are 

defined as those with a median non-Medicare profit margin greater than 5 percent from 2014 to 2016 and a net worth that 

grew by more than 1 percent per year over that period if the hospital’s Medicare profits had been zero. “Medium-pressure”

hospitals are those that fit into neither the high- nor the low-pressure categories. 

Source: MedPAC analysis of Medicare cost report and claims files from CMS.

• Hospitals under higher financial pressure had 6 percent lower standardized costs per 

discharge than the national median. For-profit hospitals tended to constrain their costs more 

than nonprofit hospitals. They had below-average costs even when they had high profit 

margins.

• Cost growth was similar for all categories of hospitals (between 2.0 percent and 2.6 

percent), suggesting that hospitals’ cost differentials remain fairly stable across time.

• Hospitals with lower volume, lower case mix, and higher Medicaid and Medicare shares of 

discharges are more likely to be under financial pressure. 
76 Acute inpatient services

Chart 6-24. Private-payer ratio of payments to costs for hospital

services remained relatively flat, 2012−2017

Note: Data are for community hospitals (nonfederal short-term general and specialty hospitals) that responded to the American 

Hospital Association (AHA) survey and cover all hospital service lines. Data prior to 2017 used AHA’s internal 

methodology to classify facilities as hospitals. Beginning in 2017, AHA changed the definition of hospital to include an 

institution licensed as a general or specialty hospital by the appropriate state agency and accredited by one of the 

following organizations: The Joint Commission Healthcare Facilities Accreditation Program, DNV Health Accreditation, or 

the Center for Improvement in Healthcare Quality Accreditation, or a hospital that is Medicare certified as a provider of 

acute services under Title XVIII of the Social Security Act. As a result of the application of the new, broader hospital 

definition, the number of community hospitals in 2017 increased by approximately 400.

Source: MedPAC analysis of data from the American Hospital Association Annual Survey of Hospitals.

• The private-payer ratio of payments to costs reflects hospitals’ weighted average profit margin 

for patients without government insurance across all service lines of business (e.g., inpatient, 

outpatient, and hospital-owned physician practices). In 2017, the ratio of payments to costs was

1.52 among private payers, which includes commercial payers as well as other nongovernment 

payers and self-pay patients.

o This ratio was slightly lower (1.45) when including imputed data for hospitals that did not 

respond to the AHA survey.

o The ratio of 1.52 understates the payment-to-cost ratio for those with commercial insurance 

because it is a weighted average of payment-to-cost ratios for those with commercial 

insurance, other nongovernmental payers, and self-pay patients. Hospitals generally incur 

losses on self-pay patients, which pulls down the weighted average. Therefore, the paymentto-cost ratio for only those with commercial insurance is substantially higher than 1.52. 

• From 2012 to 2017, the private-payer ratio of payments to costs was relatively flat. During this 

period, total hospital profit margins remained near 7 percent (see Chart 6-20). 

o A flat payment-to-cost ratio across all hospital services does not necessarily mean that 

commercial prices are rising at the same rate as costs for hospital inpatient or outpatient 

services. For example, a flat overall payment-to-cost ratio could reflect an increase in inpatient 

prices relative to costs plus the acquisition of physician practices with lower payment-to-cost 

ratios (for facility fees and drugs) that are folded into hospitals’ outpatient operations.

1.49 1.49 1.50 1.51 1.52 1.52

0.0

0.5

1.0

1.5

2.0

2012 2013 2014 2015 2016 2017

Ratio of payments to costs

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2019 77

Chart 6-25. Rapid charge growth caused the markup of 

charges above costs for Medicare services to 

increase, 2010–2017

Note: Data are for community hospitals (nonfederal short-term general and specialty hospitals) that responded to the American 

Hospital Association (AHA) survey, and cover all hospital service lines. Markups for Medicare services are calculated as 

the percentage by which charges exceed costs for patients with fee-for-service Medicare. Data prior to 2017 used 

AHA’s methodology to classify facilities as hospitals. Beginning in 2017, AHA changed the definition of hospital to include 

an institution licensed as a general or specialty hospital by the appropriate state agency and accredited by one of the 

following organizations: The Joint Commission Healthcare Facilities Accreditation Program, DNV Health Accreditation, or 

the Center for Improvement in Healthcare Quality Accreditation, or a hospital that is Medicare certified as a provider of 

acute services under Title XVIII of the Social Security Act. As a result of the application of the new, broader hospital 

definition, the number of community hospitals in 2017 increased by approximately 400.

Source: MedPAC analysis of data from American Hospital Association Annual Survey of Hospitals.

• The markup of hospitals’ charges above costs for Medicare services reflects the percent by which 

charges exceed costs across all service lines of business for patients with fee-for-service 

Medicare. In 2017, the markup for Medicare services was 264 percent, reflecting hospital charges 

($786 billion) that were over three times costs ($216 billion) (data not shown).

• The markup of charges over costs for Medicare services in 2017 was higher among urban 

hospitals (275 percent) than among rural hospitals (184 percent) (data not shown).

• Among both urban and rural hospitals in 2017, the markup of charges over costs among forprofit hospitals was approximately two times higher than the markup among nonprofit or 

government-owned hospitals (data not shown).

• From 2010 to 2017, the average markup of hospitals’ charges above costs for Medicare services 

rose from 218 percent to 264 percent. Rapid growth in charges may have little impact on hospital 

financial performance because few patients pay full charges. However, charge growth may 

significantly affect uninsured patients, who may pay full charges. More rapid growth in charges 

(relative to growth in costs) may reflect hospitals’ attempts to maximize revenue from private 

payers (who often structure their payments as a discount off charges).

264

252 256

244 234 229 226 218

0

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017

Percent

Fiscal year
78 Acute inpatient services

Chart 6-26. Medicare payments to inpatient psychiatric facilities

have been relatively flat, 2007–2017

Note: These fiscal year–incurred data represent only program spending; they do not include beneficiary cost sharing. Spending 

for inpatient psychiatric care furnished in scatter beds in acute care hospitals (and paid for under the acute care inpatient

prospective payment system) is not included in this chart.

Source: CMS Office of the Actuary.

• Medicare pays for inpatient psychiatric facility (IPF) care under the IPF prospective payment 

system.

• Medicare program spending for beneficiaries’ care in IPFs grew less than 1 percent per 

year, on average, between 2010 and 2017.

3.8 3.9 4.0 3.9 4.0 3.9 3.9 3.9 

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2010 2011 2012 2013 2014 2015 2016 2017

Dollars (in billions)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2019 79

Chart 6-27. A growing share of inpatient psychiatric facilities are 

for-profit, 2010–2017

Average annual change

2010– 2013– 2016–

Type of IPF 2010 2013 2016 2017 2013 2016 2017

All 1,596 1,573 1,595 1,589 –0.5% 0.5% –0.4

Urban 1,261 1,238 1,258 1,255 –0.6 –0.5 –0.2

Rural 334 334 335 331 0.0 0.1 –1.2

Freestanding 447 463 500 508 1.2 2.6 1.6

Hospital-based units 1,149 1,110 1,095 1,081 –1.1 –0.5 –1.3

Nonprofit 807 749 733 733 –2.5 –0.7 0.0

For profit 386 467 514 516 6.6 3.3 0.4

Government 403 357 348 340 –4.0 –0.9 –2.3

Note: IPF (inpatient psychiatric facility). Data are from facilities that submitted valid Medicare cost reports in the given fiscal

year. Components may not sum to totals due to missing data.

Source: MedPAC analysis of Medicare cost report files from CMS.

• Between 2010 and 2013, the number of IPFs that filed Medicare cost reports fell, on 

average, 0.5 percent per year. However, between 2013 and 2016, the supply of IPFs

recovered, growing, on average, 0.5 percent per year. In 2017, the number of IPFs fell 0.4 

percent.

• A growing share of Medicare IPF users receive care in for-profit facilities. Between 2010 and 

2013, the number of for-profit IPFs grew nearly 7 percent per year, on average. Over the 

same period, the number of nonprofit IPFs fell more than 2 percent per year, on average. 

The number of for-profit IPFs continued to grow through 2016, while the number of nonprofit 

IPFs declined. In 2017, the numbers of for-profit and nonprofit facilities remained relatively 

stable.
80 Acute inpatient services

Chart 6-28. Almost three-quarters of IPF patients were classified 

into one diagnosis group, 2017

MS–DRG Diagnosis Share

885 Psychosis 71.8%

884 Organic disturbances and mental retardation 7.0

057 Degenerative nervous system disorders without MCC 6.2

897 Alcohol/drug abuse or dependency, no rehabilitation, without MCC 4.6

881 Depressive neurosis 3.7

895 Alcohol/drug abuse or dependency with rehabilitation, without MCC 1.6

882 Neurosis except depressive 1.3

880 Acute adjustment reaction and psychosocial dysfunction 0.9

883 Disorders of personality and impulse control 0.7

056 Degenerative nervous system disorders with MCC 0.6

894 Alcohol/drug use—left AMA 0.3

886 Behavioral and developmental disorders 0.2

896 Alcohol/drug abuse or dependency without rehabilitation, with MCC 0.2

876 OR procedure with principal diagnosis of mental illness 0.1

887 Other mental disorders 0.1

081 Nontraumatic stupor and coma without MCC <0.1

080 Nontraumatic stupor and coma with MCC <0.1

Nonpsychiatric MS–DRGs 0.8

Total 100.0

Note: IPF (inpatient psychiatric facility), MS–DRG (Medicare severity–diagnosis related group), MCC (major comorbidity or 

complication), AMA (against medical advice), OR (operating room). Totals may not sum to 100 percent due to rounding.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

• Medicare patients in IPFs are generally assigned 1 of 17 psychiatric MS–DRGs.

• The most frequently occurring IPF diagnosis—accounting for about 72 percent of IPF 

discharges in 2017—was psychosis. This broad category includes patients with principal 

diagnoses of schizophrenia, bipolar disorder, and major depression.

• In 2017, the next most common discharge diagnosis, accounting for 7 percent of IPF cases, 

was organic disturbances and mental retardation.
A Data Book: Health care spending and the Medicare program, June 2019 81

Chart 6-29. A majority of IPF users are under the age of 65, 2017

Share of users

Share of with more than

Characteristic all IPF users one IPF stay

Current eligibility status

Aged 42.1% 29.3%

Disabled 57.8 70.6

ESRD only 0.1 0.1

Age

<45 23.0 30.6

45–64 34.3 39.4

65–79 27.8 22.0

80+ 14.9 8.0

All 100.0 27.8

Note: IPF (inpatient psychiatric facility), ESRD (end-stage renal disease). Components may not sum to totals due to rounding.

The “aged” category includes beneficiaries ages 65 and older without ESRD. The “disabled” category includes 

beneficiaries under age 65 without ESRD. The “ESRD only” category includes beneficiaries with ESRD, regardless of 

age.

Source: MedPAC analysis of MedPAR data from CMS.

• Of Medicare beneficiaries who had at least one IPF stay in 2017, 57.8 percent qualified for 

Medicare because of a disability. These beneficiaries tend to be younger and poorer than 

the typical fee-for-service beneficiary.

• Approximately 28 percent of Medicare beneficiaries who used an IPF in 2017 had more than 

one IPF stay during the year. These beneficiaries were far more likely than all IPF users to 

be disabled, often because of a psychiatric diagnosis.

7

A Data Book: Health care spending and the Medicare program, June 2019 85

Chart 7-1. Medicare spending per fee-for-service beneficiary on 

services in the fee schedule for physicians and other 

health professionals, 2008–2018

Note: Dollar amounts are Medicare spending only and do not include beneficiary cost sharing. The category “disabled” excludes 

beneficiaries who qualify for Medicare because they have end-stage renal disease. All beneficiaries ages 65 and over are 

included in the “aged” category.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2019.

• The fee schedule for physicians and other health professionals includes a broad range of 

services such as office visits, surgical procedures, and diagnostic and therapeutic services. 

“Other health professionals” refers to nurse practitioners, physician assistants, physical 

therapists, and other clinicians. Total fee schedule spending was $70.5 billion in 2018.

• Spending per fee-for-service beneficiary for fee schedule services increased between 2008

and 2012, declined between 2012 and 2016, and began growing again after 2016. From

2008 to 2018, spending per beneficiary (across aged and disabled beneficiaries) grew at a 

cumulative rate of 13 percent.

• Per capita spending for disabled beneficiaries (under age 65) is lower than per capita 

spending for aged beneficiaries (ages 65 and over). In 2018, for example, per capita 

spending for disabled beneficiaries was $1,797 compared with $2,133 for aged 

beneficiaries. However, spending per capita grew much faster for disabled beneficiaries 

than aged beneficiaries between 2008 and 2018. 

1,905

2,037

2,132 2,126 2,078 2,133

1,491

1,669

1,769 1,826 1,758 1,797

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2008 2010 2012 2014 2016 2018

Spending per beneficiary (dollars)

Aged

Disabled
86 

Ambulatory care

Chart 7-2. Growth in the volume of clinician services per 

fee-for-service beneficiary, 2000–2017

Note: E&M (evaluation and management). “Volume” refers to the units of service multiplied by relative value units (RVUs) from 

the fee schedule for physicians and other health professionals. RVUs account for the relative costliness of the inputs used 

to provide clinician services. Volume for all years is measured on a common scale, using RVUs for 2017. Volume growth 

for E&M from 2009 to 2010 is not directly observable because of a change in payment policy for consultations. To 

compute cumulative volume growth for E&M through 2017, we used a growth rate for 2009 to 2010 of 1.85 percent, which 

is the average of the 2008 to 2009 growth rate of 1.7 percent and the 2010 to 2011 growth rate of 2.0 percent.

Source: MedPAC analysis of claims data for 100 percent of Medicare beneficiaries.

• Volume growth reflects changes in both the number of services and the complexity (or 

intensity) of services. From 2000 to 2017, the volume of some services furnished by 

physicians and other health professionals grew much faster than others.

• The volume of tests grew by 96 percent, the volume of “other procedures” (i.e., other than 

major procedures) grew by 82 percent, and the volume of imaging grew by 75 percent. The 

comparable growth rates for major procedures and for evaluation and management services 

were only 47 percent and 45 percent, respectively.

• Volume growth increases Medicare spending, limiting funds available for other priorities in 

the federal budget and requiring taxpayers and beneficiaries to contribute more to the 

Medicare program. Rapid volume growth may be a sign that some services in the fee 

schedule for physicians and other health professionals are mispriced.

96

82

75

47

45

0

20

40

60

80

100

120

2000 2002 2004 2006 2008 2010 2012 2014 2016

Cumulative percent change

Tests

Other procedures

Imaging

Major procedures

E&M
A Data Book: Health care spending and the Medicare program, June 2019 87

Chart 7-3. Medicare beneficiaries’ ability to get timely 

appointments with physicians was comparable with 

privately insured individuals, 2015–2018

Medicare (ages 65 and older) Private insurance (ages 50–64)

Survey question 2015 2016 2017 2018 2015 2016 2017 2018

Unwanted delay in getting an appointment: Among those who needed an appointment, “How often did

you have to wait longer than you wanted to get a doctor’s appointment?”

For routine care

Never 72%a 68% 73%ab 70%ab 69%ab 67%b 69%ab 64%a

Sometimes 19a 22b 20 20a 23ab 23b 22b 26a

Usually 4 4 3

b

 5 4 5 4 5

Always 3 3 3 3

a

 3 4 3 4

a

For illness or injury

Never 82

ab 79a 80a 79a 77ab 75a 76a 74a

Sometimes 13ab 16a 15 15a 17a 19a 18 19a

Usually 3

b

 2

ab

 2 2 3 3

a

 2

b

 3

Always 2 2

ab

 1

b

 2 2 3

a

 2 2

Note: Numbers may not sum to 100 percent due to rounding and to missing responses (“Don’t Know” or “Refused”) not being

presented. Overall sample sizes for each group (Medicare and privately insured) were 4,000 in all years. Sample sizes for 

individual questions varied.

a Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured samples 

in the given year.

b Statistically significant difference (at a 95 percent confidence level) from 2018 within the same insurance coverage 

category.

Source: MedPAC-sponsored annual telephone surveys conducted 2015–2018.

• Most Medicare beneficiaries have one or more doctor appointments in a given year. Their 

ability to schedule timely appointments is one indicator of access that we examine.

• Medicare beneficiaries (ages 65 and older) report similar (or better) access to physicians for 

appointments as compared with privately insured individuals ages 50 to 64. For example, in 

2018, 70 percent of Medicare beneficiaries compared with 64 percent of privately insured 

individuals reported “never” having to wait longer than they wanted to get an appointment for 

routine care. 

• Medicare beneficiaries reported slightly more timely appointments for injury and illness as 

compared with their privately insured counterparts. 

• Appointment scheduling for illness and injury is better than for routine care appointments for 

both Medicare beneficiaries and privately insured individuals.
88 

Ambulatory care

Chart 7-4. Medicare and privately insured patients who were 

looking for a new physician reported more difficulty 

finding one in primary care, 2015–2018

Medicare (ages 65 and older) Private insurance (ages 50–64)

Survey question 2015 2016 2017 2018 2015 2016 2017 2018

Looking for a new physician “In the past 12 months, have you tried to get a new ...?” (Percent 

answering “Yes”)

Primary care physician 7%ab 8%ab 9%a 10% 9%a 10%a 11%a 10%

Specialist 16b 18 17a 19a 18b 18b 20a 21

a

Getting a new physician: Among those who tried to get an appointment with a new physician, “How

much of a problem was it finding a primary care doctor/specialist who would treat you? Was it ...”

Primary care 

physician

No problem 67 64 69a 71 63 63 59ab 67

Small problem 18 15 13 13 18 16 18 16

Big problem 14 20 14a 14 17 20 22a 16

Specialist

No problem 87a 82 83 84 82a 79 81 80

Small problem 7 10 11b 7 8 9 11 9

Big problem 6 8

a 5a 8 9 11a

 8

a

 10

Note: Numbers may not sum to 100 percent due to rounding and to missing responses (“Don’t Know” or “Refused”) not being 

presented. Overall sample sizes for each group (Medicare and privately insured) were 4,000 in all years. Sample sizes for 

individual questions varied.

a Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured samples in the 

given year.

b Statistically significant difference (at a 95 percent confidence level) from 2018 within the same insurance coverage category.

Source: MedPAC-sponsored annual telephone surveys, conducted 2015–2018.

• In 2018, only 10 percent of Medicare beneficiaries and 10 percent of privately insured individuals reported 

looking for a new primary care physician. This finding suggests that most people were either satisfied with 

their current physician or did not need to look for one.

• Of the 10 percent of Medicare beneficiaries who looked for a new primary care physician in 2018, 28 

percent reported problems finding one: 14 percent reported their problem as “big,” and 13 percent reported

their problem as “small.” Although this finding means that only 3 percent of the total Medicare population 

reported problems finding a primary care physician, the Commission is concerned about the continuing 

pattern of greater problems accessing primary care than specialty care.

• Of the 10 percent of privately insured individuals who looked for a new primary care physician in 2018, 32 

percent reported problems finding one: 16 percent reported their problem as “big,” and 16 percent reported

their problem as “small.”

• In 2018, Medicare beneficiaries and privately insured individuals were more likely to report problems 

accessing a new primary care physician than a new specialist.
A Data Book: Health care spending and the Medicare program, June 2019 89

Chart 7-5. Medicare beneficiaries’ access to physician care 

was comparable with privately insured individuals, 

and minorities in both groups reported unwanted 

delays more frequently, 2018

Medicare (ages 65 and older) Private insurance (ages 50–64)

Survey question All White Minority All White Minority

Unwanted delay in getting an appointment: Among those who needed an appointment, “How often did

you have to wait longer than you wanted to get a doctor’s appointment?”

For routine care

Never 70%a 71%ab 65%b 64%a 65%ab 61%b

Sometimes 20

a 20a 21a 26a 25a

 29a

Usually 5 5 5 5 5 4

Always 3

a

 2

ab 5b 4a

 4

ab

 6

b

For illness or injury

Never 79a 80ab 75b 74

a 75ab

 71b

Sometimes 15

a 15a 15a 19a 19a

 22a

Usually 2 2 3 3 3 4

Always 2 2 3 2 2

b 3b

Note: Numbers may not sum to 100 percent due to rounding and to missing responses (“Don’t Know” or “Refused”) not being

presented. Overall sample size for each group (Medicare and privately insured) was 4,000 in 2018. Sample size for 

individual questions varied.

a Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured 

populations in the given category.

b Statistically significant difference (at a 95 percent confidence level) by race within the same insurance category.

Source: MedPAC-sponsored telephone surveys conducted in 2018.

• In 2018, Medicare beneficiaries (ages 65 and older) reported better access to physicians for 

appointments in comparison with privately insured individuals ages 50 to 64. 

• Access varied by race, with minorities more likely than Whites to report access problems in 

both insurance categories. For example, in 2018, 80 percent of White Medicare 

beneficiaries reported “never” having to wait longer than they wanted to get an appointment 

for an illness or injury compared with 75 percent of minority beneficiaries. 
90 

Ambulatory care

Chart 7-6. Minorities in Medicare were more likely to report 

problems finding a new specialist than White 

beneficiaries, 2018

Medicare (ages 65 and older) Private insurance (ages 50–64)

Survey question All White Minority All White Minority

Looking for a new physician: “In the past 12 months, have you tried to get a new ...?”

Primary care physician 10% 10% 9% 10% 9% 11%

Specialist 19a 20b 15b 21a 23b 19

b

Getting a new physician: Among those who tried to get an appointment with a new physician, “How

much of a problem was it finding a primary care doctor/specialist who would treat you? 

Was it ...”

Primary care physician

No problem 71 71 69 67 72b 59b

Small problem 13 14 14 16 15 17

Big problem 14 15 14 16 14b 23b

Specialist

No problem 84 86b 77b 80 82b 74b

Small problem 7 7 10 9 9 11

Big problem 8 7

b 13b 10 8b 13b

Note: Numbers may not sum to 100 percent due to rounding and to missing responses (“Don’t Know” or “Refused”) not being

presented. Overall sample size for each group (Medicare and privately insured) was 4,000 in 2018. Sample size for 

individual questions varied.

a Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured 

populations in the given category.

b Statistically significant difference (at a 95 percent confidence level) by race within the same insurance category. 

Source: MedPAC-sponsored telephone surveys conducted in 2018.

• Among the share of Medicare beneficiaries looking for a specialist, minorities were more 

likely than Whites to report problems finding one. This pattern also held for privately insured 

individuals ages 50 to 64.
A Data Book: Health care spending and the Medicare program, June 2019 91

Chart 7-7. Changes in physicians’ professional liability 

insurance premiums, 2011–2018

Note: Bars represent a four-quarter moving average percentage change. 

Source: CMS, Office of the Actuary. Data are from CMS’s Professional Liability Physician Premium Survey. 

• Professional liability insurance (PLI) accounts for 4.3 percent of total payments under the 

fee schedule for physicians and other health professionals. 

• Changes in PLI premiums reflect a cyclical pattern, alternating between periods of low 

premiums (characterized by high investment returns for insurers and vigorous competition) 

and high premiums (characterized by declining investment returns and market exit). 

• Premiums increased from 2002 through the first quarter of 2007 (data not shown) and then 

declined from the second quarter of 2007 through the first quarter of 2012. Premiums grew 

slowly from the second quarter of 2012 through the first quarter of 2014, after which they 

declined through the third quarter of 2018. 

-1.2

-1.0

-0.2

1.2

1.6

1.0

0.3

-0.5

-1.0

-1.2 -1.1

-0.7 -0.5 -0.6 -0.5

-0.1

-4

-3

-2

-1

0

1

2

3

4

2011 2012 2013 2014 2015 2016 2017 2018

Percent change
92 

Ambulatory care

Chart 7-8. Number of E&M office visits billed by APRNs or PAs

grew rapidly from 2010 to 2017

Practitioner 

type

Number of visits (in millions) Percent 

change, 

2010 2011 2012 2013 2014 2015 2016 2017 2010–2017

APRN or PA 11 13 15 18 20 24 28 31 184%

Primary care 

physician 97 95 93 91 88 86 84 81 –16

Specialist 133 134 136 142 140 141 143 141 6

Total 241 242 244 251 249 251 255 253 5

Note: E&M (evaluation and management), APRN (advanced practice registered nurse), PA (physician assistant). E&M office 

visits include HCPCS codes 99201–99205 and 99211–99215. The primary care physician category includes internal 

medicine, family medicine, pediatric medicine, geriatric medicine, and (in 2017) hospitalists. Many physicians who 

previously billed under the internal medicine specialty began billing as hospitalists when Medicare introduced a hospitalist 

specialty code in April 2017. The change does not affect these results because hospitalists billed relatively few E&M office 

visits in 2017. The specialist category is defined as not being a primary care physician, APRN, or PA. Numbers may not 

sum to total due to rounding. These figures do not account for “incident to” billing.

Source: MedPAC analysis of the Physician/Supplier Procedure Summary file.

• From 2010 to 2017, the number of E&M office visits billed by APRNs and PAs increased 

from 11 million to 31 million, an increase of 184 percent.

• Over the same period, the number of E&M office visits billed by primary care physicians 

decreased by 16 percent; the number billed by specialists increased by 6 percent.

• The rapid increase in E&M office visits billed by APRNs and PAs underscores the growing 

role APRNs and PAs play in providing care to Medicare beneficiaries.
A Data Book: Health care spending and the Medicare program, June 2019 93

Chart 7-9. Spending on hospital outpatient services covered 

under the outpatient PPS, 2008–2018

Note: PPS (prospective payment system). Spending amounts are for services covered by the Medicare outpatient PPS. They do 

not include services paid on separate fee schedules (e.g., ambulance services and durable medical equipment) or those 

paid on a cost basis (e.g., corneal tissue acquisition and flu vaccines) or payments for clinical laboratory services, except 

those packaged into payment bundles. 

*Estimated figures.

Source: CMS, Office of the Actuary.

• The Office of the Actuary estimates that spending under the outpatient PPS was $68.3 billion in 

2018 ($55.1 billion in program spending, $13.2 billion in beneficiary copayments). We estimate 

that the outpatient PPS accounted for about 7 percent of total Medicare program spending in 

2018.

• Overall spending by Medicare and beneficiaries on hospital outpatient services covered 

under the outpatient PPS from calendar years 2008 to 2018 increased by 117 percent, an 

average of 8.1 percent per year. The Office of the Actuary projects continued growth in total 

spending, averaging 10.0 percent per year from 2018 to 2020.

• Beneficiary cost sharing under the outpatient PPS includes the Part B deductible and 

coinsurance for each service. Under the outpatient PPS, beneficiary cost sharing was about 

19 percent in 2018.

23.6 26.3 28.6 31.1 33.9 36.3 41.2 44.8 47.9 51.7 7.8 55.1 7.7 8.2

8.7

9.2

10.2

11.3

10.2

11.5

12.0

13.2

0

10

20

30

40

50

60

70

80

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018*

Dollars (in billions)

Beneficiary cost sharing

Program payments
94 

Ambulatory care

Chart 7-10. Most hospitals provide outpatient services

Share offering

Acute care Outpatient Outpatient Emergency

Year hospitals services surgery services

2008 3,607 94 87 N/A

2010 3,518 95 90 N/A

2012 3,483 95 91 93%

2014 3,429 96 92 93

2016 3,370 96 93 93

2017 3,346 96 93 92

2018 3,301 96 93 90

Note: N/A (not applicable). We list emergency services from 2008 through 2010 as “N/A” because the data source we used in 

this chart changed the variable for identifying hospitals’ provision of emergency services. We believe this change in 

variable definition makes it appear that the share of hospitals providing emergency services increased sharply from 2010 

to 2012, but we question whether such a large increase actually occurred. This chart includes services provided or 

arranged by acute care short-term hospitals and excludes long-term, Christian Science, psychiatric, rehabilitation, 

children’s, critical access, and alcohol/drug hospitals.

Source: Medicare Provider of Services files from CMS.

• The number of hospitals that furnish services under Medicare’s outpatient prospective 

payment system has declined slowly since 2008, from 3,607 in 2008 to 3,301 in 2018.

• The share of hospitals providing outpatient services remained stable, and the share offering 

outpatient surgery steadily increased from 2008 through 2014 and has remained stable 

since then. The share offering emergency services declined slightly from 2016 to 2018.
A Data Book: Health care spending and the Medicare program, June 2019 95

Chart 7-11. Payments and volume of services under the 

Medicare hospital outpatient PPS, by type of 

service, 2017

Payments Volume

Note: PPS (prospective payment system), E&M (evaluation and management). “Payments” include both program spending and 

beneficiary cost sharing. We grouped services into the following categories, according to the Berenson-Eggers Type of 

Service codes developed by CMS: evaluation and management, procedures, imaging, and tests. “Pass-through drugs”

and “separately paid drugs/blood products” are classified by their payment status indicator. 

Source: MedPAC analysis of standard analytic file of outpatient claims for 2017.

• Hospitals provide many types of services in their outpatient departments, including 

emergency and clinic visits, imaging and other diagnostic services, laboratory tests, and 

ambulatory surgery.

• The payments for services are distributed differently from volume. For example, in 2017, 

procedures accounted for 46 percent of payments but only 14 percent of volume.

• Procedures (e.g., endoscopies, surgeries, and skin and musculoskeletal procedures) 

accounted for the greatest share of payments for services (46 percent) in 2017, followed by 

evaluation and management services (20 percent), separately paid drugs and blood 

products (17 percent), and imaging services (12 percent).

• Payments for pass-through drugs increased substantially from 2016 to 2017, from 2 percent 

of all payments in 2016 (data not shown) to 4 percent of all payments in 2017. Pass-through 

drugs are new drugs that have been approved by the FDA; were not paid under Medicare’s 

hospital outpatient payment system before January 1, 1997; and have been determined to 

have costs that are not insignificant in relation to the outpatient PPS payment rate for the 

applicable service. Statute allows drugs to have pass-through status for two to three years.

Tests

1%

Passthrough 

drugs

4%

Procedures

46%

Imaging

12%

E&M

20%

Separately 

paid drugs/

blood 

products

17%

Tests

2%

Pass-through 

drugs

6%

Procedures

14%

Imaging

9%

E&M 16%

Separately 

paid 

drugs/blood 

products

52%
96 

Ambulatory care

Chart 7-12. Hospital outpatient services with the highest 

Medicare expenditures, 2017

Share of Volume Payment

APC title payments (thousands) rate

Total 54%

All emergency visits 7 13,470 $309

Clinic visits 6 31,737 107

Comprehensive observation services 6 1,456 2,223

Level 3 endovascular procedures 3 203 9,752

Level 2 ICD and similar procedures 2 44 30,527

Level 3 drug administration 2 6,638 180

Level 4 musculoskeletal procedures 2 218 5,222

Level 1 endovascular procedures 2 387 2,834

Level 3 electrophysiologic procedures 2 61 16,785

Level 2 imaging without contrast 2 8,404 113

Level 3 radiation therapy 1 1,755 495

Level 1 intraocular lens procedures 1 476 1,824

Level 4 imaging without contrast 1 1,855 450

Level 3 nuclear medicine and related services 1 725 1,139

Level 3 imaging without contrast 1 3,557 226

Level 1 laparoscopy and related procedures 1 192 4,119

Level 2 lower GI procedures 1 973 878

Level 3 pacemaker and similar procedures 1 79 9,414

Level 4 endovascular procedures 1 53 14,782

Level 5 urology and related services 1 193 3,484

Level 4 drug administration 1 2,193 279

Level 1 imaging with contrast 1 2,325 265

Level 1 upper GI procedures 1 955 700

Level 2 vascular procedures 1 247 2,361

Level 1 imaging without contrast 1 9,427,678 60

Level 2 excision/biopsy/incision and drainage 1 442,335 1,237

Level 4 nuclear medicine and related services 1 396 1,322

Average APC 579 166

Note: APC (ambulatory payment classification), ICD (implantable cardioverter-defibrillator), GI (gastrointestinal). The payment 

rate for “all emergency visits” is a weighted average of payment rates for 10 emergency visit APCs (not listed on this 

chart). The shares of payments for the 27 APC categories do not add to the total share of payments (54 percent) because 

of rounding. The average APC figures in the last line represent averages for all APCs.

Source: MedPAC analysis of 100 percent analytic files of outpatient claims for calendar year 2017.

• Although the outpatient prospective payment system covers thousands of services, 

expenditures are concentrated in a few categories that have high volume, high payment 

rates, or both.
A Data Book: Health care spending and the Medicare program, June 2019 97

Chart 7-13. Off-campus provider-based departments provided a

mix of services different from on-campus outpatient 

departments, 2017

Off-campus PBDs On-campus outpatient departments

Share of Share of

APC OPPS revenue APC OPPS revenue

Clinic visits 18.0% Observation services 6.0%

Level 4 drug administration 2.5 Clinic visits 4.4

Level 4 imaging without contrast 2.2 Level 3 endovascular procedures 3.6

Level 3 radiation therapy 2.2 Level 4 ED visits 3.1

Level 3 nuclear medicine 2.1 Level 5 ED visits 2.9

Level 2 imaging without contrast 2.0 Level 2 ICD procedures 2.5

Level 3 imaging without contrast 1.6 Level 3 drug administration 2.1

Level 1 intraocular procedures 1.3 Level 4 musculoskeletal procedures 2.0

Level 4 nuclear medicine 1.2 Level 1 endovascular procedures 2.0

Level 2 skin procedures 1.2 Level 3 electrophysiologic procedures 1.9

Note: PBD (provider-based department), APC (ambulatory payment classification), OPPS (outpatient prospective payment 

system), ED (emergency department), ICD (implantable cardioverter-defibrillator), GI (gastrointestinal).

Source: MedPAC analysis of hospital outpatient standard analytic claims files from 2017.

• PBDs of hospitals provide a mix of services that is different from the mix provided in oncampus outpatient departments. In 2017, only 1 of the 10 APCs that had the highest 

Medicare revenue in off-campus PBDs was also 1 of the 10 highest Medicare revenue 

APCs in on-campus outpatient departments (clinic visits).

• The services that have the highest Medicare revenue in off-campus PBDs are clinic visits, 

imaging without contrast, and drug administration. The services that have the highest 

Medicare revenue in on-campus outpatient departments, however, are observation care, 

clinic visits, ED visits, and relatively complex procedures such as endovascular procedures 

and implanting cardioverter-defibrillators. On average, services provided in off-campus 

PBDs are much less complex than services provided in on-campus outpatient departments. 

In 2017, the average relative weight was 2.18 for services provided in off-campus PBDs and 

5.00 for services provided in on-campus outpatient departments (data not shown).

• Cancer treatment is a predominant source of Medicare revenue in off-campus PBDs, as 

Level 4 drug administration—which includes chemotherapy administration—and Level 3 

radiation therapy are among the largest sources of Medicare revenue in that setting. 

Additionally, 32.6 percent of the Medicare revenue in off-campus PBDs is from drugs used 

in cancer treatment, primarily chemotherapy drugs.
98 

Ambulatory care

Chart 7-14. Number of hospital outpatient observation hours 

declined in 2017 after nearly a decade of steady 

increases

Source: MedPAC analysis of Limited Data Set claims for the outpatient prospective payment system 2008–2017.

• Hospitals use observation care to determine whether a patient should be hospitalized for 

inpatient care, transferred to an alternative treatment setting, or sent home.

• On April 1, 2002, Medicare began providing separate payments to hospitals for some 

observation services. Previously, the observation services were packaged into the payments 

for the emergency department or clinic visits that occurred with observation care.

• The number of hospital outpatient observation hours (both packaged and separately paid) 

has increased substantially, from about 31 million in 2008 to more than 58 million in 2016, 

but decreased to about 56 million in 2017. The decrease from 2016 to 2017 is reflective of a 

decrease in the number of observation stays of long duration (more than 48 hours), which is 

consistent with an increase over the same period in the number of short inpatient stays.

31.1

36.0

39.2

42.5

50.0

53.1 53.3 54.9

58.2

55.7

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Observation hours (millions)
A Data Book: Health care spending and the Medicare program, June 2019 99

Chart 7-15. Number of Medicare-certified ASCs increased by 

9 percent, 2011–2017

2011 2012 2013 2014 2015 2016 2017

Medicare payments (billions of dollars) $3.4 $3.6 $3.7 $3.8 $4.1 $4.3 $4.6

New centers (during year) 195 176 177 187 167 159 189

Closed or merged centers (during year) 127 114 117 119 106 90 60

Net total number of centers (end of year) 5,154 5,216 5,276 5,344 5,405 5,474 5,603

Net percent growth in number

of centers 1.5% 1.2% 1.2% 1.3% 1.1% 1.3% 2.4%

Share of all centers that are:

For profit 94 94 94 94 94 94 94

Nonprofit 4 4 4 4 4 4 4

Government 3 3 3 3 3 2 2

Urban 92 93 93 93 93 93 93

Rural 8 7 7 7 7 7 7

Note: ASC (ambulatory surgical center). Medicare payments include program spending and beneficiary cost sharing for ASC 

facility services. Some figures do not match to Chart 7-16 in our 2018 Databook because CMS updated our source file, 

the Provider of Services file. Some totals may not sum to 100 percent due to rounding.

Source: MedPAC analysis of Provider of Services file from CMS 2017. Payment data are from CMS, Office of the Actuary. 

• ASCs are distinct entities that furnish ambulatory surgical services not requiring an overnight 

stay in a hospital. The most common ASC procedures are cataract removal with lens 

insertion, upper gastrointestinal endoscopy, colonoscopy, and nerve procedures.

• Total Medicare payments per fee-for-service (FFS) Medicare beneficiary for ASC services 

increased by approximately 4 percent per year, on average, from 2011 through 2017 (data 

not shown). Payments per FFS beneficiary that was served in an ASC grew by 5.3 percent

per year during this period. From 2016 to 2017, total payments rose by 7.4 percent, and 

payments per beneficiary grew by 7.7 percent (per beneficiary data not shown). 

• The number of Medicare-certified ASCs grew at an average annual rate of 1.4 percent 

from 2011 through 2017. From 2011 through 2017, an average of 179 new facilities 

entered the market, while an average of 105 closed or merged with other facilities.

• Compared with earlier years (not shown), the number of ASCs grew slowly from 2011

through 2017. The slower growth may reflect the substantially higher rates that Medicare 

pays for ambulatory surgical services provided in hospital outpatient departments than in 

ASCs, the very slow growth of national health care spending and Medicare spending, and 

the significant increase in hospital employment of physicians. 

8

A Data Book: Health care spending and the Medicare program, June 2019 103

Chart 8-1. The number of post-acute care providers decreased 

slightly in 2018

Average

annual

percent Percent

change change

2014 2015 2016 2017 2018 2014−2018 2017−2018

Home health

agencies 12,461 12,346 12,204 11,844 11,783 −1.4% −0.5%

Inpatient

rehabilitation

facilities 1,177 1,182 1,188 1,178 1,170 −0.1 −0.7

Long-term

care hospitals 422 426 423 411 386 −2.2 −6.1

Skilled nursing

facilities 15,173 15,223 15,263 15,277 15,230 0.1 −0.3

Note: The skilled nursing facility count does not include swing beds.

Source: MedPAC analysis of data from the Provider of Services files from CMS.

• The number of home health agencies has been declining since 2013 after several years of 

substantial growth (data not shown). The decline in agencies was concentrated in Texas 

and Florida, two states that saw considerable growth after the implementation of the home 

health prospective payment system in October 2000.

• The supply of inpatient rehabilitation facilities (IRFs) has been relatively stable since 2014. 

Most IRFs are distinct units in acute care hospitals; about one-quarter are freestanding 

facilities. However, because freestanding IRFs tend to have more beds, they account for 

about half of Medicare discharges from IRFs.

• After peaking in 2012 (data not shown), the number of long-term care hospitals (LTCHs) has 

decreased. The number of LTCHs declined more rapidly following the implementation of a 

new “dual payment-rate structure” that reduces payments for certain Medicare discharges 

from LTCHs beginning in fiscal year 2016.

• The total number of skilled nursing facilities (SNFs) has increased slightly since 2009, and 

the mix of facilities shifted from hospital-based to freestanding facilities (data not shown). In 

2018, hospital-based units made up 4 percent of all SNF facilities (data not shown).
104 

Post-acute care

Chart 8-2. Medicare’s fee-for-service post-acute care 

expenditures have been relatively stable since 2012

Note: These calendar year‒incurred data represent only program spending; they do not include beneficiary cost sharing.

Source: CMS Office of the Actuary 2019.

• Aggregate fee-for-service (FFS) spending on post-acute care (PAC) has remained stable 

since 2012, in part because of expanded enrollment in managed care under Medicare 

Advantage (Medicare Advantage spending is not included in this chart). However, spending 

growth has varied by PAC sector.

• FFS spending on inpatient rehabilitation facilities declined between 2004 and 2008, 

reflecting policies intended to ensure that patients who do not need this intensity of services 

are treated in less-intensive settings (data not shown). However, spending on inpatient 

rehabilitation facilities has increased since 2008.

• FFS spending on skilled nursing facilities increased sharply in 2011, reflecting CMS’s 

adjustment for the implementation of the new case-mix groups (resource utilization groups, 

version IV). Once CMS established that the adjustment it made was too large, it lowered the 

adjustment, and spending dropped in 2012 and has remained stable since.

• FFS spending on long-term care hospitals has decreased by 14 percent since 2015, largely 

due to the implementation of the dual payment-rate structure that reduced payments for 

certain long-term care hospital cases.

58.6

61.3

58.3 58.8 59.3 60.5 59.8 58.9

27.8

31.1

28.2 28.6 29.1 29.7 29.0 28.7

19.6 18.6 18.2 18.1 18.0 18.4 18.3 18.0

6.1 6.4 6.7 6.9 7.2 7.5 7.7 7.9

5.0 5.2 5.3 5.2 5.0 5.0 4.7 4.3 0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015 2016 2017

Dollars (in billions)

Calendar year

All post-acute care

Skilled nursing facilities

Home health agencies

Inpatient rehabilitation facilities

Long-term care hospitals
A Data Book: Health care spending and the Medicare program, June 2019 105

Chart 8-3. Freestanding SNFs and for-profit SNFs accounted

for the majority of facilities, Medicare stays, and 

Medicare spending

Medicare payments

Facilities Medicare-covered stays (billions)

Type of SNF 2011 2017 2011 2017 2011 2017

Totals 14,935 15,090 2,455,730 2,266,301 $28.8 $25.9

Freestanding 95% 96% 93% 96% 97% 97%

Hospital based 5 4 7 4 3 3

Urban 71 73 81 83 84 85

Rural 29 27 19 17 16 15

For profit 70 71 72 71 76 75

Nonprofit 25 23 25 24 21 21

Government 5 6 3 4 3 4

Note: SNF (skilled nursing facility). Totals may not sum to 100 percent due to rounding and missing values. The spending 

amount included here is lower than that reported by the Office of the Actuary, and the count of SNFs is slightly lower than 

what is reported in the Provider of Services file.

Source: MedPAC analysis of the Provider of Services and Medicare Provider Analysis and Review files, 2011 and 2017.

• In 2017, freestanding facilities accounted for 96 percent of stays and 97 percent of 

Medicare’s payments.

• Urban facilities accounted for 73 percent of facilities, 83 percent of stays, and 85 percent of 

Medicare payments in 2017. 

• In 2017, for-profit facilities accounted for 71 percent of facilities and stays and 75 percent of 

Medicare payments. 
106 

Post-acute care

Chart 8-4. SNF admissions and stays declined in 2017 

 Percent 

 change

Volume measure 2013 2015 2016 2017 2016‒2017

Covered admissions per 

 1,000 FFS beneficiaries 69.3 68.9 65.9 64.6 –2.0% 

Covered days per 1,000 1,872 1,824 1,693 1,623 –4.1

 FFS beneficiaries

Covered days per admission 27.0 26.5 25.7 25.1 –2.3

Note: SNF (skilled nursing facility), FFS (fee-for-service). Data include 50 states and the District of Columbia. Yearly figures 

presented in the table are rounded, but the percent-change column was calculated using unrounded data.

Source: Calendar year data from CMS, Office of Information Products and Data Analytics 2017. 

• In 2017, 4.2 percent of beneficiaries enrolled in Medicare fee-for-service used SNF services, 

down slightly from 2011 (data not shown). 

• Between 2016 and 2017, SNF admissions per 1,000 FFS beneficiaries decreased 2 

percent. The decline is consistent with a decline in FFS per capita inpatient hospital stays 

that were three days or longer and therefore qualified for Medicare coverage of SNF care.

• During the same period, covered days per admission declined 2.3 percent to 25.1 days, so 

there were fewer covered days per 1,000 beneficiaries. 
A Data Book: Health care spending and the Medicare program, June 2019 107

Chart 8-5. Freestanding SNF Medicare margins remained high 

in 2017

2010 2012 2014 2015 2016 2017 

All 19.4% 14.1% 12.8% 12.7% 11.6% 11.2%

Rural 19.5 13.3 10.9 10.9 9.9 9.7

Urban 19.4 14.2 13.1 13.0 11.9 11.5

Nonprofit 11.4 5.7 4.2 4.4 2.3 1.7

For profit 21.3 16.3 15.2 15.1 14.2 13.7

Note: SNF (skilled nursing facility). 

Source: MedPAC analysis of freestanding SNF cost reports 2010–2017.

• Though lower than in recent years, the aggregate Medicare margin for freestanding SNFs in 

2017 exceeded 10 percent for the 18th consecutive year (not all years are shown). After 

reaching over 21 percent in 2011 (not shown), the margins have declined primarily because 

current law requires annual market basket increases to payments to be offset by a 

productivity adjustment. 

• In 2017, on average, urban facilities had higher Medicare margins than rural facilities. Forprofit SNFs had considerably higher Medicare margins than nonprofit SNFs, reflecting their 

larger size, their lower cost growth, and their higher share of the more profitable therapy 

case-mix groups (the ultra-high and very high groups). 

• In 2017, total margins (the margin across all payers and all lines of business) for 

freestanding facilities remained positive (0.5 percent, data not shown). 
108 

Post-acute care

Chart 8-6. Cost and payment differences explain variation in 

Medicare margins for freestanding SNFs in 2017

 

Highest margin Lowest margin Ratio of highest

quartile quartile quartile to

Characteristic (n = 3,284) (n = 3,283) lowest quartile

Cost measures 

Standardized cost per day $271 $399 0.68

Standardized cost per discharge $11,285 $14,116 0.80

Average daily census (patients) 87 65 1.35

Revenue measures

Medicare payment per day $522 $452 1.15

Medicare payment per discharge $22,470 $15,714 1.43

Share of days in intensive therapy 88% 80% 1.10

Share of medically complex days 3 4 0.75

Medicare share of facility revenue 23 13 1.77

Average length of stay (days) 42 35 1.21

Medicaid share of days 66 57 1.16

Patient characteristics

Case-mix index 1.41 1.32 1.07

Share of dual-eligible beneficiaries 39% 26% 1.50

Share of minority beneficiaries 14 5 2.80

Share of very old beneficiaries 30 35 0.86

Facility mix

Share for profit 86% 57% N/A

Share urban 79 70 N/A

Note: SNF (skilled nursing facility), N/A (not applicable). Values shown are medians for the quartile. Highest margin quartile SNFs 

were in the top 25 percent of the distribution of Medicare margins. Lowest margin quartile SNFs were in the bottom 25 

percent of the distribution of Medicare margins. “Standardized cost per day” includes Medicare costs adjusted for differences 

in area wages and the case mix (using the nursing component’s relative weights) of Medicare beneficiaries. “Days in 

intensive therapy” are days classified into ultra-high and very high rehabilitation case-mix groups. “Very old beneficiaries” are 

85 years or older. “Medically complex days” are those assigned to clinically complex or special-care case-mix groups.

Quartile figures presented in the table are rounded, but the ratio column was calculated using unrounded data.

Source: MedPAC analysis of freestanding SNF cost reports 2017.

• Medicare margins varied widely across freestanding SNFs. One-quarter of SNFs had 

Medicare margins at or below 0.8 percent, and one-quarter of facilities had Medicare 

margins at or above 20.2 percent (data not shown). 

• High-margin SNFs had lower costs per day (32 percent lower costs than low-margin SNFs), 

after adjusting for wage and case-mix differences, and higher revenues per day (15 

percent). 

• Facilities with the highest Medicare margins had higher case-mix indexes, higher shares of 

beneficiaries who were dually eligible for Medicare and Medicaid, and higher shares of 

minority beneficiaries.
A Data Book: Health care spending and the Medicare program, June 2019 109

Chart 8-7. Financial performance of relatively efficient SNFs in 

2017 reflects a combination of lower cost per day 

and higher payment per day

Relatively Other

efficient SNFs SNFs

Performance in 2017

Community discharge rate 50.3% 39.8%

Readmission rate 9.0% 10.9%

Standardized cost per day $297 $324

Medicare revenue per day $526 $476

Medicare margin 18.0% 10.5%

Total margin 2.3% 0.6%

Facility case-mix index 1.44 1.36

Medicare average length of stay 30 days 38 days

Occupancy rate 87% 85%

Average daily census 100 79

Share of ultra-high therapy days 66% 55%

Share of medically complex days 4.2% 3.8%

Medicaid share of facility days 58% 63%

Share urban 84% 67% 

Share for profit 79% 68%

Note: SNF (skilled nursing facility). The analysis includes 11,462 freestanding facilities. SNFs were defined as “relatively 

efficient” by their cost per day measure (2014–2016) and two quality measures (community discharge and readmission

rates) for the same period (2014–2016). Relatively efficient SNFs were those in the best third of the distribution of any one 

measure and not in the bottom third on any measure in each of three years. Eight percent of SNFs qualified as relatively 

efficient. Costs per day were standardized for differences in case mix (using the nursing component relative weights) and 

wages. Rates of risk-adjusted community discharge and readmission for patients with potentially avoidable conditions 

during the SNF stay are quality measures and were calculated for all facilities with at least 25 stays. “Ultra-high therapy

days” include days with at least 720 minutes per week of therapy. “Medically complex days” are those assigned to 

clinically complex or special-care case-mix groups.

Source: MedPAC analysis of quality measures and Medicare cost report data for 2014–2017. 

• “Relatively efficient SNFs” are defined as consistently providing relatively low-cost and highquality care compared with other SNFs. Compared with other SNFs in 2017, relatively 

efficient SNFs furnished considerably higher quality (higher discharge to community rates 

and lower readmission rates) and had costs per day that were 8 percent lower. 

• Compared with other SNFs in 2017, relatively efficient SNFs treated a similar share of 

medically complex patients, had a higher share of ultra-high therapy days, were larger, had 

shorter stays, had slightly higher occupancy rates, and had higher average daily censuses. 
110 

Post-acute care

Chart 8-8. Trends in the provision of home health care

Cumulative

Percent change percent change

2002 2016 2017 2016‒2017 2002‒2017

Number of users (in millions) 2.5 3.5 3.4 -1.7 35.1

Share of FFS beneficiaries

who used home health care 7.2% 8.9% 8.8% –1.4 22.5

Episodes (in millions) 4.1 6.5 6.3 –3.1 54.5

Episodes per home 

health patient 1.6 1.9 1.9 –1.4 14.3

Visits per home health

episode 18.9 16.5 16.5 –0.1 ‒13.0

Visits per home health

patient 30.8 31.3 30.8 ‒1.6 0.1

Average payment per

episode $2,645 $2,988 $3,039 1.4 14.8

Note: FFS (fee-for-service). Yearly figures presented in the table are rounded, but the percent-change columns were calculated 

using unrounded data. Average payment per episode excludes low-use episodes with fewer than five visits.

Source: MedPAC analysis of the home health standard analytic file.

• The number of home health episodes has increased since 2002. The number of 

beneficiaries using home health care has also increased since 2002, albeit at a lower rate. 

In 2017, 3.4 million beneficiaries used the home health benefit.

• The number of visits per episode has decreased since 2002. However, this decline was 

offset by an increase in the average number of episodes per patient, which increased from 

1.6 in 2002 to 1.9 in 2017. Beneficiaries received fewer visits in an episode but had more 

60-day episodes of care.
A Data Book: Health care spending and the Medicare program, June 2019 111

Chart 8-9. Most home health episodes are not preceded by 

hospitalization or PAC stay

Number of episodes (in millions) Percent change

2001 2011 2017 2001‒2011 2011‒2017

Episodes preceded by a 

 hospitalization or PAC stay 1.9 2.2 2.2 14.8% 2.2%

Episodes not preceded by a 

 hospitalization or PAC stay 2.1 4.6 4.1 123.8 ‒10.9

Total 3.9 6.8 6.3 73.3 ‒7.3

Note: PAC (post-acute care). “Episodes preceded by a hospitalization or PAC stay” refers to episodes that occurred less than 

15 days after a stay in a hospital (including a long-term care hospital), skilled nursing facility, or inpatient rehabilitation 

facility. “Episodes not preceded by a hospitalization or PAC stay” refers to episodes for which there was no hospitalization 

or PAC stay in the previous 15 days. Numbers may not sum due to rounding. 

Source: 2017 home health standard analytic file, 2017 Medicare Provider and Analysis Review file, and 2017 skilled nursing 

facility standard analytic file.

• The rise in the average number of episodes per beneficiary since 2001 coincided with a 

relative shift away from using home health care as a PAC service. 

• Between 2001 and 2011, the number of episodes not preceded by a hospitalization or PAC 

stay increased by about 124 percent compared with an almost 15 percent increase in 

episodes that were preceded by a hospitalization or PAC stay. During that same period, the 

share of all episodes not preceded by a hospitalization or PAC stay rose from about 53 

percent to 67 percent (data not shown). Since 2011, however, the number of home health 

episodes not preceded by a hospitalization or PAC stay has declined 10.9 percent while the 

number of episodes preceded by a hospitalization or PAC stay has increased 2.2 percent. 

Even so, about two-thirds of home health episodes were not preceded by an inpatient 

hospital or PAC stay in 2017. 

• Beneficiaries for whom the majority of home health episodes were preceded by a 

hospitalization or PAC stay had different characteristics from community-admitted 

beneficiaries (those who had no prior hospitalization or PAC). Community-admitted home 

health users were more likely to be dually eligible for Medicare and Medicaid, to have more 

home health episodes, and to have more episodes with a high share of home health aide 

services compared with those home health users coming from a hospitalization or other 

PAC stay (data not shown). Community-admitted users generally had fewer chronic 

conditions, tended to be older, and were more likely to have dementia or Alzheimer’s 

disease (data not shown). 
112 

Post-acute care

Chart 8-10. Medicare margins for freestanding home health

agencies, 2016 and 2017

Share of

agencies

2016 2017 2017

All 15.5% 15.2% 100%

Geography

Mostly urban 16.0 15.8 83

Mostly rural 13.8 13.4 17

Type of control

For profit 16.8 16.4 88

Nonprofit 12.0 10.9 12

Volume quintile (lowest to highest)

First 8.5 7.4 20

Second 10.8 9.8 20

Third 11.6 11.5 20

Fourth 14.5 13.6 20

Fifth 17.4 17.0 20

Note: Agencies are characterized as urban or rural based on the residence of the majority of their patients.

Source: MedPAC analysis of 2016–2017 Medicare Cost Report files from CMS.

• In 2017, freestanding home health agencies (HHAs) (85 percent of all HHAs) had an 

aggregate margin of 15.2 percent. HHAs that served mostly urban patients in 2017 had an 

aggregate margin of 15.8 percent; HHAs that served mostly rural patients had an aggregate 

margin of 13.4 percent. The 2017 margin is consistent with the historically high margins the 

home health industry has experienced since the prospective payment system (PPS) was 

implemented in 2000. The margin from 2001 to 2016 averaged 16.5 percent (data not 

shown), indicating that most agencies have been paid well in excess of their costs under the 

PPS.

• For-profit agencies in 2017 had an average margin of 16.4 percent, and nonprofit agencies 

had an average margin of 10.9 percent.

• Agencies that serve more patients have higher margins. The agencies in the lowest volume 

quintile in 2017 had an aggregate margin of 7.4 percent, while those in the highest quintile 

had an aggregate margin of 17.0 percent.
A Data Book: Health care spending and the Medicare program, June 2019 113

Chart 8-11. Number of FFS IRF cases decreased in 2017

Average

annual percent Percent

change change

2008 2013 2016 2017 2008–2016 2016–2017

Number of IRF cases 356,000 373,000 391,000 380,000 1.2% –2.7%

Cases per 10,000 100.4 99.1 100.9 98.5 0.1 –2.4

FFS beneficiaries

Payment per case $16,646 $18,258 $19,714 $20,322 2.1 3.1

Average length of stay

(in days) 13.3 12.9 12.7 12.7 –0.6 0.0

Note: FFS (fee-for-service), IRF (inpatient rehabilitation facility). Numbers of cases reflect Medicare FFS utilization only. Yearly 

figures presented in the table are rounded, but the percent-change columns were calculated using unrounded data.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• The number of Medicare FFS IRF cases grew rapidly throughout the 1990s and the early 

years of the IRF prospective payment system, reaching a peak of about 495,000 in 2004 

(data not shown).

• In 2004, CMS renewed its enforcement of the compliance threshold, which requires that 60 

percent or more of an IRFs’ cases have at least one of 13 specified conditions, and IRF 

volume began to fall. Between 2004 and 2008, the number of IRF cases fell almost 8 

percent per year (data not shown). After 2008, volume began to increase slowly, rising an 

average of 1.2 percent per year from 2008 to 2016. Between 2016 and 2017, however, the 

number of FFS IRF cases fell 2.7 percent.

• In 2017, the number of IRF cases per 10,000 FFS beneficiaries fell to 98.5, down 2.4 

percent from the previous year. Relatively few Medicare beneficiaries use IRF services 

because, to qualify for Medicare coverage, IRF patients must be able to both tolerate and 

benefit from intensive rehabilitation therapy, which typically consists of at least three hours 

of therapy a day for at least five days a week. With the decline in the number of IRF cases 

per FFS beneficiary, FFS Medicare’s share of IRF discharges fell to 58 percent of total 

discharges as the volume of IRF cases across all payers rose slightly in 2017 (data not 

shown).

• Medicare payments per IRF case rose, on average, 2.1 percent per year between 2008 and 

2016. Payments per case grew 3.1 percent between 2016 and 2017.
114 

Post-acute care

Chart 8-12. Most common types of FFS inpatient rehabilitation 

facility cases, 2017

Type of case Share of cases

Stroke 20.5%

Other neurological conditions 15.0

Brain injury 10.7

Debility 10.6

Fracture of the lower extremity 10.4

Other orthopedic conditions 7.9

Cardiac conditions 5.8

Spinal cord injury 4.9

Major joint replacement of lower extremity 4.4

All other 9.8

Note: FFS (fee-for-service). “Other neurological conditions” includes multiple sclerosis, Parkinson’s disease, polyneuropathy, 

and neuromuscular disorders. “Fracture of the lower extremity” includes hip, pelvis, and femur fractures. Patients with 

debility have generalized deconditioning not attributable to other conditions. “Other orthopedic conditions” excludes 

fractures of the hip, pelvis, and femur and hip and knee replacements. “All other” includes conditions such as 

amputations, arthritis, and pain syndrome. All Medicare FFS inpatient rehabilitation facility (IRF) cases with valid patient 

assessment information were included in this analysis. 

Source: MedPAC analysis of Inpatient Rehabilitation Facility–Patient Assessment Instrument data from CMS.

• In 2017, the most frequently occurring case type among FFS beneficiaries admitted to IRFs 

was stroke, which accounted for 20.5 percent of Medicare FFS cases. 

• The number and share of Medicare FFS cases with other neurological conditions has grown 

significantly. Between 2008 and 2017, the number of IRF discharges with other neurological 

conditions almost doubled, climbing 99 percent while the total number of Medicare IRF 

discharges increased 6 percent (data not shown). 

• The distribution of case types differs by type of IRF. For example, in 2017, 16 percent of 

FFS cases in freestanding for-profit IRFs were admitted for rehabilitation after a stroke, 

compared with 26 percent of cases in hospital-based nonprofit IRFs (data not shown). 

Likewise, 21 percent of FFS cases in freestanding for-profit IRFs were admitted with other 

neurological conditions, more than twice the share admitted to hospital-based nonprofit IRFs 

(data not shown).
A Data Book: Health care spending and the Medicare program, June 2019 115

Chart 8-13. Inpatient rehabilitation facilities’ Medicare margins

by type of facility, 2008–2017

2008 2010 2012 2014 2015 2016 2017

All IRFs 9.4% 8.6% 11.2% 12.2% 13.9% 13.3% 13.8%

Hospital based 3.8 –0.6 0.7 0.7 2.2 0.9 1.5

Freestanding 18.2 21.4 23.9 25.2 26.7 25.8 25.5

Urban 9.6 9.0 11.6 12.6 14.3 13.6 14.2

Rural 7.2 4.7 6.6 6.4 8.6 9.4 8.4

Nonprofit 5.3 2.1 2.1 1.7 3.5 1.6 2.2

For profit 16.9 19.6 22.9 23.6 24.9 24.2 23.8

Note: IRF (inpatient rehabilitation facility).

Source: MedPAC analysis of cost report data from CMS. 

• The aggregate IRF Medicare margin increased in 2017 to 13.8 percent. 

• Margins varied by ownership, with for-profit IRFs having substantially higher margins. At the 

same time, Medicare margins in freestanding IRFs far exceeded those of hospital-based 

facilities. Nevertheless, a quarter of hospital-based IRFs had Medicare margins greater than 11 

percent (data not shown), indicating that many hospitals can manage their IRF units profitably. 

Further, despite the comparatively low average margin in hospital-based IRFs, evidence 

suggests that these units make a positive financial contribution to their parent hospitals. 

Commission analysis found that, in 2017, the aggregate inpatient Medicare margin for acute 

care hospitals with IRF units was nearly a percentage point higher than the margin of hospitals 

without IRF units (data not shown).

• Higher unit costs are a major driver of low margins in both hospital-based and nonprofit IRFs. 

However, the Commission has found that the mix of case types in IRFs is also correlated with 

profitability. IRFs with the highest margins have a higher share of neurological cases and a lower 

share of stroke cases. Further, we have observed differences in the types of stroke and 

neurological cases admitted to high- and low-margin IRFs. Stroke cases in the highest margin 

IRFs are much less likely to have paralysis than are stroke cases in the lowest margin IRFs. 

Neurological cases in the highest margin IRFs are much more likely to be neuromuscular 

disorders (such as amyotrophic lateral sclerosis) than are neurological cases in the lowest 

margin IRFs (data not shown).

• The Commission has found that high-margin IRFs have patients who are, on average, less 

severely ill in the acute care hospital than patients admitted to low-margin IRFs. Once admitted 

to and assessed by the IRF, however, the average patient profile changes, with patients treated 

in high-margin IRFs appearing to be more disabled than those in low-margin IRFs. This finding 

suggests the possibility that assessment and coding practices may contribute to greater 

revenues in some IRFs (data not shown).
116 

Post-acute care

Chart 8-14. Low standardized costs led to high margins for both 

hospital-based and freestanding IRFs, 2017

Characteristic Lowest cost quartile Highest cost quartile

Median cost per discharge

 All $11,762 $20,379

 Hospital based 12,290 20,374

 Freestanding 11,212 20,778

Median Medicare margin

 All 26.9% −21.43%

 Hospital based 23.1 −21.27

 Freestanding 30.6 −25.13

Median

 Number of beds 48 18

 Occupancy rate 72% 52%

Share of facilities in the quartile that are:

 Hospital based 37% 94%

 Freestanding 63 6

 Nonprofit 28 65

 For profit 67 20

 Government 4 15

 Urban 95 76

 Rural 5 25

Note: IRF (inpatient rehabilitation facility). Cost per discharge is standardized for differences in wages across geographic areas, 

differences in case mix across providers, and differences across providers in the prevalence of high-cost outliers, shortstay outliers, and transfer cases. Totals may not sum to 100 percent due to rounding.

Source: MedPAC analysis of Medicare cost report and Medicare Provider Analysis and Review data from CMS.

• IRFs with the lowest standardized costs (those in the lowest cost quartile) had a median 

standardized cost per discharge that was 42 percent less than that of the IRFs with the 

highest standardized costs (those in the highest cost quartile).

• IRFs with the lowest costs tended to be larger: The median number of beds was 48 

compared with 18 in the highest cost quartile. In addition, IRFs with the lowest costs had a 

higher median occupancy rate (72 percent vs. 52 percent, respectively). These results 

suggest that low-cost IRFs benefit from economies of scale.

• Low-cost IRFs were disproportionately freestanding and for profit. Still, 37 percent of IRFs in 

the lowest cost quartile were hospital based and 28 percent were nonprofit. By contrast, in 

the highest cost quartile, 94 percent were hospital based and 65 percent were nonprofit.
A Data Book: Health care spending and the Medicare program, June 2019 117

Chart 8-15. The top 25 MS–LTC–DRGs accounted for almost 70 

percent of LTCH discharges in 2017

MS–LTC Share

–DRG Description Discharges of cases

189 Pulmonary edema and respiratory failure 18,835 16.2%

207 Respiratory system diagnosis with ventilator support 96+ hours 13,838 11.9

871 Septicemia without ventilator support 96+ hours with MCC 7,056 6.1

208 Respiratory system diagnosis with ventilator support <96 hours 2,825 2.4

592 Skin ulcers with MCC 2,716 2.4

177 Respiratory infections and inflammations with MCC 2,412 2.1

949 Aftercare with CC/MCC 2,381 2.0

539 Osteomyelitis with MCC 2,337 2.0

166 Other respiratory system OR procedures with MCC 2,246 1.9

981 Extensive OR procedure unrelated to principal diagnosis with MCC 2,222 1.9

682 Renal failure with MCC 2,207 1.9

190 Chronic obstructive pulmonary disease with MCC 1,814 1.6

291 Heart failure and shock with MCC 1,733 1.5

559 Aftercare, musculoskeletal system and connective tissue with MCC 1,681 1.4

4 Tracheostomy with ventilator support 96+ hours or primary diagnosis 1,579 1.4

except face, mouth, and neck without major OR

314 Other circulatory system diagnoses with MCC 1,518 1.3

919 Complications of treatment with MCC 1,508 1.3

862 Postoperative and post-traumatic infections with MCC 1,483 1.3

570 Skin debridement with MCC 1,455 1.2

853 Infectious and parasitic diseases with OR procedure with MCC 1,438 1.2

870 Septicemia with ventilator support 96+ hours 1,303 1.1

638 Diabetes with CC 1,255 1.1

689 Kidney and urinary tract infections with MCC 1,201 1.0

637 Diabetes with MCC 1,186 1.0

371 Major gastrointestinal disorder and peritoneal infections with MCC 1,098 0.9

Top 25 MS–LTC–DRGs 79,327 68.1

Total 116,424 100.0

Note: MS–LTC–DRG (Medicare severity long-term care diagnosis related group), LTCH (long-term care hospital), MCC (major 

complication or comorbidity), CC (complication or comorbidity), OR (operating room). MS–LTC–DRGs are the case-mix 

system for LTCHs. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

• Cases in LTCHs are concentrated in a relatively small number of MS–LTC–DRGs. In 2017, 

the top 25 MS–LTC–DRGs accounted for 68.1 percent of LTCH Medicare cases.

• As in 2016, the two most frequent diagnoses in LTCHs in 2017 were pulmonary edema and 

respiratory failure and a respiratory system diagnosis with ventilator support of more than 96 

hours. 

• Over 35 percent of all LTCH cases were respiratory conditions—a statistic that has been 

relatively stable since the 2008 implementation of the MS-LTC-DRGs. Nonprofit LTCHs care 

for a higher share of beneficiaries with a respiratory-related illness compared with for-profit 

LTCHs (data not shown).
118 

Post-acute care

Chart 8-16. The number of Medicare LTCH cases and users 

decreased by over 7 percent between 2016 and 2017

 Average annual change

2012– 2015– 2016–

2012 2014 2015 2016 2017 2015 2016 2017

Cases 140,463 133,984 131,129 125,586 116,424 –2.3% –4.2% –7.3%

Cases per 10,000

FFS beneficiaries 37.7 35.4 34.4 32.5 30.2 –3.0 –5.7 –7.0

Spending per

FFS beneficiary $148.78 $141.61 $140.17 $131.94 $115.44 –2.0 –5.9 –12.5

Payment per case $39,493 $40,015 $40,719 $40,656 $38,253 1.0 –0.2 –5.9

Length of stay (in days) 26.2 26.3 26.6 26.8 26.3 0.4 1.1 –2.2

Users 123,652 118,288 116,088 111,171 103,322 –2.1 –4.2 –7.1

Note: LTCH (long-term care hospitals), FFS (fee-for-service). Yearly figures presented in the table are rounded, but the average

annual changes were calculated using unrounded data.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

• The Pathway for SGR Reform Act of 2013 created a “dual payment-rate structure” for 

LTCHs where, beginning in fiscal year 2016, only certain LTCH cases continue to qualify for 

the standard LTCH perspective payment system rate, while cases that do not meet a set of 

criteria are paid a lower “site-neutral” rate.

• Controlling for the number of FFS beneficiaries, the number of LTCH cases declined by 3 

percent annually between 2012 and 2015. The number of cases declined more rapidly

following the implementation of the dual payment-rate structure. From 2016 to 2017 the 

number of LTCH cases declined by 7 percent.

• Reductions in payment per case since 2015 reflect a lower payment rate for cases that did

not meet the criteria following the implementation of the dual payment-rate structure. 

• Since 2012, the average length of stay has varied from 26.2 to 26.8. A decrease of 2.2 

percent from 2016 largely reflects a reduction in the length of stay for cases that do not meet 

the criteria under the dual payment-rate structure because these cases no longer count 

toward the LTCH average length of stay requirement of greater than 25 days.

• Reflecting the decline in the number of Medicare cases, the number of beneficiaries who 

had LTCH stays (“users”) also decreased by 7.1 percent from 2016 to 2017.
A Data Book: Health care spending and the Medicare program, June 2019 119

Chart 8-17. The aggregate LTCH Medicare margin continued to 

fall in 2017

Type of LTCH

Share of 

discharges

in 2017

Medicare margin

2012 2013 2014 2015 2016 2017

All 100% 7.6% 6.8% 5.2% 4.7% 3.9% −2.2%

Urban 96 7.7 6.9 5.2 4.7* 4.0 −1.9 

Rural 4 3.4 6.0 5.1 3.5* −0.2 −13.6

Nonprofit 12 −0.2 −1.1 −2.2 −5.9 −5.7 −13.0

For profit 87 9.3 8.6 7.0 6.5 5.5 −0.3 

Note: LTCH (long-term care hospital). 

*CMS adopted new core-based statistical area codes for LTCHs beginning in fiscal year 2015; this change reclassified 

several facilities as urban that had previously been classified as rural, and therefore the margin across categories of urban

and rural facilities between 2014 and 2015 should not be compared. 

Source: MedPAC analysis of cost report data from CMS.

• From 2009 (data not shown) through 2012, LTCH margins climbed as providers consistently 

held cost growth below that of payment growth. After peaking in 2012, the aggregate LTCH 

margin fell to 6.8 percent in 2013, primarily due to policy changes that reduced payments, 

including the start of a three-year phase-in of a downward adjustment for budget neutrality 

and the effect of sequestration beginning on April 1, 2013.

• In fiscal year 2016, CMS began implementing a “dual payment-rate structure” where certain 

LTCH cases not meeting a set of criteria specified in law are paid a lower “site-neutral” rate. 

The aggregate Medicare margin fell to −2.2 percent in 2017.

• Financial performance in 2017 varied across LTCHs. The aggregate Medicare margin for 

for-profit LTCHs (which accounted for 87 percent of all Medicare discharges from LTCHs) 

decreased from 6.5 percent in 2015 to −0.3 percent in 2017. The aggregate margin for 

nonprofit LTCHs decreased from –5.9 percent in 2015 to –13.0 percent in 2017. 
120 

Post-acute care

Chart 8-18. The volume and share of LTCH cases meeting the 

criteria for the standard LTCH PPS rate increased 

from 2016 to 2017

Percent change

Cases meeting the criteria 2015 2016 2017 2015–2016 2016–2017

Cases 72,429 72,318 74,666 −0.2% 3.2%

Share of all LTCH cases 55% 58% 64%

Cases per 10,000 FFS beneficiaries 19.0 18.7 19.4 −1.7 3.6

Payment per case $46,217 $46,223 $46,127 0.0 −0.2

Spending (in billions) $3.3 $3.3 $3.4 −0.1 3.0

Length of stay (in days) 28.5 27.9 27.9 −2.0 −0.1

Aggregate Medicare margin 6.8% 6.3% 5.8% N/A N/A

Note: LTCH (long-term care hospital), PPS (prospective payment system), FFS (fee-for-service), N/A (not applicable). Yearly 

figures presented in the table are rounded, but the percent changes were calculated using unrounded data.

Source: MedPAC analysis of cost report data from CMS.

• The Pathway for SGR Reform Act of 2013 created a “dual payment-rate structure” for 

LTCHs where, beginning in fiscal year 2016, only certain LTCH cases continue to qualify for 

the standard LTCH PPS rate, while cases that do not meet a set of criteria are paid a lower 

“site-neutral” rate.

• The number of cases meeting the criteria to qualify for the standard LTCH PPS rate per 

10,000 FFS beneficiaries increased by 3.6 percent in 2017, in contrast to the 7.0 percent 

reduction in all LTCH cases per 10,000 FFS beneficiaries (see Chart 8-16).

• After decreasing from 28.5 days in 2015 to 27.9 days in 2016, the average length of stay for 

cases meeting the criteria to qualify for the standard LTCH PPS rate remained stable in 

2017.

• The aggregate Medicare margin for cases meeting the criteria to qualify for the standard 

LTCH PPS rate decreased from 6.8 percent in 2015 to 5.8 percent in 2017. Because cases 

that meet the criteria are generally more profitable under the dual payment-rate structure 

than those that do not, we expect stronger financial performance under Medicare for LTCHs 

that treat higher shares of these cases.
9

A Data Book: Health care spending and the Medicare program, June 2019 123

Chart 9-1. Enrollment in MA plans, 2003–2019

Note: MA (Medicare Advantage).

Source: Medicare managed care contract reports and monthly summary reports, CMS.

• Enrollment in MA plans that are paid on an at-risk capitated basis reached 21.9 million 

enrollees (34 percent of all Medicare beneficiaries) in 2019. MA enrollment has grown

steadily since 2003, increasing almost fivefold. The Medicare program paid MA plans about 

$230 billion in 2018 to cover Part A and Part B services for MA enrollees (data not shown).

4.6 4.7 4.9

6.9

8.1

9.4

10.5 11.0 11.7

12.8

14.1

15.4

16.4

17.2

18.5

20.0

21.9

0

5

10

15

20

25

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Beneficiaries (in millions) 
124 Medicare Advantage

Chart 9-2. MA plans available to almost all Medicare 

beneficiaries

 Share of Medicare beneficiaries living in counties with plans available

 CCPs

HMO or Any Average plan

local PPO Regional Any MA offerings per

(local CCP) PPO CCP PFFS plan beneficiary

2012 93% 76% 99% 60% 100% 19

2013 95 71 99 59 100 19

2014 95 71 99 53 100 18

2015 95 70 98 47 99 17

2016 96 73 99 47 99 18

2017 95 74 98 45 99 18

2018 96 74 98 41 99 20

2019 97 74 98 38 99 23

Note: MA (Medicare Advantage), CCP (coordinated care plan), HMO (health maintenance organization), PPO (preferred 

provider organization), PFFS (private fee-for-service). These data do not include plans that have restricted enrollment or 

are not paid based on the MA plan bidding process (special needs plans, cost plans, employer-only plans, and certain 

demonstration plans).

Source: MedPAC analysis of plan bid data from CMS.

• There are four types of MA plans, three of which are CCPs. Local CCPs include HMOs and

local PPOs, which have comprehensive provider networks and limit or discourage use of outof-network providers. Local CCPs may choose which individual counties to serve. Regional 

PPOs cover entire state-based regions and have networks that may be looser than those 

required of local PPOs. Since 2011, PFFS plans are required to have networks in areas with 

two or more CCPs. In other areas, PFFS plans are not required to have networks, and 

enrollees are free to use any Medicare provider.

• Local CCPs are available to 97 percent of Medicare beneficiaries in 2019, and regional 

PPOs are available to 74 percent of beneficiaries; the availability of both plan types is as 

high as or higher than in any year since 2013. Since 2006, almost all Medicare beneficiaries 

have had MA plans available; 99 percent have an MA plan available in 2019.

• The number of plans from which beneficiaries may choose in 2019 is higher than at any time 

since 2012. In 2019, beneficiaries can choose from an average of 23 plans operating in their 

counties.
A Data Book: Health care spending and the Medicare program, June 2019 125

Chart 9-3. Average monthly rebate dollars, by plan type, 

2014–2019

Note: HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private fee-for-service), MA 

(Medicare Advantage). Employer group waiver and special needs plans are excluded.

Source: MedPAC analysis of bid and plan finder data from CMS.

• Perhaps the best summary measure of plan benefit value is the average rebate, which plans

receive to provide additional benefits. Plans are awarded rebates for bidding under their 

benchmarks. The rebates must be returned to the plan members in the form of extra 

benefits. The extra benefits may be supplemental benefits, lower cost sharing, or lower 

premiums. The average rebate for all non-employer, non–special needs plans (SNPs) rose 

to a high of $107 per month for 2019.

• HMOs have had, by far, the highest rebates because they tend to bid lower than other types 

of plans. Average rebates for HMOs have risen sharply over the past few years and are at a 

high of $125 per month for 2019.

• For both local and regional PPOs, the rebates declined through 2015 and then rose sharply 

after 2016. Rebates for local PPOs have doubled since 2016.

• Rebates for PFFS plans had declined steadily since 2011 (2011–2013 not shown in chart)

but increased for 2019.

92

35

18

28

75

95

29

18

24

76

101

34

17

26

81

105

49

16

40

89

111

59

15

45

95

125

71

18

46

107

0

20

40

60

80

100

120

140

HMO Local PPO PFFS Regional PPO Any MA plan

Average monthly rebate dollars

2014 2015 2016 2017 2018 2019
126 Medicare Advantage

Chart 9-4. Changes in enrollment vary among major plan types

Total enrollees

(in thousands)

February February February February February Percent change

Plan type 2015 2016 2017 2018 2019 2018–2019

Local CCPs 14,824 15,588 16,920 18,463 20,502 11% 

Regional PPOs 1,237 1,315 1,353 1,327 1,255 –5

PFFS 260 238 190 154 118 –23

Note: CCP (coordinated care plan), PPO (preferred provider organization), PFFS (private fee-for-service). Local CCPs include 

HMOs and local PPOs.

Source: CMS health plan monthly summary reports.

• Enrollment in local CCPs grew by 11 percent over the past year. Enrollment in regional 

PPOs declined by 5 percent, and enrollment in PFFS plans dropped by 23 percent. 

Combined enrollment in the three types of plans grew by 10 percent from February 2018 to 

February 2019 (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2019 127

Chart 9-5. MA and cost plan enrollment by state and type of 

plan, 2019

Medicare eligibles Distribution (in percent) of enrollees by plan type

State or territory (in thousands) HMO Local PPO Regional PPO PFFS Cost Total

U.S. total 63,678 21% 11% 2% 0% 1% 35%

Alabama 1,088 18 20 1 0 0 40

Alaska 99 0 1 0 0 0 1

Arizona 1,364 33 5 1 0 0 38

Arkansas 675 12 4 6 2 0 24

California 6,523 37 2 0 0 0 40

Colorado 977 29 8 0 0 1 38

Connecticut 707 21 17 1 0 0 39

Delaware 213 7 8 0 0 0 15

Florida 4,796 29 9 6 0 0 43

Georgia 1,830 11 18 8 0 0 37

Hawaii 280 17 27 2 0 0 45

Idaho 347 19 13 0 0 0 32

Illinois 2,327 11 12 0 0 0 24

Indiana 1,312 10 17 3 0 0 30

Iowa 650 8 12 0 0 2 21

Kansas 558 7 9 0 1 0 18

Kentucky 970 9 18 4 0 1 32

Louisiana 906 30 4 2 0 0 36

Maine 353 18 13 1 1 0 33

Maryland 1,085 7 4 0 0 0 11

Massachusetts 1,382 15 5 1 0 0 22

Michigan 2,150 14 23 1 0 0 38

Minnesota 1,072 14 24 0 0 6 43

Mississippi 632 11 4 4 0 0 19

Missouri 1,296 21 10 3 0 0 35

Montana 241 7 10 0 1 0 18

Nebraska 359 10 4 0 1 1 16

Nevada 555 30 5 0 0 0 35

New Hampshire 313 8 7 2 0 0 17

New Jersey 1,694 13 15 0 0 0 28

New Mexico 440 20 15 0 0 0 34

New York 3,761 26 10 3 0 0 39

North Carolina 2,070 14 18 3 0 0 35

North Dakota 137 0 3 0 0 14 17

Ohio 2,418 22 15 1 0 0 38

Oklahoma 779 12 8 1 0 0 20

Oregon 910 28 14 0 0 0 43

Pennsylvania 2,821 25 15 0 0 0 41

Puerto Rico 812 70 3 0 0 0 72

Rhode Island 229 33 3 1 0 0 37

South Carolina 1,111 8 8 11 0 0 27

South Dakota 185 1 7 0 0 13 20

Tennessee 1,418 25 13 1 0 0 38

Texas 4,333 20 12 4 0 0 37

Utah 413 28 8 0 0 0 36

Vermont 154 3 3 4 1 0 11

Virgin Islands 22 0 1 0 0 0 1

Virginia 1,599 10 6 2 1 2 20

Washington 1,426 27 4 0 0 0 32

Washington, DC 99 7 10 0 0 6 18

West Virginia 458 3 24 1 1 4 33

Wisconsin 1,215 22 14 1 1 4 41

Wyoming 114 0 2 0 1 1 4

Note: MA (Medicare Advantage), HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private 

fee-for-service). Cost plans are not MA plans; they submit cost reports rather than bids to CMS. Component percentages

may not sum to totals due to rounding.

Source: CMS enrollment and population data February 2019.
128 Medicare Advantage

Chart 9-6. MA plan benchmarks, bids, and Medicare program

payments relative to FFS spending, 2019

All plans HMOs Local PPOs Regional PPOs PFFS

Benchmarks/FFS 107% 107% 109% 105% 107%

Bids/FFS 89 88 96 91 104

Payments/FFS 100 100 104 97 106

Note: MA (Medicare Advantage), FFS (fee-for-service), HMO (health maintenance organization), PPO (preferred provider 

organization), PFFS (private fee-for-service).

Source: MedPAC analysis of plan bid data from CMS October 2018.

• Since 2006, plan bids have partly determined the Medicare payments they receive. Plans bid to 

offer Part A and Part B coverage to Medicare beneficiaries (Part D coverage is bid separately). 

The bid includes plan administrative cost and profit. CMS bases the Medicare payment for a 

private plan on the relationship between its bid and its applicable benchmark.

• The benchmark is an administratively determined bidding target. Benchmarks for each county are 

set by means of a statutory formula based on percentages (ranging from 95 percent to 115

percent) of each county’s per capita Medicare spending. Plans with quality ratings of 4 or more 

stars may have their benchmarks raised by up to 10 percent of FFS spending in some counties.

• If a plan’s bid is above the benchmark, then the plan receives the benchmark as payment from 

Medicare, and enrollees have to pay an additional premium that equals the difference. If a plan’s bid 

is below the benchmark, the plan receives its bid plus a “rebate,” defined by law as a percentage of 

the difference between the plan’s bid and its benchmark. The percentage is based on the plan’s 

quality rating, and it ranges from 50 percent to 70 percent. The plan must then return the rebate to its 

enrollees in the form of supplemental benefits, lower cost sharing, or lower premiums.

• We estimate that MA benchmarks average 107 percent of FFS spending when weighted by MA 

enrollment. The ratio varies by plan type because different types of plans tend to draw 

enrollment from different types of geographical areas.

• Plans’ enrollment-weighted bids (excluding employer plans, which no longer submit bids)

average 89 percent of FFS spending in 2019. We estimate that HMOs bid an average of 88

percent of FFS spending, while bids from other plan types average at least 91 percent of FFS 

spending. These numbers suggest that HMOs can provide the same services for less than FFS

in the areas where they bid.

• We project that 2019 MA payments will be 100 percent of FFS spending. This figure does not 

include employer plans and does not account for risk-coding differences between FFS and MA 

plans that have not been resolved through the coding intensity factor.

• The ratio of payments relative to FFS spending varies by the type of MA plan. HMO and regional 

PPO payments are estimated to be 100 and 97 percent of FFS, respectively, while payments to

local PPOs and PFFS plans average 104 percent and 106 percent of FFS, respectively. 
A Data Book: Health care spending and the Medicare program, June 2019 129

Chart 9-7. Enrollment in employer group MA plans, 2006–2019

Note: MA (Medicare Advantage). Enrollment numbers are as of May for 2006, November for 2007, and February for 2008 

through 2019.

Source: CMS enrollment data.

• While most MA plans are available to any Medicare beneficiary residing in a given area, 

some MA plans are available only to retirees whose Medicare coverage is supplemented by 

their former employer or union. These plans are called employer group plans. Such plans 

are usually offered through insurers and are marketed to groups formed by employers or 

unions rather than to individual beneficiaries.

• As of February 2019, about 4.5 million enrollees were in employer group plans, or about 21

percent of all MA enrollees. Employer plan enrollment grew by 9 percent from 2018 and has 

almost doubled since 2012.

0.96

1.30 1.56 1.83 1.92 2.08 2.32 2.53

2.96 3.14 3.16

3.68

4.13

4.51

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Enrollment (in millions)
130 Medicare Advantage

Chart 9-8. Number of special needs plan enrollees, 2010–2019

Source: CMS special needs plans comprehensive reports, April 2010–2019.

• The Congress created special needs plans (SNPs) as a new MA plan type in the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 to provide a common 

framework for the existing plans serving special needs beneficiaries and to expand 

beneficiaries’ access to and choice among MA plans.

• SNPs were originally authorized for five years, but SNP authority was extended several 

times. The Bipartisan Budget Act of 2018 made SNPs permanent.

• CMS approves three types of SNPs: dual-eligible SNPs enroll only beneficiaries dually 

entitled to Medicare and Medicaid, chronic condition SNPs enroll only beneficiaries who 

have certain chronic or disabling conditions, and institutional SNPs enroll only beneficiaries 

who reside in institutions or are nursing-home certified.

• Enrollment in dual-eligible SNPs has grown continuously and exceeds 2.5 million in 2019, 

doubling since 2012.

• Enrollment in chronic condition SNPs has fluctuated as plan requirements have changed, 

but has risen annually since 2011, until flattening in 2019.

• Enrollment in institutional SNPs declined steadily through 2012 but stabilized, then

increased beginning in 2016.

967

1,069

1,188

1,380

1,576

1,678

1,790

1,959

2,210

2,532

214 170 201 266 288 313 332 335 349 349

98 80 47 49 50 50 58 63 74 87

0

500

1,000

1,500

2,000

2,500

3,000

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Number of special needs plan enrollees

(in thousands)

Dual Chronic Institutional
A Data Book: Health care spending and the Medicare program, June 2019 131

Chart 9-9. Number of SNPs and SNP enrollment rose from 

2018 to 2019

Note: SNP (special needs plan).

Source: CMS special needs plans comprehensive reports, April 2018 and 2019.

• The number of SNPs increased by 15 percent from April 2018 to April 2019. Dual-eligible 

SNPs increased by 17 percent and institutional SNPs increased by 29 percent, while the 

number of chronic condition SNPs decreased slightly.

• In 2019, most SNPs (65 percent) are for dual-eligible beneficiaries, while 17 percent are for 

beneficiaries who reside in institutions (or reside in the community but have a similar level of 

need), and 18 percent are for beneficiaries with chronic conditions.

• From April 2018 to April 2019, the number of SNP enrollees increased by 13 percent. 

Enrollment in SNPs for dual eligibles grew by 15 percent and enrollment in SNPs for 

institutionalized beneficiaries grew by 18 percent, while enrollment in SNPs for chronic 

conditions remained stable. Enrollment in all SNPs has grown from 0.9 million in May 2007 

(not shown) to 3.0 million in April 2019.

• The availability of SNPs varies by type of special needs population served (data not shown). 

In 2019, 89 percent of beneficiaries reside in areas where SNPs serve dual-eligible 

beneficiaries (up from 86 percent in 2018), 63 percent live where SNPs serve 

institutionalized beneficiaries (up from 56 percent in 2018), and 47 percent live where SNPs 

serve beneficiaries with chronic conditions (the same as in 2018).

412 480

97

125 132

129

0

100

200

300

400

500

600

700

800

April 2018 April 2019

Number of SNPs

Chronic or disabling condition

Institutional

Dual eligible

2,210

2,532

74

87 349

349

0

500

1,000

1,500

2,000

2,500

3,000

3,500

April 2018 April 2019

SNP enrollment (in thousands)

Chronic or disabling condition

Institutional

Dual eligible
132 Medicare Advantage

Chart 9-10. Twenty most common condition categories 

among MA beneficiaries, as defined in the 

CMS–HCC model, 2017

Percent of

Percent of beneficiaries

beneficiaries with listed condition

Conditions (defined by HCC) with listed condition and no others

Diabetes with chronic complications 20.0% 3.6%

Vascular disease 18.9 2.2

COPD 14.2 1.7

CHF 11.8 0.5

Major depressive, bipolar, and paranoid disorders 11.5 1.8

Specified heart arrhythmias 11.4 1.3

Morbid obesity 8.6 1.0

Diabetes without complications 8.5 3.1

Rheumatoid arthritis and inflammatory connective tissue disease 6.5 1.1

Breast, prostate, colorectal, and other cancers and tumors 5.1 1.3

Coagulation defects and other specified hematological disorders 4.9 0.4

Angina pectoris 4.0 0.3

Drug/alcohol dependence 3.7 0.3

Other significant endocrine and metabolic disorders 3.6 0.3

Acute renal failure 3.4 0.1

Cardio-respiratory failure and shock 2.5 0.0

Seizure disorders and convulsions 2.5 0.3

Ischemic or unspecified stroke 2.2 0.1

Septicemia, sepsis, systemic inflammatory response

syndrome/shock 1.8 0.0

Hemiplegia/Hemiparesis 1.6 0.1

Note: MA (Medicare Advantage), CMS–HCC (CMS–hierarchical condition category), COPD (chronic obstructive pulmonary 

disease), CHF (congestive heart failure).

Source: MedPAC analysis of Medicare data files from Acumen LLC.

• CMS uses the CMS–HCC model to risk adjust capitated payments to MA plans so that 

payments better reflect the clinical needs of MA enrollees given the number and severity of 

their clinical conditions. The CMS–HCC model uses beneficiaries’ conditions, which are 

collected into HCCs, to adjust the capitated payments.

• Diabetes with chronic complications is the most common HCC, and over 28 percent of MA 

enrollees are in two diabetes HCCs combined.
A Data Book: Health care spending and the Medicare program, June 2019 133

Chart 9-11. Medicare private plan enrollment patterns, by age 

and Medicare–Medicaid dual-eligible status, 

December 2017

As percent of 

Medicare population

Percent of 

category in FFS

Percent of 

category in 

private plans

All beneficiaries 100% 67% 33%

Aged (65 or older) 85 66 34

Under 65 15 71 29

Non–dual eligible 82 67 33

Aged (65 or older) 74 67 33

Under 65 8 71 29

Dual eligible 18 64 36

Aged (65 or older) 11 59 41

Under 65 7 71 29

Dual-eligible beneficiaries by category (all ages)

Full dual eligibility 13 68 32

Beneficiaries with partial dual eligibility

QMB only 3 58 42

SLMB only 2 51 49

QI 1 49 51

Note: FFS (fee-for-service), QMB (qualified Medicare beneficiary), SLMB (specified low-income beneficiary), QI (qualified 

individual). Dual-eligible beneficiaries are eligible for Medicare and Medicaid. See accompanying text for an explanation of 

the categories of dual-eligible beneficiaries. “Plans” include Medicare Advantage plans as well as cost-reimbursed plans. 

Data exclude Puerto Rico because of the inability to determine specific dual-eligible categories. As of December 2017, 

Puerto Rico had 570,000 Medicare Advantage enrollees. Dual-eligible special needs plans in Puerto Rico had 279,000 

enrollees in December 2017. Figures may not sum due to rounding.

Source: MedPAC analysis of 2017 denominator and common Medicare environment files and CMS monthly Medicare Advantage

reports.

• Medicare plan enrollment among the dually eligible continues to increase. In 2017, 36 percent of 

dual-eligible beneficiaries were in Medicare private plans, up from 23 percent in 2012.

• A substantial share of dual-eligible beneficiaries (42 percent (not shown in table)) are under the 

age of 65 and entitled to Medicare on the basis of disability or end-stage renal disease. 

Regardless of dual-eligibility status, beneficiaries under age 65 are less likely than aged 

beneficiaries to enroll in Medicare private plans (29 percent vs. 34 percent, respectively). 

• Dual-eligible beneficiaries who have full dual eligibility—that is, those who have coverage for 

their Medicare out-of-pocket costs (premiums and cost sharing) as well as coverage for services 

such as long-term care services and supports—are less likely to enroll in private Medicare plans 

than beneficiaries with “partial” dual eligibility. Full dual-eligibility categories consist of 

beneficiaries with coverage through state Medicaid programs as well as certain QMBs and 

SLMBs who also have Medicaid coverage for services. The latter two categories are referred to 

as QMB-Plus and SLMB-Plus beneficiaries. Beneficiaries with partial dual eligibility have 

coverage for Medicare premiums (through the QI or SLMB program) or premiums and Medicare 

cost sharing, in the case of the QMB program. SLMB-only and QI beneficiaries have higher rates 

of plan enrollment (49 percent and 51 percent, respectively) than any other category shown in 

this chart, and the rates are higher than the average rate (33 percent) across all Medicare 

beneficiaries. This is the first year in which the majority of any category of beneficiaries are in MA 

(51 percent of the about 500,000 QI beneficiaries were enrolled in plans in December of 2017). 

10

00

A Data Book: Health care spending and the Medicare program, June 2019 137

Chart 10-1. Medicare spending for Part B drugs furnished by 

physicians, hospital outpatient departments, and 

suppliers, 2005–2017

Note: HOPD (hospital outpatient department). Data include Part B–covered drugs furnished by several provider types including 

physicians, suppliers, and hospital outpatient departments and exclude those furnished by critical access hospitals, 

Maryland hospitals, and dialysis facilities. “Medicare spending” includes program payments and beneficiary cost sharing. 

Data reflect all Part B drugs whether they were paid based on the average sales price plus 6 percent or another payment 

formula. Data exclude blood and blood products (other than clotting factor). Components may not sum to total due to 

rounding.

Source: MedPAC and Acumen LLC analysis of Medicare claims data.

• The Medicare program and beneficiaries spent about $32 billion on Part B drugs furnished by 

physicians, suppliers, and hospital outpatient departments (HOPDs) in 2017, an increase of 

about 10 percent from 2016. 

• Medicare’s average sales price (ASP) payment system for Part B drugs began in 2005. Between 

2005 and 2017, total spending grew at an average annual rate of 7.6 percent. Spending growth 

was slower from 2005 to 2009 (about 3.7 percent per year on average) and more rapid from 

2009 to 2017 (about 9.6 percent per year on average). 

• Of total 2017 Part B drug spending, physicians accounted for 58 percent ($18.0 billion), HOPDs 

accounted for 36 percent ($12.3 billion), and suppliers accounted for 6 percent ($1.8 billion). 

• Between 2009 and 2017, Part B drug spending grew more rapidly for HOPDs than for physicians 

and suppliers—at average annual rates of about 17 percent, 7 percent, and 1 percent, 

respectively.

(Chart continued next page)

13.4 14.0 14.9 14.5 15.4 

16.6 

18.6 

20.3 

21.6 

22.8 

25.8

29.2

32.0

9.1 9.6 9.9 9.8 10.2 10.7 11.6 12.2 12.6 13.2

15.0

16.6

18.0

2.8 2.9 3.2 3.1 3.6 4.2 5.2 6.1 6.9 7.5 

8.7

10.4

12.3

1.4 1.5 1.8 1.6 1.7 1.7 1.8 2.0 2.1 2.2 2.1 2.1 1.8 0

3

6

9

12

15

18

21

24

27

30

33

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Medicare spending (dollars in billions)

Total

Physicians

HOPDs

Suppliers
138 

Prescription drugs

Chart 10-1. Medicare spending for Part B drugs furnished by 

physicians, hospital outpatient departments, and 

suppliers, 2005–2017 (continued)

• Between 2016 and 2017, spending on supplier-furnished drugs declined from $2.1 billion to $1.8 

billion due to a change in the payment formula for Part B–covered home infusion drugs (from 95 

percent of the average wholesale price to ASP plus 6 percent) and because of patent expirations

and generic entry for certain products.

• Not included in these data are critical access hospitals and Maryland hospitals, which are not paid 

under the ASP system, and end-stage renal disease facilities, which are paid for most Part B drugs 

through the dialysis bundled payment rate. Medicare and beneficiaries spent approximately $770

million in critical access hospitals and $370 million in Maryland hospitals for Part B drugs in 2017. 
A Data Book: Health care spending and the Medicare program, June 2019 139

Chart 10-2. Change in Medicare payments and utilization for 

separately payable Part B drugs, 2009–2016 

2009 2016

Average 

annual 

growth 

2009–2016

Total payments: All Part B drugs (in billions) $13.1 $27.3 11.1%

Total payments: All Part B drugs excluding vaccines (in billions) $12.8 $26.1 10.7

 Number of beneficiaries using a Part B drug (in millions) 2.8 3.8 4.1

Average total payments per beneficiary who used a Part B drug $4,524 $6,962 6.4

Average number of Part B drugs per beneficiary 1.41 1.36 –0.5

 Average payment per Part B drug per beneficiary $3,206 $5,119 6.9

Total payments: All Part B vaccines (in billions) $0.2 $1.2 28.0

 Number of beneficiaries using a Part B vaccine (in millions) 13.4 16.1 2.6

Average total payments per beneficiary who used a Part B vaccine $16 $76 24.7

Average number of Part B vaccines per beneficiary 1.08 1.25 2.1

Average payment per Part B vaccine per beneficiary $15 $60 22.1

Note: This analysis includes all Part B drugs paid the average sales price plus 6 percent as well as the small group of Part B 

drugs that are paid based on the average wholesale price or reasonable cost or that are contractor priced. “Vaccines”

refers to the three Part B–covered preventive vaccines: influenza, pneumococcal, and hepatitis B. Data include Part B 

drugs furnished by physicians, hospitals paid under the outpatient prospective payment system, and suppliers. Excluded 

from the analysis were any Part B drugs that were bundled or packaged in 2009 and/or 2016 (i.e., drugs that were 

packaged under the outpatient prospective payment system, regardless of the setting where they were furnished, and 

drugs furnished by dialysis facilities), drugs billed under not-otherwise-classified billing codes, blood and blood products 

(other than clotting factor), and data for critical access hospitals and Maryland hospitals. The average annual growth rates 

displayed in the table may differ slightly from the average annual growth rates calculated using the 2009 and 2016 values 

displayed in the table due to rounding.

Source: MedPAC analysis of Medicare claims data for physicians, hospital outpatient departments, and suppliers.

• Total payments by the Medicare program and beneficiaries for separately payable Part B 

drugs increased 11.1 percent per year, on average, between 2009 and 2016. 

• Excluding Part B–covered preventive vaccines, Medicare spending on separately payable Part 

B drugs grew at an average rate of 10.7 percent per year between 2009 and 2016. 

• The largest factor contributing to the growth in Part B drug spending (excluding vaccines)

was the change in the price Medicare paid for drugs. Between 2009 and 2016, the average 

payment per drug increased by 6.9 percent per year, which reflects increases in the prices 

of existing drugs and changes in the mix of drugs, including the adoption of new, higher

priced drugs. 

(Chart continued next page)
140 

Prescription drugs

Chart 10-2. Change in Medicare payments and utilization for 

separately payable Part B drugs, 2009–2016

(continued)

• Growth in the number of beneficiaries using nonvaccine Part B drugs (about 4.1 percent per 

year on average) also contributed to increased spending. The number of Part B drugs 

received per user declined from about 1.41 in 2009 to 1.36 in 2016, which modestly offset 

spending growth.

• Medicare covers three preventive vaccines: influenza, pneumococcal, and—for beneficiaries

at high or medium risk—hepatitis B. Although a relatively small share of total Part B drug

spending, spending on Part B vaccines grew at an average rate of about 28 percent per 

year between 2009 and 2016.

• Increased spending on the pneumococcal vaccine Prevnar-13 accounts for a significant

portion of the growth in vaccine spending. A Centers for Disease Control and Prevention 

advisory committee recommended a one-time vaccination of Prevnar-13 for all adults ages

65 and older. Medicare Part B payments to physicians and outpatient hospitals for Prevnar13 grew from roughly $100 million in 2014 to $900 million in 2015 and $650 million in 2016 

(data not shown). 

• Because Prevnar-13 has a higher price than other Part B–covered preventive vaccines, its 

increased use contributed to the substantial growth in the average payment per vaccine 

between 2009 and 2016. 
A Data Book: Health care spending and the Medicare program, June 2019 141

Chart 10-3. Top 10 Part B drugs paid based on ASP, by type of 

provider, 2016 and 2017

Dollars (in millions)

Total Physician and supplier HOPD

Part B drug spending Part B drug spending Part B drug spending

2016 2017 2016 2017 2016 2017

Eylea $2,211 $2,469 $2,073 $2,312 $138 $157

Rituxan 1,671 1,759 842 858 829 901

Opdivo 1,224 1,475 581 696 643 779

Neulasta 1,378 1,404 682 654 696 750

Remicade 1,343 1,346 834 821 509 525

Prolia/Xgeva 1,089 1,242 684 763 405 480

Avastin 1,115 1,071 563 524 552 547

Lucentis 1,045 1,039 1,006 1006 39 32

Keytruda 328 1,036 115 393 213 643

Herceptin 706 786 335 354 371 432

Total spending,

top 10 drugs $12,109 $13,626 $7,716 $8,380 $4,393 $5,246

Total spending, 

all Part B drugs $29,161 $32,043 $18,720 $19,788 $10,440 $12,255

Note: ASP (average sales price), HOPD (hospital outpatient department). The 10 drugs shown in the chart reflect the Part B 

drug billing codes paid under the ASP methodology with the highest Medicare expenditures in 2017. Data for 2016 are 

shown for comparison. Data include Part B–covered drugs furnished by several provider types including physicians, 

suppliers, and hospital outpatient departments, but exclude those furnished by critical access hospitals, Maryland 

hospitals, and dialysis facilities. “Drug spending” includes Medicare program payments and beneficiary cost sharing. 

“Total spending, all Part B drugs” reflects all products, whether paid based on ASP plus 6 percent or another method. 

Data exclude blood and blood products (other than clotting factor). Components may not sum to totals due to rounding.

Source: MedPAC and Acumen LLC analysis of Medicare claims data.

• Part B drugs are billed under more than 700 billing codes, but spending is concentrated. Medicare 

spending (including cost sharing) on the top 10 drugs paid under the ASP system totaled about $13.6

billion in 2017, about 43 percent of all Part B drug spending that year. 

• As of 2017, all of the top 10 Part B drugs are biologics. Many of these products are used to treat cancer or 

its side effects (Rituxan, Opdivo, Neulasta, Prolia/Xgeva, Avastin, Keytruda, Herceptin). Drugs used to 

treat age-related macular degeneration (Eylea, Lucentis, Avastin) and rheumatoid arthritis (Remicade and 

Rituxan) are also in the top 10. 

• Medicare spending on immune globulin (for which there are several products billed through separate billing 

codes) amounted to more than $1.4 billion in 2017 (data not shown).

• Medicare Part B covers three preventive vaccines—influenza, pneumococcal, and, for certain 

beneficiaries, hepatitis B—and pays for them at a rate of 95 percent of the average wholesale price or 

reasonable cost. In 2017, Medicare Part B spent approximately $645 million on pneumococcal vaccine, 

$574 million on influenza vaccine, and $36 million on hepatitis B vaccine furnished by physicians, hospital 

outpatient departments, suppliers, end-stage renal dialysis facilities, and certain other types of providers 

(data not shown).
142 

Prescription drugs

Chart 10-4. Growth in ASP for the 20 highest expenditure Part B 

drugs, 2005–2019

Part B drug

Total

Medicare

payments

in 2017

(in billions)

Average annual ASP growth

Earliest

year of 

ASP data 

if not 2005

2005–

2010

2010–

2018

2018–

2019

2005–

2019

Eylea $2.5 N/A –0.2%* –0.9% –0.3% 2013

Rituxan 1.8 5.0% 5.7 8.7 5.6

Opdivo 1.5 N/A 2.8* 2.7 2.7 2016

Neulasta 1.4 0.8 8.2 5.4 5.3

Remicade 1.3 2.0 4.9 –10.7 2.7

Prolia/Xgeva 1.2 N/A 3.5* 4.9 3.7 2012

Avastin 1.1 0.1 3.7 5.9 2.5

Lucentis 1.0 –0.2* –0.6 –5.8 –1.0 2008

Keytruda 1.0 N/A 2.3* 2.3 2.3 2016

Herceptin 0.8 4.1 5.7 6.3 5.1

Orencia 0.7 1.4* 12.1 6.3 8.8 2007

Velcade 0.5 6.1 2.6 –2.8 3.4

Alimta 0.5 4.5 3.4 2.7 3.8

Darzalex 0.4 N/A 5.5* 5.7 5.6 2017

Sandostatin LAR 0.4 4.9 7.3 3.8 6.2

Xolair 0.4 4.6 7.8 6.0 6.5

Gammagard 0.4 10.3 0.7 3.7 2.7

Botox 0.3 3.1 1.3 0.2 1.9

Soliris 0.3 1.3* 2.9 0.9 2.5 2008

Cimzia 0.3 N/A 9.9 –0.6 8.7 2010

Consumer price index 

for urban consumers 2.6 1.7 1.6 2.0

Note: ASP (average sales price), N/A (not applicable). Growth rates for ASP are calculated from first quarter to first quarter of each 

year. “Medicare payments” includes Medicare program payments and beneficiary cost sharing for these drugs furnished by 

physicians, suppliers, and hospital outpatient departments, but excludes those furnished by critical access hospitals, 

Maryland hospitals, and dialysis facilities. Vaccines paid 95 percent of the average wholesale price are also excluded.

*Indicates that ASP payment rates were not available for the full period listed, and the average annual growth rate was 

calculated based on the earliest year that a first-quarter payment rate was available.

Source: MedPAC analysis of CMS ASP pricing files and consumer price index for all urban consumers data from the Bureau of 

Labor Statistics and MedPAC and Acumen LLC analysis of Medicare claims data.

• Between 2018 and 2019, the ASP grew by more than 5 percent for 7 of the 20 highest 

expenditure Part B drugs. For 13 of the top 20 Part B drugs, ASP increased faster than the 

consumer price index for urban consumers between 2018 and 2019.

• Eleven of the top 20 Part B drugs have been on the market since 2005 or earlier. Over the 14 

years the ASP payment system has been in existence (2005 to 2019), the cumulative increase in 

ASP for these 11 products ranged from 30 percent to 140 percent, with 5 of these products’ 

ASPs increasing by more than 100 percent (data not shown). 

• Of those drugs that entered the market before 2010, most products’ ASP has grown more rapidly 

after 2010 than in the first five years of the ASP payment system (2005 to 2010).
A Data Book: Health care spending and the Medicare program, June 2019 143

Chart 10-5. Trends in Medicare Part B payment rates for two

 originator biologics and their biosimilar products

Originator Neupogen and 

biosimilars Zarxio and Granix*

Originator Remicade and 

biosimilars Inflectra and Renflexis

Originator 

Neupogen’s 

payment 

rate

Biosimilars’ 

payment rate 

as share of 

originator’s*

Share of 

total units 

accounted for 

by biosimilars*

Originator 

Remicade’s 

payment 

rate

Biosimilars’ 

payment rate 

as share of 

originator’s

Share of 

total units 

accounted for 

by biosimilars

2016 Q1 $1.01 76–96% 25% $79.91 N/A N/A

2016 Q3 1.00 76–87 46 82.28 N/A N/A

2017 Q1 1.00 71–78 51 82.22 122% 0%

2017 Q3 1.01 64–72 57 85.74 94 4

2018 Q1 1.00 61–69 63 85.81 88 6

2018 Q3 1.02 58–64 67 83.90 77–83 9

2019 Q1 1.00 58–63 N/A 76.65 75–81 N/A

Note: Q1 (first quarter), Q3 (third quarter), N/A (not available). An originator biologic is a drug product derived from a living 

organism. A biosimilar product is a follow-on product that is approved based on being highly similar to the originator

biologic.

*Although Granix is not a biosimilar in the U.S. (because it was approved under the standard Food and Drug 

Administration approval process for new biologics), we include it here because it was approved as a biosimilar to 

Neupogen in Europe and it functions as a competitor to Neupogen and Zarxio in the U.S. market.

Source: MedPAC analysis of payment rates from CMS ASP pricing files. MedPAC and Acumen LLC analysis of Medicare claims 

data.

• An originator biologic is a product derived from a living organism. A biosimilar product is a followon product that is approved based on being highly similar to the originator biologic. 

• Under Part B, Medicare pays for an originator biologic at 106 percent of its own average sales 

price (ASP). For biosimilars, Medicare pays 100 percent of the biosimilar’s ASP plus 6 percent of 

the originator product’s ASP. 

• Medicare payment rates for biosimilars are lower than those of the corresponding originator

biologics due to biosimilars’ lower ASP. In the first quarter of 2019, the payment rates for the

biosimilar Zarxio and Granix were 63 percent and 58 percent, respectively, of the payment rate 

for the originator Neupogen. The biosimilars Renflexis and Inflectra had payment rates that were

81 percent and 75 percent, respectively, of the originator Remicade’s payment rate that quarter.

• Despite the entry of Zarxio and Granix, Neupogen has not lowered its price (as measured by 

ASP), even though market share has shifted significantly to biosimilars. As of the third quarter of 

2018, two-thirds of the volume was accounted for by Zarxio and Granix, but one-third of the 

volume remained with the higher priced originator product. 

• Following biosimilar entry, Remicade’s payment rate initially increased 4 percent between the 

first quarter of 2017 and the first quarter of 2018, and then declined 11 percent between the first 

quarter of 2018 and the first quarter of 2019. Despite the decline, Remicade’s payment rate 

remains high from a historical perspective since it increased 55 percent between 2005 and 2017 

(data not shown). Uptake of the biosimilars has been modest to date, with Remicade accounting 

for 91 percent of the volume as of the third quarter of 2018. 
144 

Prescription drugs

Chart 10-6. Price indexes for Medicare Part B drugs, 2005–2017

Note: Q1 (first quarter), Q4 (fourth quarter). The Part B price indexes reflect growth in the average sales price of Part B–covered 

drugs over time, measured for individual drugs at the level of the Healthcare Common Procedure Coding System billing 

code. These measures of price growth reflect growth in the price of individual products but do not reflect changes in price due 

to the introduction of new products or the changes in the mix of products used. The Part B price index for biologics in this 

chart and in Chart 10-27 are different due to the different time periods of analysis.

Source: Acumen LLC analysis for MedPAC.

• The Part B price indexes reflect growth in the average sales price (ASP) at the individual 

product level and do not reflect changes in price that occur as a result of changes in the mix 

of drugs used or the introduction of new, higher priced drugs.

• Measured by the change in the ASP of individual Part B–covered drugs, the prices of Part 

B–covered drugs rose by an average of about 15 percent cumulatively between 2005 and 

2017 (an index of 1.15). 

• Underlying this overall trend in the price index are different patterns by type of product. The 

price index for Part B–covered biologics increased by 42 percent between 2005 and 2017 

(an index of 1.42). In contrast, the price index for nonbiologics declined by 20 percent (an 

index of 0.80) over this period. The nonbiologic group includes single-source drugs and 

drugs with generic competition. The downward price trend for nonbiologics in part reflects 

patent expiration and generic entry for some of these products.

1.15

1.42

0.80

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

2017

Q4

Chain-weighted Fisher price index

Biologics

Nonbiologics

All Part B drugs
A Data Book: Health care spending and the Medicare program, June 2019 145

Chart 10-7. In 2017, 88 percent of Medicare beneficiaries were 

enrolled in Part D plans or had other sources of 

creditable drug coverage

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), 

RDS (retiree drug subsidy). “Creditable coverage” means the value of drug benefits is equal to or greater than that of the 

basic Part D benefit.

Source: MedPAC analysis of the Medicare denominator file 2017.

• In 2017, more than three-quarters of Medicare beneficiaries either signed up for Part D 

plans or had prescription drug coverage through employer-sponsored plans under 

Medicare’s RDS. (If an employer agrees to provide primary drug coverage to its retirees with 

a benefit value that is equal to or greater than that of Part D (called “creditable coverage”), 

Medicare provides the employer with a tax-free subsidy for 28 percent of each eligible 

individual’s drug costs that fall within a specified range of spending.)

• The share of Medicare beneficiaries in 2017 with primary coverage through employers that 

received the RDS (3 percent of beneficiaries) was substantially smaller than in 2010 (14

percent; data not shown) because of a shift of enrollees into Part D employer group waiver 

plans. That shift reflects two sets of changes made by the Patient Protection and Affordable 

Care Act of 2010 that (1) increased the generosity of the Part D benefit by phasing out the 

coverage gap and (2) altered the tax treatment of drug expenses covered by the RDS.

• Over 22 percent of Medicare beneficiaries received Part D’s LIS in 2017. Of all LIS 

beneficiaries, nearly two-thirds of them (14 percent of all Medicare beneficiaries) were 

enrolled in stand-alone PDPs, and the remaining beneficiaries (8 percent) were in MA–PDs.

(Chart continued next page)

Non-LIS enrollees 

in PDPs

30%

LIS enrollees in 

PDPs

Non-LIS enrollees 14%

in MA–PDs

22%

LIS enrollees in 

MA–PDs

8%

Primary coverage 

through employers that 

received RDS

3%

Other sources of 

creditable coverage

11%

No creditable 

coverage

12%

PDPs

44%

MA‒PDs 30%
146 

Prescription drugs

Chart 10-7. In 2017, 88 percent of Medicare beneficiaries were 

enrolled in Part D plans or had other sources of 

creditable drug coverage (continued)

• Other enrollees in stand-alone PDPs accounted for 30 percent of all Medicare beneficiaries. 

Another 22 percent of Medicare beneficiaries were enrolled in MA–PDs and did not receive 

low-income subsidies. 

• Eleven percent of Medicare beneficiaries had other sources of creditable drug coverage, but 

that coverage did not affect Medicare program spending. Examples of these other sources 

of creditable coverage include the Federal Employees Health Benefits Program, TRICARE, 

Department of Veterans Affairs, and employers not receiving the RDS.

• Twelve percent of Medicare beneficiaries had no drug coverage or coverage that was less 

generous than Part D’s defined standard benefit.
A Data Book: Health care spending and the Medicare program, June 2019 147

Chart 10-8. Changes in parameters of the Part D defined 

standard benefit over time

Cumulative

change

2006 2017 2018 2019 2006–2019

Deductible $250.00 $400.00 $405.00 $415.00 66%

Initial coverage limit 2,250.00 3,700.00 3,750.00 3,820.00 70%

Annual out-of-pocket threshold 3,600.00 4,950.00 5,000.00 5,100.00 42%

Total covered drug spending at annual

out-of-pocket threshold 5,100.00 8,017.16 8,417.60 8,139.54 60%

Cost sharing above the annual

out-of-pocket threshold is the greater of

5% coinsurance or these amounts:

Copay for generic/preferred 

multisource drugs 2.00 3.30 3.35 3.40 70%

Copay for other prescription drugs 5.00 8.25 8.35 8.50 70%

Note: Under Part D’s defined standard benefit, the enrollee pays the deductible and then 25 percent of covered drug spending 

(75 percent is paid by the plan) until total covered drug spending reaches the initial coverage limit (ICL). Before 2011, 

enrollees exceeding the ICL were responsible for 100 percent of covered drug spending up to the annual out-of-pocket 

(OOP) threshold. Beginning in 2011, enrollees pay reduced cost sharing in the coverage gap. For 2011 and later years, 

the amount of total covered drug spending at the annual OOP threshold depended on the mix of brand-name and generic 

drugs filled during the coverage gap. The amounts shown are for individuals not receiving Part D’s low-income subsidy 

who have no source of supplemental coverage. Cost sharing paid by most sources of supplemental coverage does not 

count toward this threshold. The amount for 2019 is lower because of a change in law that causes 95 percent of an 

enrollee’s spending for brand-name drugs in Part D’s coverage-gap phase to count toward the OOP threshold, compared 

with 85 percent in 2018. Above the OOP limit, the enrollee pays 5 percent coinsurance or the respective copay shown 

above, whichever is greater.

Source: CMS Office of the Actuary.

• The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 specified a 

defined standard benefit structure for Part D. In 2019, the standard benefit has a $415

deductible, 25 percent coinsurance on covered drugs until the enrollee reaches $3,820 in 

total covered drug spending, and then a coverage gap until OOP spending reaches the 

annual threshold. (The total dollar amount of drug spending at which a beneficiary reaches 

the OOP threshold varies from person to person, depending on the mix of brand-name and 

generic prescriptions filled. CMS estimates that in 2019, a person who does not receive Part 

D’s low-income subsidy and has no supplemental coverage would, on average, reach the 

threshold at $8,139.54 in total drug spending.) Before 2011, enrollees were responsible for

paying the full discounted price of drugs filled during the coverage gap. Because of changes 

made by the Patient Protection and Affordable Care Act (PPACA) of 2010, enrollees pay

reduced cost sharing for drugs filled in the coverage gap. In 2019, the cost sharing for drugs 

filled during the gap phase is about 25 percent for brand-name drugs and 37 percent for 

generic drugs. Enrollees with drug spending that exceeds the annual threshold pay the 

greater of $3.40 to $8.50 or 5 percent coinsurance per prescription.

(Chart continued next page)
148 

Prescription drugs

Chart 10-8. Changes in parameters of the Part D defined 

standard benefit over time (continued)

• Most parameters of this defined standard benefit structure have changed over time at the 

same rate as the annual change in average total drug expenses of Medicare beneficiaries

enrolled in Part D, with cumulative changes of around 70 percent between 2006 and 2019. 

By comparison, Part D’s annual out-of-pocket threshold grew by 42 percent over the same 

period, reflecting changes in PPACA that aimed to reduce the coverage gap.

• Within certain limits, sponsoring organizations may offer Part D plans that have the same 

actuarial value as the defined standard benefit but a different benefit structure, and most 

sponsoring organizations do offer such plans. For example, a plan may use tiered 

copayments rather than 25 percent coinsurance or have no deductible but use cost-sharing 

requirements that are equivalent to a rate higher than 25 percent. Defined standard benefit 

plans and plans that are actuarially equivalent to the defined standard benefit are both 

known as “basic benefits.”

• Once a sponsoring organization offers one plan with basic benefits within a prescription drug 

plan region, it may also offer a plan with enhanced benefits—basic and supplemental 

coverage combined.

• The Bipartisan Budget Act signed into law in 2018 closes Part D’s coverage gap one year 

earlier than the previously scheduled 2020 time frame. In 2019, the standard benefit 

includes 25 percent cost sharing in the coverage-gap phase for brand-name drugs and 37 

percent for generics. Under the law, manufacturers of brand-name drugs must provide a 70 

percent discount in the coverage gap, and plan sponsors will be responsible for covering 

only 5 percent of the cost of brand-name drugs in that same phase of the benefit. 
A Data Book: Health care spending and the Medicare program, June 2019 149

Chart 10-9. Characteristics of stand-alone Medicare PDPs

2018 2019

Enrollees as of Enrollees as of

Plans February 2018 Plans February 2019

Number Number

Number Percent (in millions) Percent Number Percent (in millions) Percent

Total 782 100% 20.8 100% 901 100% 20.8 100%

Type of organization

National 677 87 19.4 93 746 83 19.4 93

Other 105 13 1.4 7 155 17 1.4 7

Type of benefit

Defined standard 0 0 0.0 0 0 0 0.0 0

Actuarially equivalent 361 46 12.4 60 348 39 12.1 58

Enhanced 421 54 8.4 40 553 61 8.7 42

Type of deductible

Zero 291 37 9.4 45 263 29 8.1 39

Reduced 88 11 1.9 9 170 19 3.3 16

Defined standard* 403 52 9.5 46 468 52 9.4 45

Some formulary tiers not subject to a deductible

 Some 258 33 6.5 31 414 46 8.2 39

 None 524 46 14.4 69 487 54 12.6 61

Note: PDP (prescription drug plan). The PDPs and enrollment described here exclude employer-only plans and plans offered in 

U.S. territories. “National” data reflect the total number of plans for organizations with at least 1 PDP in each of the 34 

PDP regions. Components may not sum to totals due to rounding. “Actuarially equivalent” includes both actuarially 

equivalent standard and basic alternative benefits. “Enhanced” refers to plans with basic plus supplemental coverage.

*The defined standard benefit’s deductible was $405 in 2018 and is $415 in 2019.

Source: MedPAC analysis of CMS landscape, premium, and enrollment data.

• Plan sponsors are offering 901 stand-alone PDPs in 2019 compared with 782 in 2018—an 

increase of more than 15 percent.

• In 2019, 83 percent of all PDPs are offered by sponsoring organizations that have at least 1 

PDP in each of the 34 PDP regions (shown as “national” organizations in the table). Plans 

offered by those national sponsors account for 93 percent of all PDP enrollment.

• For 2019, 61 percent of PDP offerings include enhanced benefits (basic plus supplemental 

coverage), up from 54 percent in 2018. The share of PDPs with actuarially equivalent benefits 

(having the same average value as the defined standard benefit but with alternative benefit 

designs) declined to 39 percent from 46 percent. Actuarially equivalent plans continue to 

attract the largest share of PDP enrollees (58 percent), but the share of enrollees choosing 

enhanced benefit plans rose slightly to 42 percent in 2019 compared with 40 percent in 2018.

• In 2019, 52 percent of PDPs use the same $415 deductible as in Part D’s defined standard 

benefit, 29 percent have no deductible, and 19 percent use a deductible less than $415. Only 

39 percent of PDP enrollees are in plans with no deductible. 

• In 2019, 46 percent of all PDPs designate certain formulary tiers that are not subject to the 

deductible. If, for example, a PDP used such a designation for preferred generic drugs, an 

enrollee would pay just the plan’s cost sharing for that tier rather than the full cost of the 

prescription up to the amount of the deductible. In 2019, 39 percent of PDP enrollees were in 

such plans, up from 31 percent in 2018.
150 

Prescription drugs

Chart 10-10. Characteristics of MA–PDs

2018 2019

Enrollees as of Enrollees as of

Plans February 2018 Plans February 2019

Number Number

Number Percent (in millions) Percent Number Percent (in millions) Percent

Totals 2,003 100% 12.7 100% 2,414 100% 13.8 100%

Type of organization

Local HMO 1,422 71 9.1 72 1,601 66 9.7 70

Local PPO 519 26 2.6 20 751 31 3.3 24

PFFS 30 1 0.1 1 29 1 0.1 1

Regional PPO 32 2 0.9 7 33 1 0.8 6

Type of benefit

Defined standard 22 1 0.1 <0.5 37 2 0.1 <0.5

Actuarially equivalent 101 5 0.5 4 83 3 0.2 2

Enhanced 1,880 94 12.1 96 2,294 95 13.5 98

Type of deductible

Zero 908 45 5.4 43 1,116 46 6.4 46

Reduced 988 49 6.9 54 1,138 47 7.0 50

Defined standard* 107 5 0.4 3 160 7 0.5 3

Some formulary tiers not subject to a deductible 

 Some 1,042 52 7.0 55 1,225 51 7.2 52

 None 961 48 5.7 45 1,189 49 6.6 48

Note: MA–PD (Medicare Advantage–Prescription Drug [plan]), HMO (health maintenance organization), PPO (preferred 

provider organization), PFFS (private fee-for-service). The MA–PDs and enrollment described here exclude employer-only 

plans, plans offered in U.S. territories, 1876 cost plans, special needs plans, demonstrations, and Part B–only plans. 

Components may not sum to totals due to rounding. “Actuarially equivalent” includes both actuarially equivalent standard 

and basic alternative benefits. “Enhanced” refers to plans with basic plus supplemental coverage.

*The defined standard benefit’s deductible was $405 in 2018 and is $415 in 2019.

Source: MedPAC analysis of CMS landscape, premium, and enrollment data.

• There are over 20 percent more MA–PDs plans in 2019 than in 2018. Sponsors are offering 

2,414 MA–PDs in 2019 compared with 2,003 the year before. HMOs remain the dominant 

type of MA–PD, making up 66 percent of all (unweighted) offerings in 2019. Between 2018

and 2019, the number of drug plans offered by local PPOs increased from 519 plans to 751

plans. 

• A larger share of MA–PDs than stand-alone prescription drug plans (PDPs) offer enhanced 

benefits (compare Chart 10-10 with Chart 10-9). In 2019, 61 percent of all PDPs have

enhanced benefits compared with 95 percent of MA–PDs. In 2019, enhanced MA–PDs

attracted 98 percent of total MA–PD enrollment.

• Forty-six percent of MA–PDs have no deductible in 2019, and they attracted 46 percent of all

MA–PD enrollees.

• In 2019, 51 percent of MA–PDs designated certain cost-sharing tiers of their formularies that 

are not subject to a deductible. Those plans account for 52 percent of MA–PD enrollment.
A Data Book: Health care spending and the Medicare program, June 2019 151

Chart 10-11. Change in average Part D premiums, 2015–2019

Average monthly premium weighted by enrollment

Cumulative change 

in weighted 

average

premium,

2015–2019

2015 2016 2017 2018 2019

All plans $30 $31 $32 $32 $29 –1%

Basic plans 26 28 30 30 32 20

Enhanced plans

 Basic benefits 27 27 27 26 22 –20

 Supplemental benefits 6 7 6 7 6 9

 Total premium 33 33 33 33 28 –15

All basic coverage 27 27 29 28 25 –5

PDPs 37 39 41 41 40 7

Basic coverage 28 29 31 31 32 13

Enhanced coverage

 Basic benefits 39 41 43 42 35 –9

 Supplemental benefits 9 12 11 15 15 64

 Total premium 48 53 54 57 50 5

All basic coverage 33 34 36 35 33 1

MA–PDs, including SNPs 18 18 19 18 16 –10

Basic coverage 21 22 26 28 28 35

Enhanced coverage

 Basic benefits 14 15 16 15 13 –7

 Supplemental benefits 2 2 2 1 1 –50

 Total premium 17 17 18 17 14 –12

All basic coverage 17 16 18 17 15 –9

MA–PD buy-down of basic 

premium 14 15 16 16 16 15

MA–PD buy-down of 

supplemental benefits 13 14 15 16 17 32

Base beneficiary premium 33.13 34.10 35.63 35.02 33.19 <0.5

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), SNP (special needs plan). All 

calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PDs exclude Part B–only 

plans, demonstrations, and 1876 cost plans. The MA–PD data reflect the portion of Medicare Advantage plans’ total monthly 

premium attributable to Part D benefits for plans that offer Part D coverage, as well as Part C rebate dollars that were used to 

offset Part D premium costs. The fact that average premiums for enhanced MA–PDs are lower than for basic MA–PDs could 

reflect several factors such as changes in enrollment among plan sponsors and counties of operation and differences in the 

average health status of plan enrollees. Cumulative changes were calculated from unrounded data. Components may not 

sum to totals due to rounding.

Source: MedPAC analysis of CMS landscape, plan report, enrollment data, and bid data.

(Chart continued next page)
152 

Prescription drugs

Chart 10-11. Change in average Part D premiums, 2015–2019

(continued)

• Part D enrollees can select between plans with basic or enhanced benefits (which combine 

basic and supplemental coverage). Medicare aims to subsidize 74.5 percent of the average 

cost of basic benefits; enrollees pay premiums for the remaining 25.5 percent and all of the 

cost of any supplemental benefits. (For more about how plan premiums are determined, see 

Part D Payment Basics at http://www.medpac.gov/docs/default-source/paymentbasics/medpac_payment_basics_18_partd_final_sec.pdf?sfvrsn=0.)

• The overall average premium paid by enrollees for any type of Part D coverage declined

from $32 per month in 2018 to $29 per month in 2019. One reason for the decline was a 

change in law that, beginning in 2019, required manufacturers of brand-name drugs to 

increase the discount they provide in the coverage gap to 70 percent from 50 percent in 

2018. This change helped reduce the projected cost to Part D plans of providing basic 

benefits. Over the period from 2015 to 2019, year-to-year changes in average premiums 

have varied by type of benefit (basic vs. enhanced) and type of plan (PDP vs. MA−PD); the

changes have not necessarily corresponded to changes observed in the base beneficiary 

premium.

• Across all basic plans and the basic portion of enhanced plans, the average premium for 

basic benefits fell from $27 in 2015 to $25 per month in 2019, a cumulative decline of 5

percent. This decline occurred despite very rapid growth in spending for Part D’s 

catastrophic phase of the benefit (data not shown). In the catastrophic phase, Medicare 

subsidizes 80 percent of enrollees’ drug spending. (For more information about Medicare’s 

Part D spending, see Chapter 14 of the Commission’s March 2019 report to the Congress at 

http://medpac.gov/docs/default-source/reports/mar19_medpac_ch14_sec.pdf?sfvrsn=0.)

• Over the five-year period, the average enrollee premium for basic coverage in PDPs ranged 

between a low of $28 in 2015 and a high of $32 per month in 2019, increasing by a cumulative 

13 percent. Among enhanced plans offered by PDPs, the average enrollee premium has 

ranged between $48 in 2015 to $57 in 2018, increasing by a cumulative 5 percent from 2015 to 

2019. Of the $50 average premium in 2019 among enhanced PDPs, $35 was for basic benefits

and $15 was for supplemental benefits. The portion of enhanced premiums attributable to 

supplemental benefits has grown quickly while the portion for basic benefits has declined.

• The average Part D premium paid by beneficiaries enrolled in MA−PDs with basic coverage 

ranged between a low of $21 in 2015 and a high of $28 per month in 2019, increasing by a 

cumulative 35 percent. The average premium paid by beneficiaries enrolled in MA−PDs

offering enhanced coverage has decreased from $17 in 2015 to $14 in 2019, a cumulative 

12 percent decrease. MA−PD sponsors typically use a portion of Medicare’s Part C 

(Medicare Advantage) payments to “buy down” the premiums that plan enrollees would 

otherwise have to pay for Part D basic premiums and supplemental benefits. Because of 

those Part C payment “rebates,” in 2019, MA−PD enrollees avoided having to pay $16 per 

month in basic premiums and an additional $17 per month for supplemental coverage, on 

average.
A Data Book: Health care spending and the Medicare program, June 2019 153

Chart 10-12. More premium-free PDPs for LIS enrollees in 2019

Number of PDPs

Number of PDPs that have zero 

premium for LIS enrollees

PDP region State(s) 2018* 2019* Difference 2018* 2019 Difference

1 ME, NH 24 26 2 7 7 0

2 CT, MA, RI, VT 22 26 4 7 7 0

3 NY 20 23 3 8 8 0

4 NJ 22 26 4 7 6 –1

5 DC, DE, MD 21 25 4 10 9 –1

6 PA, WV 26 30 4 9 9 0

7 VA 24 27 3 6 6 0

8 NC 24 28 4 7 7 0

9 SC 22 26 4 4 3 –1

10 GA 24 26 2 5 4 –1

11 FL 21 27 6 2 2 0

12 AL, TN 25 29 4 6 6 0

13 MI 24 29 5 9 9 0

14 OH 23 26 3 6 7 1

15 IN, KY 24 26 2 7 7 0

16 WI 25 28 3 8 8 0

17 IL 24 27 3 8 7 –1

18 MO 24 26 2 4 4 0

19 AR 23 26 3 4 4 0

20 MS 20 24 4 6 5 –1

21 LA 21 26 5 6 8 2

22 TX 24 27 3 7 5 –2

23 OK 23 28 5 7 7 0

24 KS 23 26 3 4 4 0

25 IA, MN, MT, ND, 

NE, SD, WY 23 28 5 5 6 1

26 NM 24 27 3 7 7 0

27 CO 24 26 2 6 7 1

28 AZ 23 28 5 10 10 0

29 NV 24 26 2 3 3 0

30 OR, WA 22 26 4 7 7 0

31 ID, UT 25 26 1 8 8 0

32 CA 25 30 5 5 7 2

33 HI 20 24 4 4 4 0

34 AK 19 22 3 7 7 0

Total 782 901 119 216 215 –1

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan). 

*These figures include 2 plans in 2018 and 2 in 2019 that did not accept new enrollees because of CMS sanctions.

Source: MedPAC based on 2018 and 2019 Part D plan report file provided by CMS. 

• The total number of stand-alone PDPs increased by 15 percent, from 782 in 2018 to 901 in 2019. 

The median number of plans offered in PDP regions increased to 26 plans from 24 in 2018 (data not 

shown). In 2019, Alaska has the fewest stand-alone PDPs, with 22, and Regions 6 (Pennsylvania, 

West Virginia) and 32 (California) had the most, with 30.

• In 2019, 215 PDPs qualify as premium free to LIS enrollees. With the exception of Florida, which 

has only two plans with no premium for LIS enrollees, at least three premium-free PDPs are 

available in any given region.
154 

Prescription drugs

Chart 10-13. In 2019, most Part D enrollees are in plans that use a 

five-tier formulary structure

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). Calculations are weighted by 

enrollment. All calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PDs

exclude demonstration programs, special needs plans, and 1876 cost plans. Less than 1 percent of MA−PD enrollees are 

in plans that have only two tiers (for generic and brand-name drugs) or use another tier structure. Components may not 

sum to totals due to rounding. All stand-alone PDP enrollees and about 98 percent of MA−PD enrollees have a specialty 

tier in addition to the tiers listed above. The algorithm used to classify formularies was modified beginning with 2016 data,

but this does not materially affect results.

Source: MedPAC analysis of formularies submitted to CMS.

• Most Part D enrollees choose plans that have a five-tier structure: two generic, one preferred brandname tier, and one nonpreferred drug tier (which may include both brand-name and generic drugs),

plus a specialty tier. In 2019, nearly all PDP enrollees continue to enroll in plans with this five-tier 

structure. Eighty-one percent of MA–PD enrollees are in such plans in 2019, a slight increase from 80

percent in 2018.

• For enrollees in PDPs with a five-tier structure, the median copay in 2019 is $40 for a preferred 

brand-name drug and 40 percent coinsurance for a nonpreferred drug (data not shown). The median 

copay for a generic drug is $1 for drugs on a lower tier and $5 for those on a higher tier. For MA–PD 

enrollees, in 2019, the median copay is $47 for a preferred brand and $100 for a nonpreferred brand. 

The median copays for generic drugs are $2 and $10 for the two generic tiers, respectively.

• All stand-alone PDPs and about 98 percent of MA–PDs use a specialty tier for drugs that have a 

negotiated price of $670 per month or more. In 2019, median cost sharing for a specialty-tier drug is 

25 percent among PDPs and 31 percent among MA–PDs (data not shown). 

2%

18%

98%

81%

0.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2016 2017 2018 2019 2007 2016 2017 2018 2019

25% coinsurance

Five tiers: Preferred generic, other generic, preferred brand, nonpreferred drug, and specialty

Four tiers: Generic, preferred brand, nonpreferred, and specialty

Three tiers: Generic, brand, and specialty

Other tier structure

PDP enrollees MA–PD enrollees
A Data Book: Health care spending and the Medicare program, June 2019 155

Chart 10-14. In 2019, PDPs and MA–PDs apply some utilization 

management to about 45 percent of listed drugs 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). Calculations are weighted by 

enrollment. All calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PDs

exclude demonstration programs, special needs plans, and 1876 cost plans. Values reflect the share of listed chemical 

entities that are subject to utilization management, weighted by plan enrollment. “Prior authorization” means that the 

enrollee must get preapproval from the plan before coverage. “Step therapy” refers to a requirement that the enrollee try 

specified drugs before being prescribed other drugs in the same therapeutic category. “Quantity limits” means that plans 

limit the number of doses of a drug available to the enrollee in a given time period. The algorithm used to classify

formularies was modified beginning with 2016 data, but that does not materially affect results.

Source: MedPAC analysis of formularies submitted to CMS.

• In addition to the number of drugs listed on a plan’s formulary, plans’ processes for nonformulary 

exceptions and use of utilization management tools—prior authorization (preapproval for 

coverage), quantity limits (limitations on the number of doses of a particular drug covered in a 

given period), and step therapy requirements (enrollees must try specified drugs before being 

prescribed other drugs in the same therapeutic category)—can affect access to certain drugs. 

• In 2019, the use of some form of utilization management, on average, remained unchanged from 

2018—46 percent of drugs listed on a plan’s formulary in stand-alone PDPs and 45 percent in 

MA–PDs. Part D plans typically use quantity limits or prior authorization to manage enrollees’ 

prescription drug use.

• Among the drugs listed on plan formularies, on average, the share that requires prior 

authorization in 2019 decreased to less than a quarter for both stand-alone PDPs and MA–PDs, 

while the share with quantity limits increased for both types of plans. In 2019, on average, 

quantity limits apply to 32 percent of drugs listed on formularies of stand-alone PDPs and 31 

percent of the drugs listed on formularies of MA–PDs. The share of drugs listed on plan 

formularies that requires the use of step therapy remained very low for both stand-alone PDPs 

and MA–PDs.

0

5

10

15

20

25

30

35

40

45

50

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

Percent of listed drugs

2007 2016 2017 2018 2019

PDPs

0

5

10

15

20

25

30

35

40

45

50

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

2007 2016 2017 2018 2019

MA–PDs
156 

Prescription drugs

Chart 10-15. Characteristics of Part D enrollees, 2017

All 

Medicare Part D

Plan type Subsidy status

PDP MA–PD LIS Non-LIS

Beneficiariesa(in millions) 61.3 45.2 27.0 18.3 13.7 31.5

Percent of all Medicare 100% 74% 44% 30% 22% 51%

Gender

Male 46% 43% 43% 43% 40% 44%

Female 54 57 57 57 60 56

Race/ethnicity

White, non-Hispanic 74 73 78 66 54 82

African American, 

non-Hispanic 10 11 10 13 20 7

Hispanic 9 10 6 15 17 7

Asian 3 3 3 4 6 2

Other 3 3 3 3 3 3

Age (years)b

<65 17 18 19 16 41 8

65–69 27 25 24 25 18 28

70–74 21 21 20 23 13 25

75–79 14 15 15 16 10 17

80+ 21 21 22 20 18 22

Urbanicityc

Metropolitan 82 83 78 89 81 83

Micropolitan 10 10 12 7 11 10

Rural 7 7 9 4 8 7

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). 

Components may not sum to totals due to rounding. 

aFigures for “All Medicare” and “Part D” include all beneficiaries with at least one month of enrollment in the respective 

program. A beneficiary was classified as “LIS” if that individual received Part D’s LIS at some point during the year. For 

individuals who switched plan types during the year, classification into plan types was based on the greater number of 

months of enrollment.

bAge as of July 2017.

cUrbanicity designation is based on the Office of Management and Budget’s core-based statistical areas as of July 2015. 

A metropolitan area contains a core urban area of 50,000 or more people, and a micropolitan area contains an urban core 

of at least 10,000 (but fewer than 50,000) people. About 1 percent of Medicare beneficiaries were excluded because of an 

unidentifiable core-based statistical area designation.

Source: MedPAC analysis of Medicare Part D denominator file from CMS. 

• In 2017, over 45 million Medicare beneficiaries (74 percent) were enrolled in Part D at some point in 

the year. Twenty-seven million were in stand-alone PDPs, and the remaining 18.3 million were in 

MA–PDs. Just under 14 million enrollees received Part D’s LIS.

• Demographic characteristics of Part D enrollees are generally similar to the overall Medicare 

population, with the exception of gender (Part D enrollees are more likely to be female). MA–PD 

enrollees are less likely to be disabled beneficiaries under age 65 and more likely to be Hispanic or 

African American compared with PDP enrollees; LIS enrollees are more likely to be female, minority, 

and disabled beneficiaries under age 65 compared with non-LIS enrollees.

• Patterns of enrollment by urbanicity for Part D enrollees were similar to the overall Medicare 

population: 83 percent in metropolitan areas, 10 percent in micropolitan areas, and 7 percent in rural 

areas. (About 1 percent of Medicare beneficiaries were excluded because of an unidentifiable corebased statistical area designation.) 
A Data Book: Health care spending and the Medicare program, June 2019 157

Chart 10-16. Part D enrollment trends, 2007–2017

Average annual growth rate

2007 2010 2014 2017

2007−

2010

2010−

2014

2014−

2017

Part D enrollment (in millions)*

Total 26.1 29.7 40.0 45.2 4.4% 7.7% 4.2%

Employer group waiver plans 2.0 2.6 7.0 7.2 9.2 27.4 1.1

By plan type

PDP 18.3 18.9 25.1 27.0 1.1 7.3 2.5

MA–PD 7.8 10.6 14.9 18.3 10.9 8.9 7.0

By subsidy status

LIS 10.4 11.3 12.8 13.7 2.7 3.1 2.4

Non-LIS 15.7 18.4 27.2 31.5 5.5 10.2 5.0

By race/ethnicity

White, non-Hispanic 19.4 22.0 29.6 33.1 4.3 7.7 3.8

African American, non-Hispanic 2.9 3.3 4.4 4.9 4.1 7.4 3.7

Hispanic 2.5 3.0 3.9 4.3 5.8 6.7 4.0

Other 1.3 1.4 2.1 2.8 3.9 10.3 10.8

By age (years)**

<65 5.5 6.3 7.8 8.1 4.7 5.5 1.2

65–69 5.4 6.6 9.5 11.2 6.5 9.9 5.4

70–79 8.8 9.9 13.9 16.4 3.8 8.9 5.9

80+ 6.4 7.1 8.8 9.6 3.2 5.7 2.7

Part D enrollment (in percent)

Total 100% 100% 100% 100%

Employer group waiver plans 8 9 17 16

By plan type

PDP 70 64 63 60

MA–PD 30 36 37 40

By subsidy status

LIS 40 38 32 30

Non-LIS 60 62 68 70

By race/ethnicity

White, non-Hispanic 74 74 74 73

African American, non-Hispanic 11 11 11 11

Hispanic 10 10 10 10

Other 5 5 5 6

By age (years)**

<65 21 21 19 18

65–69 21 22 24 25

70–79 34 33 35 36

80+ 25 24 22 21

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). A 

beneficiary was classified as “LIS” if that individual received Part D’s LIS at some point during the year. If a beneficiary was 

enrolled in both a PDP and an MA–PDs during the year, that individual was classified into the type of plan with the greater 

number of months of enrollment. Components may not sum to totals due to rounding.

*Figures include all beneficiaries with at least one month of enrollment. 

**Age as of July of the respective year.

Source: MedPAC analysis of Medicare Part D denominator and common Medicare environment files from CMS.

(Chart continued next page)
158 

Prescription drugs

Chart 10-16. Part D enrollment trends, 2007–2017 (continued)

• Part D enrollment grew faster between 2010 and 2014 (average annual growth rate (AAGR) 

of 7.7 percent) than between 2007 and 2010 (AAGR of 4.4 percent) or between 2014 and 

2017 (AAGR of 4.2 percent). The faster enrollment growth between 2010 and 2014 largely 

reflects the growth in enrollment in Part D plans operated for employers and their retirees 

(employer group waiver plans, or EGWPs). Enrollment in EGWPs grew from 2.6 million to 

7.0 million (AAGR of 27.4 percent) during this period.

• The number of enrollees receiving the LIS grew modestly between 2007 and 2017, with 

AAGR of between 2.4 percent and 3.1 percent. During the same period, the number of nonLIS enrollees grew faster than LIS enrollees, with AAGR of 10.2 percent between 2010 and 

2014 and AAGR of 5 percent or greater before 2010 and after 2014. Faster enrollment 

growth among non-LIS enrollees is partly attributable to the recent growth in EGWPs that 

shifted beneficiaries into Part D plans from employer plans that had previously received 

Medicare’s retiree drug subsidy (RDS) (see Chart 10-7 for information on the RDS).

• Between 2014 and 2017, the largest growth in enrollment was observed for beneficiaries 

ages 70 to 79 (5.9 percent annually, on average), followed by beneficiaries ages 65 to 69 

(5.4 percent annually, on average), reversing the pattern observed before 2014, when the 

enrollment growth was largest among beneficiaries ages 65 to 69.

• While MA–PD enrollment growth decelerated in recent years from the nearly 11 percent 

AAGR observed between 2007 and 2010, enrollment in MA–PDs continued to exceed that 

of PDPs between 2014 and 2017 (AAGR of 7 percent and 2.5 percent, respectively).
A Data Book: Health care spending and the Medicare program, June 2019 159

Chart 10-17. Part D enrollment by region, 2017

Percent of 

Medicare enrollment

Percent of Part D enrollment

Plan type Subsidy status

PDP 

region State(s) Part D RDS PDP MA–PD LIS Non-LIS

1 ME, NH 70% 3% 75% 25% 33% 67%

2 CT, MA, RI, VT 77 3 69 31 35 65

3 NY 78 4 55 45 37 63

4 NJ 74 4 80 20 25 75

5 DE, DC, MD 64 3 85 15 32 68

6 PA, WV 76 3 57 43 28 72

7 VA 64 2 74 26 28 72

8 NC 74 4 60 40 30 70

9 SC 72 2 67 33 30 70

10 GA 73 2 54 46 34 66

11 FL 76 3 47 53 30 70

12 AL, TN 74 2 53 47 35 65

13 MI 79 3 71 29 25 75

14 OH 78 3 60 40 26 74

15 IN, KY 76 2 70 30 30 70

16 WI 72 2 58 42 24 76

17 IL 73 5 71 29 29 71

18 MO 76 2 62 38 27 73

19 AR 70 3 72 28 37 63

20 MS 72 1 78 22 44 56

21 LA 75 4 57 43 40 60

22 TX 72 2 60 40 33 67

23 OK 67 1 77 23 31 69

24 KS 71 1 81 19 23 77

25 IA, MN, MT, NE, 

ND, SD, WY 74 2 74 26 22 78

26 NM 72 1 55 45 39 61

27 CO 73 2 52 48 24 76

28 AZ 74 2 50 50 27 73

29 NV 70 3 51 49 26 74

30 OR, WA 69 6 52 48 28 72

31 ID, UT 70 2 55 45 22 78

32 CA 79 2 48 52 35 65

33 HI 71 2 38 62 27 73

34 AK 41 25 98 2 53 47

Mean 74 3 60 40 30 70

Minimum 41 1 38 2 22 47

Maximum 79 25 98 62 53 78

Note: PDP (prescription drug plan), RDS (retiree drug subsidy), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS 

(low-income [drug] subsidy). Definition of regions is based on PDP regions used in Part D. If an employer agrees to 

provide primary drug coverage to its retirees with a benefit value that is equal to or greater than that of Part D, Medicare 

provides the employer with RDS (see Chart 10-7).

Source: MedPAC analysis of Part D enrollment data from CMS. 

• Among Part D regions in 2017, all but one region (Region 34 (AK)) had over 60 percent of 

all Medicare beneficiaries enrolled in Part D. Beneficiaries were less likely to enroll in Part D 

in regions where employer-sponsored drug coverage continued to be available. For 

example, in Region 34, the share of Medicare beneficiaries enrolled in Part D was 41

percent, while the share of beneficiaries enrolled in employer-sponsored plans that received 

the RDS was 25 percent. In other regions (Region 5 and Region 7), many beneficiaries 

likely received their drug coverage through the Federal Employees Health Benefits Program, 

which does not receive the RDS.

(Chart continued next page)
160 

Prescription drugs

Chart 10-17. Part D enrollment by region, 2017 (continued)

• In 2017, all regions except Region 8 and Region 34 experienced a decrease in the number 

of beneficiaries who received the RDS (data not shown). In some of the regions, the 

decreases in RDS recipients were accompanied by larger than average increases in Part 

D enrollment (e.g., Region 2, Region 17, and Region 22). The continued trend is likely 

motivated by changes made by the Patient Protection and Affordable Care Act of 2010 

that increased the generosity of Part D coverage and altered the tax treatment of drug 

expenses covered by the RDS.

• Wide variation was seen in the shares of Part D beneficiaries who enrolled in PDPs and 

MA–PDs across PDP regions. The pattern of MA–PD enrollment is generally consistent with 

availability of and enrollment in Medicare Advantage plans.

• The share of Part D enrollees receiving the LIS ranged from 22 percent in Region 25 (IA, 

MN, MT, NE, ND, SD, and WY) and Region 31 (ID and UT) to 53 percent in Region 34 (AK). 

In all but 2 of the 34 PDP regions, LIS enrollees accounted for 40 percent or less of total 

Part D enrollment. 
A Data Book: Health care spending and the Medicare program, June 2019 161

Chart 10-18. Components of Part D spending growth

2009 2016

Average 

annual growth 

2009–2016

Total gross spending (in billions) $73.7 $146.2 10.3%

 High-cost beneficiaries 29.2 85.1 16.5%

 Lower cost beneficiaries 44.6 61.1 4.6%

Number of beneficiaries using a Part D drug (in millions) 26.5 40.5 6.2%

 High-cost beneficiaries 2.4 3.6 6.2%

 Lower cost beneficiaries 24.1 36.9 6.2%

Amount per beneficiary who used Part D drugs

 Gross drug spending per year $2,781 $3,606 3.8%

 Average price per 30-day prescription $55 $66 2.5%

 Number of 30-day prescriptions 50.4 55.0 1.2%

Amount per high-cost beneficiary who used Part D drugs

 Gross drug spending per year $12,294 $23,478 9.7%

 Average price per 30-day prescription $110 $207 9.4%

 Number of 30-day prescriptions 111.4 113.3 0.2%

Amount per lower cost beneficiary who used Part D drugs

 Gross drug spending per year $1,846 $1,655 –1.6%

 Average price per 30-day prescription $42 $34 –3.0%

 Number of 30-day prescriptions 44.5 49.3 1.5%

Note: “High-cost beneficiaries” refers to individuals who incurred spending high enough to reach the catastrophic phase of the 

benefit. “Gross spending” reflects payments to pharmacies from all payers, including beneficiary cost sharing, but does 

not include rebates and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies.

Changes in the average price per prescription reflect both price inflation and changes in the mix of drugs used.

Components may not sum to totals due to rounding.

Source: MedPAC analysis of Part D prescription drug event data and denominator files from CMS.

• Between 2009 and 2016, gross spending on drugs under the Part D program grew by an annual 

average rate of 10.3 percent. The annual growth in spending was considerably higher (16.5 percent) 

among high-cost beneficiaries (individuals who incurred spending high enough to reach the 

catastrophic phase of the benefit) compared with 4.6 percent for lower cost beneficiaries. 

• During the 2009 through 2016 period, the number of beneficiaries who used Part D drugs grew by an 

annual average rate of 6.2 percent. The same rate of growth was observed among high-cost 

beneficiaries and lower cost beneficiaries.

• The average price per 30-day prescription covered under Part D rose from $55 in 2009 to $66 in 

2016. Overall, growth in price per prescription accounted for nearly two-thirds (2.5 percentage points) 

of the 3.8 percent average annual growth in spending per beneficiary among beneficiaries who used 

Part D drugs. 

• The average annual growth rate in overall spending per beneficiary reflects two distinct patterns of 

price and spending growth, one for high-cost beneficiaries and another for lower cost beneficiaries.

Among high-cost beneficiaries, annual growth in prices (9.4 percent) accounted for nearly all of the 

spending growth (9.7 percent) during this period. In contrast, among lower cost beneficiaries, the 

average annual decrease in prices (–3.0 percent) resulted in an overall decrease in spending (–1.6

percent annually), despite an increase in the number of prescriptions filled during the same period.
162 

Prescription drugs

Chart 10-19. The majority of Part D spending was incurred by just

one-fifth of all Part D enrollees, 2017

Note: “Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. In 2017, the defined 

standard basic benefit included a $400 deductible and 25 percent coinsurance until the enrollee reached $3,700 in total 

covered drug spending. An individual with an average mix of drugs who did not receive Part D’s low-income subsidy and 

who had no other supplemental coverage would have reached the catastrophic phase of the benefit at $8,071.16 in total 

drug spending. In 2017, among those who reached the catastrophic phase of the benefit, an enrollee at the 75th

percentile of the distribution had drug spending totaling $25,597. Components may not sum to totals due to rounding.

Source: MedPAC analysis of Medicare Part D prescription drug event data from CMS. 

• Medicare Part D spending is concentrated in a subset of beneficiaries. In 2017, about 21 percent of 

Part D enrollees had annual spending exceeding the initial coverage limit (typically set at $3,700 in 

gross drug spending), at which point enrollees were responsible for a higher proportion of the cost of 

the drugs until they reached the catastrophic phase of the benefit (at about $8,071 in gross drug 

spending under the defined standard benefit for beneficiaries not receiving Part D’s low-income 

subsidy (LIS)). These beneficiaries accounted for 82 percent of total Part D spending.

• The costliest 8 percent of beneficiaries, those with drug spending above the catastrophic threshold, 

accounted for about 60 percent of total Part D spending. Seventy-one percent of beneficiaries with the 

highest spending received the LIS (data not shown; see Chart 10-20). Spending on prescription drugs 

has become more concentrated over time. Before 2011, the costliest 8 percent of beneficiaries 

accounted for 40 percent or less of total Part D spending (data not shown). In comparison, for Medicare 

Part A and Part B spending, Medicare fee-for-service spending accounted for by the costliest 5 percent 

of beneficiaries has been stable at about 40 percent for many years (data not shown; see Chart 1-11 for 

2016 figures).

• In 2017, among Part D enrollees who reached the catastrophic phase of the benefit, those enrollees

with annual spending at or above $25,597 (2 percent of all Part D enrollees) accounted for 36 percent 

of total Part D spending.

7

11

1

61

18

13

23

6

23

2

36

0

10

20

30

40

50

60

70

80

90

100

Percent of enrollees Percent of spending

Percent

Catastrophic phase 

(≥$25,597)

Catastrophic phase

(<$25,597)

Coverage gap

phase

Initial coverage

phase

Deductible

$0

82

Total annual drug 

spending, by benefit 

phase reached in 2017
A Data Book: Health care spending and the Medicare program, June 2019 163

Chart 10-20. Characteristics of Part D enrollees, by benefit phase 

reached, 2017

Annual drug spending

Below initial 

coverage limit

Coverage-gap 

phase Catastrophic phase

Sex

Male 43% 42% 42%

Female 57 58 58

Race/ethnicity

White, non-Hispanic 74 76 66

African American, non-Hispanic 10 10 16

Hispanic 10 9 12

Other 6 5 7

Age (years)

<65 16 17 39

65–69 26 20 18

70–74 22 21 16

75–80 15 17 12

80+ 21 25 15

LIS status*

LIS 26 34 71

Non-LIS 74 66 29

Plan type**

PDP 58 64 68

MA–PD 42 36 32

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan), MA−PD (Medicare Advantage−Prescription Drug [plan]). 

“Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. In 2017, the defined 

standard basic benefit included a $400 deductible and 25 percent coinsurance until the enrollee reached $3,700 in total 

covered drug spending. An individual with an average mix of drugs who did not receive Part D’s low-income subsidy and 

who had no other supplemental coverage would have reached the catastrophic phase of the benefit at $8,071.16 in total 

drug spending. A small number of beneficiaries were excluded from the analysis because of missing data. Components 

may not sum to 100 due to rounding. 

*A beneficiary was assigned LIS status if that individual received Part D’s LIS at some point during the year.

**If a beneficiary was enrolled in both a PDP and an MA–PD during the year, that individual was classified in the type of 

plan with the greater number of months of enrollment.

Source: MedPAC analysis of Medicare Part D prescription drug event data and Part D denominator file from CMS. 

• In 2017, Part D enrollees who reached the catastrophic phase of the benefit were more likely to be

minority, disabled and under age 65, and receiving the LIS compared with Part D enrollees with annual 

spending below the catastrophic threshold.

• While LIS enrollees are more likely to reach the catastrophic phase of the benefit, their share has been 

declining, from more than 80 percent in 2010 and earlier years (data not shown) to 71 percent in 2017.

This decline reflects more rapid growth in enrollment of individuals who do not receive the LIS as well as 

the growth in average prices of drugs taken by those individuals.

• Part D enrollees who reached the catastrophic phase of the benefit were more likely to be enrolled in 

stand-alone PDPs (68 percent) compared with enrollees whose spending was below the initial coverage 

limit (58 percent) or enrollees in the coverage gap who did not reach the catastrophic threshold (64 

percent). Some of this difference likely reflects the facts that LIS enrollees are more costly on average and 

are more likely to be in PDPs.
164 

Prescription drugs

Chart 10-21. Part D spending and use per enrollee, 2017

Part D

Plan type LIS status

PDP MA–PD LIS Non-LIS

Total gross spending (billions)* $154.9 $101.6 $53.3 $76.2 $78.7

Total number of prescriptions

(millions) 2,329 1,406 922 851 1,478

Average spending per prescription $67 $72 $58 $90 $53

Per enrollee per month

Total spending $302 $335 $254 $502 $218

OOP spending 33 35 29 6 44

Manufacturer gap discount 12 13 9 N/A 16

Plan liability 197 216 169 341 136

Low-income cost-sharing subsidy 46 52 37 155 N/A

Other** 15 18 10 <1 21

Number of prescriptions 4.5 4.6 4.4 5.6 4.1

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy), OOP 

(out-of-pocket), N/A (not applicable). “Total gross spending” reflects payments from all payers, including beneficiaries (cost 

sharing), but does not include rebates and discounts from pharmacies and manufacturers that are not reflected in prices at 

the pharmacies. Part D prescription drug event (PDE) records are classified into plan types based on the contract 

identification on each record. For purposes of classifying the PDE records by LIS status, monthly LIS eligibility information in 

Part D’s denominator file was used. Estimates are sensitive to the method used to classify PDE records to each plan type 

and LIS status. “Plan liability” includes plan payments for drugs covered by both basic and supplemental (enhanced) benefits. 

In addition to the major categories shown in the chart, total spending includes amounts paid by other relatively minor payers 

such as group health plans, workers’ compensation, and charities. “Number of prescriptions” is standardized to a 30-day 

supply.

*”Total gross spending” includes about $5.9 billion in manufacturer discounts for brand-name drugs filled by non-LIS enrollees 

during the coverage gap. 

**”Other” amount includes payments by patient assistance organizations and third-party payers other than Part D plans that 

reduce the patient cost-sharing liability.

Source: MedPAC analysis of Medicare Part D PDE data and Part D denominator file from CMS. 

• In 2017, gross spending on drugs for the Part D program totaled $154.9 billion, with nearly two-thirds ($101.6 billion) 

accounted for by Medicare beneficiaries enrolled in stand-alone PDPs. Part D enrollees receiving the LIS accounted 

for $76.2 billion (49 percent) of the total. Manufacturer discounts for brand-name drugs filled by non-LIS enrollees 

while they were in the coverage gap accounted for 3.8 percent of the total, or 7.5 percent of the gross spending by 

non-LIS enrollees (down from 4.2 percent and 8.3 percent, respectively, in 2015) (data not shown).

• The number of prescriptions filled by Part D enrollees totaled over 2.3 billion, with about 60 percent (about 1.4

billion) accounted for by PDP enrollees. The 30 percent of enrollees who received the LIS accounted for about 37

percent (851 million) of the total number of prescriptions filled.

• In 2017, Part D enrollees filled 4.5 prescriptions at $302 per month on average, an increase from $296 per month 

(for 4.5 prescriptions) in 2016 (2016 data not shown). The average monthly plan liability for PDP enrollees ($216) 

was considerably higher than that of MA–PD enrollees ($169), while the difference in average monthly OOP 

spending was smaller between the two types of plans ($35 vs. $29, respectively). The average monthly low-income 

cost-sharing subsidy was much higher for PDP enrollees ($52) compared with MA–PD enrollees ($37).

• Average monthly spending per LIS enrollee ($502) was more than double that of a non-LIS enrollee ($218), while 

the average number of prescriptions filled per month by an LIS enrollee was 5.6 compared with 4.1 for a non-LIS 

enrollee. LIS enrollees had much lower monthly OOP spending, on average, than non-LIS enrollees ($6 vs. $44, 

respectively). Part D’s LIS pays for most of the cost sharing for LIS enrollees, averaging $155 per month in 2017.
A Data Book: Health care spending and the Medicare program, June 2019 165

Chart 10-22. Trends in Part D spending and use per enrollee per 

month, 2007–2017

Note: PDP (prescription drug plan), LIS (low-income [drug] subsidy), MA–PD (Medicare Advantage–Prescription Drug [plan]).

“Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. Part D prescription 

drug event (PDE) records are classified into plan types based on the contract identification on each record. For purposes 

of classifying the PDE records by LIS status, monthly LIS eligibility information in Part D’s denominator file was used. 

Figures are sensitive to the method used to classify PDE records to each plan type and LIS status.

Source: MedPAC analysis of Medicare Part D PDE data and Part D denominator file from CMS. 

• Between 2007 and 2017, average per capita spending per month for Part D–covered drugs grew from 

$212 to $302, an average growth of 3.6 percent annually, or about 42 percent cumulatively. The rate of 

growth in average per capita spending more than doubled after 2013, in part reflecting the introduction

of new hepatitis C treatments in 2014 and subsequent years.

• Between 2007 and 2017, monthly per capita spending for LIS enrollees grew faster than that for nonLIS enrollees, increasing from $301 to $502 (a cumulative growth of nearly 67 percent) compared with 

an increase from $156 to $218 for non-LIS enrollees (a cumulative growth of just under 40 percent). The 

number of prescriptions filled by both LIS and non-LIS enrollees grew by about 2 percent annually 

during this period (data not shown).

• The growth in monthly per capita drug spending among MA−PD enrollees exceeded that of PDP 

enrollees during the 2007 to 2017 period (annual average growth of 5.3 percent and 3.4 percent, 

respectively). However, the growth was comparable in terms of the dollar increase (cumulative 

increases of $103 and $96, respectively), and the average per capita spending for MA−PD enrollees 

continued to be lower than that of PDP enrollees by about $80 per month.

$212

$242

$302

$239

$275

$335

$151

$185

$254

$301

$377

$502

$156

$179

$218

$0

$100

$200

$300

$400

$500

$600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Gross Part D spending per enrollee per month

All Part D PDP

MA-PD LIS

Non-LIS
166 

Prescription drugs

Chart 10-23. Top 15 therapeutic classes of drugs covered under 

Part D, by spending and volume, 2017

Top 15 therapeutic classes by spending Top 15 therapeutic classes by volume

Dollars Prescriptions

Billions Percent Millions Percent

Diabetic therapy $23.3 15.0% Antihyperlipidemics 241.2 10.4%

Asthma/COPD therapy agents 11.0 7.1 Antihypertensive therapy 

 agents

240.2 10.3

Antivirals 10.4 6.7 Diabetic therapy 155.4 6.7

Antineoplastic enzyme 

inhibitors

8.1 5.2 Beta-adrenergic blockers 144.2 6.2

Anticoagulants 6.8 4.4 Antidepressants 142.6 6.1

Analgesics (anti-inflammatory/ 

 antipyretic, non-narcotic)

6.6 4.3 Peptic ulcer therapy 118.4 5.1

Antihyperlipidemics 5.5 3.5 Diuretics 111.0 4.8

Antipsychotics 5.5 3.5 Calcium channel blockers 103.7 4.5

Anticonvulsants 5.4 3.5 Thyroid therapy 92.0 3.9

Antihypertensive therapy 

agents

5.0 3.2 Anticonvulsants 90.8 3.9

Antineoplastics 

 (immunomodulators)

4.0 2.6 Analgesics (narcotic) 77.6 3.3

Analgesics (narcotic) 3.4 2.2 Asthma/COPD therapy agents 64.9 2.8

Peptic ulcer therapy 3.0 1.9 Antibacterial agents 57.6 2.5

Calcium and bone metabolism 

regulators

2.7 1.7 Prostatic hypertrophy agents 44.9 1.9

Analgesics (anti-inflammatory/ 

 antipyretic, non-narcotic)

42.3 1.8

Multiple sclerosis agents 2.6 1.7

Subtotal, top 15 classes 103.3 66.7 Subtotal, top 15 classes 1,726.9 74.2

Total, all classes 154.9 100.0 Total, all classes 2,328.5 100.0

Note: COPD (chronic obstructive pulmonary disease). “Spending” (gross) reflects payments from all payers, including 

beneficiaries (cost sharing), but does not include rebates and discounts from pharmacies and manufacturers that are not 

reflected in prices at the pharmacies. “Volume” is the number of prescriptions, standardized to a 30-day supply. 

Therapeutic classification is based on the First DataBank Enhanced Therapeutic Classification System 1.0. Components 

may not sum to totals due to rounding.

Source: MedPAC analysis of Medicare Part D prescription drug event data from CMS. 

• In 2017, the top 15 therapeutic classes by spending accounted for about two-thirds of the $154.9

billion spent on prescription drugs covered by Part D plans. The top 15 therapeutic classes by 

volume accounted for nearly three-quarters of the roughly 2.3 billion prescriptions dispensed in 2017.

• While many of the same therapeutic classes on the top-15 list appear year after year, the ranking 

has changed from time to time. For example, market entries of new hepatitis C therapies more 

than tripled Part D spending on antivirals between 2013 and 2015 (data not shown). In 2017, 

antivirals accounted for $10.4 billion, down from $11.7 billion in 2016 (2016 data not shown). The 

growth in spending for drugs to treat cancer resulted in two classes of antineoplastic therapies 

(enzyme inhibitors and immunomodulators) appearing on the top-15 list for the first time in 2015,

compared with just one class between 2012 and 2014 and none before 2012.

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2019 167

Chart 10-23. Top 15 therapeutic classes of drugs covered under 

Part D, by spending and volume, 2017 (continued)

• Spending on drugs to treat diabetes has grown at a double-digit rate since 2007. In 2017, 

spending on diabetic therapy totaled $23.3 billion, an increase of about 15 percent from $20.3 

billion in 2016 (2016 data not shown). The number of prescriptions filled for diabetic therapy 

totaled 155.4 million, an increase of 6.7 percent from 145.7 million in 2016.

• Eight therapeutic classes are among the top 15 in both spending and volume. Diabetic therapy 

dominates the list by spending, accounting for more than 22 percent of spending for the top 15 

therapeutic classes, followed by asthma/COPD therapy agents. Cardiovascular agents 

(antihyperlipidemics, antihypertensive therapy agents, beta-adrenergic blockers, calcium channel 

blockers, and diuretics) dominate the list by volume, accounting for about 50 percent of the 

prescriptions in the top 15 therapeutic classes.
168 

Prescription drugs

Chart 10-24. Part D patterns of prescribing by provider type, 2017

Part D

Provider type

Primary 

care*

Specialty/

others

NP/PA/ 

CNS

Number of individual prescribers (thousands) 1,163 254 660 249

 Share of all individual prescribers 22% 57% 21%

Average beneficiary count 158 254 125 146

Average per beneficiary

 Gross spending $753 $912 $745 $617

 Number of prescriptions 6.0 11.2 4.2 5.4

Top 1 percent of prescribers based on 

number of prescriptions filled per beneficiary

Number of individual prescribers 10,311 7,228 1,921 1,162

 Share of top 1 percent of prescribers 70% 19% 11%

Total gross spending (billions) $9.9 $7.7 $1.5 $0.7

 Share of provider type’s total gross spending 6% 13% 2% 3%

Total number of prescriptions (millions) 142 118 17 8

Share of provider type’s total prescriptions filled 10% 14% 4% 3%

Average per beneficiary

 Gross spending $3,812 $3,243 $5,371 $4,773

 Number of prescriptions 42 42 42 41

Note: NP (nurse practitioner), PA (physician assistant), CNS (clinical nurse specialist). “Gross spending” reflects payments from 

all payers, including beneficiaries (cost sharing), but does not include rebates and discounts from pharmacies and 

manufacturers that are not reflected in prices at the pharmacies. Numbers may not sum to totals due to rounding.

“Number of prescriptions” is a count of prescription drug events and is not adjusted for the size (number of days’ supply) 

of the prescriptions. As such, these figures are not comparable with the 2017 prescription counts shown in Chart 10-18

and Chart 10-21 through Chart 10-23.

*The definition of “primary care” used here includes practitioners who have a primary Medicare specialty designation of 

family practice, internal medicine, pediatrics, or geriatrics.

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

• In 2017, nearly 1.2 million individual providers wrote prescriptions for Medicare beneficiaries that 

were filled under Part D. Of those, about 22 percent were primary care providers, 57 percent 

were specialty or other types of providers, and 21 percent were NPs, PAs, or CNSs in primary 

and specialty care. While historically, NPs and PAs have been concentrated in primary care, 

more recent patterns suggest that they are increasingly practicing in specialty fields.

• The average count of Medicare-only beneficiaries was higher among primary care providers 

compared with specialty and other types of providers and with NPs, PAs, and CNSs—254

beneficiaries versus 125 beneficiaries and 146 beneficiaries, respectively.

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2019 169

Chart 10-24. Part D patterns of prescribing by provider type, 2017

(continued)

• On a per beneficiary basis, average gross spending for Part D prescriptions was much higher 

for prescriptions written by primary care providers ($912) compared with the average for 

specialty and other providers ($745) and for NPs, PAs, and CNSs ($617). Primary care 

providers also wrote more prescriptions per beneficiary, on average: 11.2 compared with 4.2

for specialty and other providers and 5.4 for NPs, PAs, and CNSs.

• More than 10,300 prescribers were among the top 1 percent of all prescribers, as ranked by 

the average number of Part D prescriptions filled per beneficiary in 2017. Of those prescribers, 

70 percent were primary care providers, 19 percent were specialty and other providers, and 

11 percent were NPs, PAs, and CNSs.

• The top 1 percent of prescribers accounted for 6 percent of total gross spending and 10

percent of all prescriptions filled. Among primary care prescribers who were within the top 1 

percent, results were more concentrated: They accounted for 13 percent of gross prescription 

spending and 14 percent of all prescriptions written by primary care providers.

• Among the prescriptions that were written by prescribers in the top 1 percent of all prescribers 

in 2017, per beneficiary Part D spending averaged $3,812 for 42 prescriptions filled.
170 

Prescription drugs

Chart 10-25. Part D patterns of prescribing for selected

specialties, 2017

Number of 

individual Part D 

prescribers 

(thousands)

Share of all 

Part D 

prescribers 

(percent)

Average per beneficiary

Gross spending 

(in dollars)

Number of 

prescriptions

All Part D 1,162.9 100% $753 6.0

All specialty/others 659.6 57 745 4.2

Selected specialties:

Psychiatry 25.4 4 1,260 13.3

Cardiology 20.3 3 799 8.3

Ophthalmology 19.8 3 454 4.1

Psychiatry & neurology 14.2 2 1,232 11.3

Neurology 13.9 2 3,050 7.4

Gastroenterology 13.6 2 1,669 3.6

Urology 10.7 2 423 3.9

Pulmonary disease 9.5 1 2,977 6.8

Nephrology 8.6 1 1,793 8.5

Hematology & oncology 8.5 1 8,081 6.1

Endocrinology 5.9 1 2,421 8.1

Infectious disease 5.4 1 6,635 8.9

Rheumatology 4.7 1 3,374 7.9

Medical oncology 3.2 <0.5 7,422 5.7

Note: “Gross spending” reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies.

“Number of prescriptions” is a count of prescription drug events and is not adjusted for the size (number of days’ supply) 

of the prescriptions. As such, they are not comparable with the 2017 prescription counts shown in Chart 10-18 and Chart 

10-21 through Chart 10-23.

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

• Of specialty care prescribers, psychiatrists were among the most numerous, making up 4 

percent of all Part D prescribers in 2017. Cardiologists, ophthalmologists, 

psychiatrist/neurologists, neurologists, gastroenterologists, and urologists each made up 

another 2 percent to 3 percent of Part D prescribers. 

• Psychiatrists wrote an average of 13.3 prescriptions per beneficiary, with an average of

$1,260 in gross spending per patient. Those are higher than the overall Part D averages of 

6.0 prescriptions and $753 in average gross spending per beneficiary. Other specialties with 

comparatively high average gross spending per beneficiary include psychiatry/neurology, 

neurology, gastroenterology, pulmonary disease, nephrology, hematology/oncology, 

endocrinology, infectious disease, rheumatology, and medical oncology.

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2019 171

Chart 10-25. Part D patterns of prescribing for selected

specialties, 2017 (continued)

• Other specialties such as ophthalmology and urology had lower average gross spending per 

beneficiary. Cardiologists had average gross spending per beneficiary slightly higher than

that of all Part D specialty prescribers ($799 vs. $753, respectively), but wrote an average of 

8.3 prescriptions per beneficiary—considerably more than the average of 4.2 per beneficiary 

for all Part D specialty prescribers.
172 

Prescription drugs

Chart 10-26. Price growth for Part D–covered drugs, 2006–2017

Note: Part D indexes reflect total amounts paid to pharmacies and do not reflect retrospective rebates or discounts from 

manufacturers and pharmacies. These measures of price growth reflect growth in the price of individual products, but do 

not reflect changes in price due to the introduction of new products or to changes in the mix of products used.

Source: Acumen LLC analysis for MedPAC.

• Measured by individual national drug codes, prices of drugs and biologics covered under 

Part D rose 83 percent cumulatively between 2006 and 2017 (an index of 1.83). (Prices 

reflect total amounts paid to pharmacies and do not reflect retrospective rebates or 

discounts from manufacturers and pharmacies.)

• As measured by a price index that takes generic substitution into account, Part D prices 

increased by just 12 percent cumulatively (an index of 1.12) over the 11-year period. Before

2013, increased generic use kept overall prices stable by offsetting increases in prices of 

brand-name drugs. From 2013 to 2015, however, the introduction of new generics slowed,

and prices for brand-name drugs grew more rapidly—as reflected by an uptick in the price 

index. 

• Overall, between 2006 and 2017, prices of generic drugs covered under Part D decreased 

to 26 percent of the average price observed at the beginning of 2006. In comparison, prices 

of single-source, brand-name drugs (drugs with no generic substitutes) grew by a 

cumulative 224 percent (an index of 3.24) during the same period. 

All Part D–covered 

drugs

1.83

Single-source 

brand-name drugs

3.24

Generic drugs 0.26

All Part D–covered drugs 

accounting for generic substitution

1.12

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

Chain-weighted Fisher price index

2017

Q4
A Data Book: Health care spending and the Medicare program, June 2019 173

Chart 10-27. Comparison of price growth for Part B and Part D 

biologics, 2006–2017

Note: Part D indexes reflect total amounts paid to pharmacies and do not reflect retrospective rebates or discounts from 

manufacturers and pharmacies. The Part B index reflects growth in the average sales price of Part B–covered biologics over 

time, measured for individual biologics at the Healthcare Common Procedure Coding System billing code level. These 

measures of price growth reflect growth in the price of individual products but do not reflect changes in price due to the 

introduction of new products or the changes in the mix of products used. The Part B price index for biologics in this chart and 

in Chart 10-6 are different due to the different periods of analysis.

Source: Acumen LLC analysis for MedPAC.

• Measured by the change in the average sales price of individual Part B–covered biologics, the 

prices of Part B–covered biologics rose by an average of 49 percent cumulatively between 2006 

and 2017 (an index of 1.49). Measured by individual national drug codes, prices of biologics 

covered under Part D rose 238 percent cumulatively during the same period (an index of 3.38)

(prices reflect total amounts paid to pharmacies and do not reflect retrospective rebates or 

discounts from manufacturers and pharmacies).

• Prices of noninsulin biologics covered under Part D grew less rapidly (by an average of 198

percent cumulatively, an index of 2.98) compared with the growth in prices of all Part D biologics 

during the same period. 

• These measures of price growth reflect growth in price at the individual product level and do not 

reflect changes in price that occur as a result of shifts in the mix of biologics used or the 

introduction of new, higher priced biologics.

• Currently, biologics that may be covered under either Part B or Part D are limited to a subset of 

drugs within therapeutic classes such as therapies to treat inflammatory conditions (e.g.,

rheumatoid arthritis) and certain types of cancer.

1.49

3.38

2.98

0.000

0.500

1.000

1.500

2.000

2.500

3.000

3.500

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2017

Q1

Chain-weighted Fisher price index

2017

Q4

Part D biologics

Part D biologics

excluding insulin

Part B biologics

 

110

A Data Book: Health care spending and the Medicare program, June 2019 177

Chart 11-1. Number of dialysis facilities is growing, and most 

facilities are for profit and freestanding 

Average annual

percent change

2017 2012–2017 2016–2017

Total number of:

Dialysis facilities 7,014 4% 4%

Hemodialysis stations 120,928 3 3

Mean number of 

hemodialysis stations per facility 17 –0.6 –0.8

 Share of total facilities

Hospital based 6% –3 –2

Freestanding 94 4 4

Urban 82 4 5

Rural, micropolitan 11 2 1

Rural, adjacent to urban 4 2 2

Rural, not adjacent to urban 2 2 0

Frontier 0.5 3 3

For profit 88 5 5

Nonprofit 12 −1 −2

Note: “Nonprofit” includes facilities designated as either nonprofit or government. “Average annual percent change” is based on 

comparing 2012, 2016, and 2017 end-of-year files. Components may not sum to totals due to rounding.

Source: Compiled by MedPAC from the 2012, 2016, and 2017 CMS Dialysis Compare end-of-year files. THIS TABLE COULD 

NOT BE UPDATED TO REFLECT DIALYSIS FACILITIES THAT WERE CERTIFIED IN CALENDAR YEAR 2018 

BECAUSE DATA FROM CMS WERE NOT AVAILABLE.

• Between 2012 and 2017, the number of facilities has increased, on average, 4 percent per 

year. The average size of a facility has remained relatively constant, averaging about 17

dialysis treatment stations per facility (17.7 stations in 2012, 17.4 stations in 2016, and 17.2

stations in 2017).

• Since 2012, facilities’ capacity to provide care—as measured by hemodialysis treatment 

stations—grew 3 percent annually. Capacity at urban facilities grew by 4 percent per year,

while capacity at rural facilities grew at a rate of 2 percent per year (data not shown).

• Since 2012, the number of freestanding and for-profit facilities increased, while hospitalbased and nonprofit facilities decreased. Freestanding facilities increased from 91 percent to 

94 percent of all facilities, and for-profit facilities increased from 85 percent to 88 percent of 

all facilities.
178 Other services

Chart 11-2. Medicare spending for outpatient dialysis services 

furnished by freestanding and hospital-based 

dialysis facilities, 2016 and 2017

Note: ESRD (end-stage renal disease).

Source: Compiled by MedPAC from the 2016 and 2017 institutional outpatient files from CMS. 

• In 2017, total spending for dialysis, dialysis drugs, and ESRD-related clinical laboratory tests 

was $11.4 billion. Medicare paid all facilities under a modernized prospective payment 

system that includes in the payment bundle certain dialysis drugs and ESRD-related clinical 

laboratory tests that were separately paid before 2011. 

• Between 2016 and 2017, total ESRD expenditures increased by 0.4 percent. 

• Freestanding dialysis facilities treated most dialysis beneficiaries and accounted for 95

percent of expenditures in 2017. 

0

2

4

6

8

10

12

14

2016 2017

Spending on dialysis, dialysis drugs, 

and other ESRD-related services 

(in billions of dollars)

Freestanding Hospital based

$11.4 $11.4

94% 95%

6% 5%
A Data Book: Health care spending and the Medicare program, June 2019 179

Chart 11-3. The ESRD population is growing, and most ESRD 

patients undergo dialysis

2006 2012 2016

Patients Patients Patients

(thousands) Percent (thousands) Percent (thousands) Percent

Total 506.8 100% 634.7 100% 726.3 100%

Dialysis 356.2 70 444.3 70 511.3 70

In-center hemodialysis 323.6 64 395.1 62 449.0 62

Home hemodialysis* 2.7 0.5 7.7 1 9.0 1

Peritoneal dialysis* 28.3 6 39.8 6 51.1 7

Unknown 1.5 0.3 1.7 0.3 2.3 0.3

Functioning graft and 

kidney transplants 150.6 30 190.5 30 215.1 30

Note: ESRD (end-stage renal disease). Totals may not equal sum of components due to rounding. Data include both Medicare 

and non-Medicare patients. 

*Home dialysis methods.

Source: Compiled by MedPAC from the United States Renal Data System.

• Persons with ESRD require either dialysis or a kidney transplant to maintain life. The total 

number of ESRD patients increased by 4 percent annually between 2006 and 2016.

• In hemodialysis, a patient’s blood flows through a machine with a special filter that removes 

wastes and extra fluids. In peritoneal dialysis, the patient’s blood is cleaned by using the 

lining of his or her abdomen as a filter. Peritoneal dialysis is the most common form of home 

dialysis.

• Most ESRD patients undergo hemodialysis administered in a dialysis facility three times a 

week. Between 2006 and 2016, the total number of in-center hemodialysis patients grew by 

3 percent annually, while the total number of peritoneal dialysis patients increased by about 

6 percent annually. Although a smaller proportion of all dialysis patients undergo home 

hemodialysis, the number of these patients grew 13 percent per year during this period.

• Functioning graft patients are patients who have had a successful kidney transplant. 

Patients undergoing kidney transplant may receive either a living kidney or a cadaveric 

kidney donation. In 2016, 28 percent of transplanted kidneys were from living donors and 

the remainder were from cadaver donors (data not shown).
180 Other services

Chart 11-4. Asian Americans and Hispanics are among the 

fastest growing segments of the ESRD population

Share Average annual

of total percent change

in 2016 2011–2016

Total (N = 726,331) 100% 3%

Age (years)

0–17 1 0.2

18–44 15 1

45–64 44 3

65–79 32 6

80+ 9 4

Sex

Male 58 4

Female 42 3

Race/ethnicity

White 61 3

African American 30 3

Native American 1 2

Asian American 6 6

Hispanic 18 5

Non-Hispanic 80 3

 Unknown 2 0.7

Underlying cause of ESRD

Diabetes 38 4

Hypertension 26 4

Glomerulonephritis 16 2

Other causes 20 3

Note: ESRD (end-stage renal disease). Totals may not equal sum of the components due to rounding. ESRD patients include 

those who undergo maintenance dialysis and those who have a functioning kidney transplant.

Source: Compiled by MedPAC from the United States Renal Data System.

• Among ESRD patients, 41 percent are over age 65. About 60 percent are White.

• Diabetes is the most common cause of renal failure.

• The number of ESRD patients increased by 3 percent annually between 2011 and 2016. 

Among the fastest growing groups of patients are patients between the ages of 65 and 79, 

Asian Americans, and Hispanics.
A Data Book: Health care spending and the Medicare program, June 2019 181

Chart 11-5. Characteristics of Medicare fee-for-service dialysis 

patients, 2017

Share of all FFS dialysis patients

Age (years)

Under 45 11%

45–64 38

65–74 28

75–84 18

85+ 6

Sex

Male 56

Female 44

Race

White 48

African American 36

All other 16

Residence

Urban county 84

Rural county, micropolitan 10

Rural county, adjacent to urban 5

Rural county, not adjacent to urban 2

Frontier county 1

Prescription drug coverage status

Enrolled in Part D plan or other source of creditable drug coverage 89

LIS 57

Dually eligible for Medicare and Medicaid 48

Note: FFS (fee-for-service), LIS (low-income [drug] subsidy). Urban counties contain a core area with 50,000 or more people, 

rural micropolitan counties contain at least one cluster of at least 10,000 and fewer than 50,000 people, rural counties 

adjacent to urban areas do not have a city of 10,000 people in the county, and rural counties not adjacent to urban areas 

do not have a city of 10,000 people. Frontier counties are counties with six or fewer people per square mile. Totals may 

not sum to 100 percent due to rounding.

Source: MedPAC analysis of dialysis claims files and denominator files from CMS.

• Compared with all Medicare patients, FFS dialysis patients are disproportionately younger 

and African American (see Chart 2-5). 

• In 2017, about 17 percent of FFS dialysis patients resided in a rural county.

• Nearly half of all dialysis patients were dually eligible for Medicare and Medicaid services. 

• Nearly 90 percent of FFS dialysis patients were enrolled in Part D plans or had other 

sources of creditable drug coverage.
182 Other services

Chart 11-6. Aggregate margins varied by type of freestanding 

dialysis facility, 2017

Share of freestanding

Type of facility dialysis treatments Aggregate margin

All facilities 100% −1.1%

Urban 88 −0.4

Rural 12 −5.5

Treatment volume (quintile)

Lowest 7 −21.3

Second 12 −10.6

Third 17 −3.4

Fourth 24 0.8

Highest 39 5.4

Note: Margins include payments and costs for composite rate services, injectable drugs, and other end-stage renal disease–

related services. Total may not sum to 100 percent due to rounding.

Source: Compiled by MedPAC from 2017 cost reports and the 2017 institutional outpatient file from CMS.

• For 2017, the aggregate Medicare margin for composite rate services and injectable drugs 

was −1.1 percent. 

• Generally, freestanding dialysis facilities’ margins vary by the size of the facility; facilities 

with greater treatment volume have higher margins on average. Differences in capacity and 

treatment volume explain some of the differences observed between the margins of urban 

and rural facilities. Urban facilities are larger on average than rural facilities with respect to 

the number of dialysis treatment stations and Medicare treatments provided. Some rural 

facilities have benefited from the low-volume adjustment that is included in the new endstage renal disease payment method that began in 2011.
A Data Book: Health care spending and the Medicare program, June 2019 183

Chart 11-7. Hospice spending and use increased in 2017

Average annual

change, Change,

2000 2016 2017 2000–2016 2016–2017

Medicare payments (in billions) $2.9 $16.8 $17.9 11.6% 6.4%

Beneficiaries in hospice 0.534 1.427 1.492 6.3% 4.6%

(in millions)

Number of hospice days for all 25.8 101.2 106.3 8.9% 5.1%

hospice beneficiaries (in millions)

Average length of stay 53.5 87.8 88.6 3.1% 0.9%

among decedents (in days)

Median length of stay 17 18 18 1 day* 0 day*

among decedents (in days)

Note: Average length of stay is calculated for decedents who used hospice at the time of death or before death and reflects the 

total number of days the decedent was enrolled in the Medicare hospice benefit during his/her lifetime. Due to rounding, 

the percentage change displayed in the chart may not equal the percentage change calculated using the yearly data 

displayed in the chart.

*This figure reflects the raw change rather than the percentage change.

Source: MedPAC analysis of the denominator file, the Medicare Beneficiary Database, and the 100 percent hospice claims standard 

analytic file from CMS.

• Total Medicare payments to hospices were about $17.9 billion in 2017, 6 percent higher 

than the prior year. 

• The number of Medicare beneficiaries receiving hospice services, total number of days of 

hospice care, and average length of stay continued to grow in 2017.
184 Other services

Chart 11-8. Hospice use increased across beneficiary groups 

from 2000 to 2017

Average annual

Share of decedents using hospice percentage Percentage

point change point change

2000 2016 2017 2000–2016 2016–2017

All 22.9% 49.7% 50.4% 1.7 0.7%

FFS beneficiaries 21.5 48.7 49.5 1.7 0.8

MA beneficiaries 30.9 51.9 52.4 1.3 0.5

Dual eligibles 17.5 44.1 44.9 1.7 0.8

Non–dual eligibles 24.5 51.5 52.1 1.7 0.6

Age (years)

<65 17.0 30.1 30.4 0.8 0.3

65–84 24.7 46.8 47.1 1.4 0.3

85+ 21.4 59.2 60.3 2.4 1.1

Race/ethnicity

White 23.8 51.8 52.5 1.8 0.7

Minority 17.3 39.1 39.6 1.4 0.5

Gender

Male 22.4 45.4 46.0 1.4 0.6

Female 23.3 53.7 54.5 1.9 0.8

Beneficiary location

Urban 24.2 50.8 51.3 1.7 0.5

Micropolitan 18.3 46.3 47.2 1.8 0.9

Rural, adjacent to urban 17.5 45.7 46.9 1.8 1.2

Rural, nonadjacent to urban 15.0 40.3 41.5 1.6 1.2 

Frontier 13.1 33.8 34.4 1.3 0.6

Note: FFS (fee-for-service), MA (Medicare Advantage). “Beneficiary location” refers to the beneficiary’s county of residence.

Urban, micropolitan, and rural designations are based on the urban influence codes. This chart uses the 2013 urban 

influence code definition. The frontier category is defined as population density equal to or less than six persons per 

square mile.

Source: MedPAC analysis of data from the denominator file and the Medicare Beneficiary Database from CMS.

• Hospice use grew in all beneficiary groups in 2017, continuing the trend of a growing 

proportion of beneficiaries using hospice at the end of life.

• Despite this growth, hospice use continued to vary by demographic and beneficiary 

characteristics. Medicare decedents who were MA enrollees, not dual eligible, older, White, 

female, or living in an urban area were more likely to use hospice than their respective 

counterparts.
A Data Book: Health care spending and the Medicare program, June 2019 185

Chart 11-9. Number of Medicare-participating hospices has 

increased due to growth in for-profit hospices

2000 2015 2016 2017

All hospices 2,255 4,199 4,382 4,488

For profit 672 2,729 2,940 3,097

Nonprofit 1,324 1,294 1,274 1,230

Government 257 176 168 160

Freestanding 1,069 3,163 3,369 3,519

Hospital based 785 517 501 471

Home health based 378 494 487 475

SNF based 22 25 25 22

Urban 1,455 3,235 3,474 3,587

Rural 757 920 901 878

Note: SNF (skilled nursing facility). Numbers may not sum to totals because of missing data for a small number of providers.

The rural and urban definitions in this chart are based on updated definitions of the core-based statistical areas (which 

rely on data from the 2010 census). 

Source: MedPAC analysis of Medicare cost reports, Provider of Services file, and the standard analytic file of hospice claims from 

CMS.

• There were 4,488 Medicare-participating hospices in 2017. Almost 70 percent of them were 

for-profit hospices.

• The number of Medicare-participating hospices grew by roughly 100 providers between 

2016 and 2017 and has nearly doubled since 2000. For-profit hospices accounted entirely 

for the net growth.

• Growth in the number of providers has occurred predominantly among freestanding 

providers. The number of hospital-based and home health–based providers has declined. 

The number of SNF-based providers is small and has changed little over the years. (A 

hospice’s status as freestanding versus hospital based, home health based, or SNF based 

reflects the type of cost report submitted by the provider and does not necessarily reflect the 

location of care.)

• The number of hospices located in rural areas has declined in the last several years, 

decreasing about 5 percent between 2015 and 2017. The number of providers located in 

rural areas is not necessarily an indicator of access to care. The share of rural decedents 

using hospice has been increasing since 2000 (see Chart 11-8). 
186 Other services

Chart 11-10. Hospice cases and length of stay, by diagnosis,

2017

Share of cases with

Share length of stay

Diagnosis of total cases greater than 180 days

Cancer 26% 9%

Alzheimer’s, nervous system disorders, 

 organic psychosis 23 34

Circulatory, except heart failure 19 24

Heart failure 9 23

Respiratory disease 6 15

Other 6 15

Chronic airway obstruction, NOS 5 28

Genitourinary disease 3 9

Digestive disease 2 9

All 100 21

Note: NOS (not otherwise specified). Cases include all patients who received hospice care in 2017, not just decedents.

“Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim in 2017. The share of cases with length of 

stay greater than 180 days reflects the share of hospice patients who received hospice care in 2017 whose lifetime length 

of hospice stay exceeded 180 days at the end of 2017 (or at the time of death or discharge in 2017 if the beneficiary was 

not enrolled in hospice at the end of 2017). “Share of total cases” may not sum to 100 percent due to rounding.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file from CMS and the Medicare Beneficiary Database.

• In 2017, the most common primary diagnoses among Medicare hospice patients were

cancer (26 percent), neurological conditions (Alzheimer’s disease, nervous system 

disorders, and organic psychosis) (23 percent of cases), circulatory conditions other than 

heart failure (19 percent), and heart failure (9 percent).

• Length of stay varies by diagnosis. Long hospice stays were most common among patients

with Alzheimer’s disease and other nervous system disorders, chronic airway obstruction,

circulatory conditions, and heart failure. Long hospice stays were least common among 

beneficiaries with cancer, genitourinary disease, and digestive disease.
A Data Book: Health care spending and the Medicare program, June 2019 187

Chart 11-11. Hospice average length of stay among decedents

increased slightly in 2017

Average 

length 

of stay Percentiles of length of stay (in days)

Year (in days) 10th 25th 50th 75th 90th

2000 53.5 3 6 17 56 141

2005 71.3 3 5 17 67 194

2010 86.1 3 5 17 77 240

2011 86.3 2 5 17 78 240

2012 88.0 2 5 18 80 246

2013 87.8 2 5 17 79 246

2014 88.2 2 5 17 79 247

2015 86.7 2 5 17 80 240

2016 87.8 2 5 18 82 244

2017 88.6 2 5 18 82 248

Note: Data reflect hospice length of stay for Medicare decedents who used hospice at the time of death or before death. “Length 

of stay” reflects the total number of days the decedent was enrolled in the Medicare hospice benefit during his or her 

lifetime.

Source: MedPAC analysis of the denominator file and the Medicare Beneficiary Database from CMS.

• Average length of stay among decedents was 88.6 days in 2017, a slight increase from 

2016. Average length of stay grew substantially between 2000 (53.5 days) and 2012 (88.0 

days) and has oscillated modestly since then. 

• There is wide variation in hospice length of stay. In 2017, hospice length of stay among 

decedents ranged from 2 days at the 10th percentile to 248 days at the 90th percentile. 

• Since 2000, growth in average length of stay among decedents has largely been the result 

of increases in length of stay for patients with the longest stays. Length of stay at the 90th 

percentile was more than 100 days greater in 2017 than in 2000. 

• Short stays in hospice have changed little since 2000. Among decedents, median length of 

stay was 18 days in 2017 and has been 17 or 18 days since 2000. Hospice length of stay at 

the 10th percentile (two days) and 25th percentile (five days) has been unchanged for more 

than five years. 
188 Other services

Chart 11-12. Hospice length of stay among decedents, by

beneficiary and hospice characteristics, 2017

Average length Length of stay percentiles (in days)

of stay (in days) 10th 50th 90th

Beneficiary

Diagnosis

Cancer 52 3 17 129

Neurological 149 4 36 440

Heart/circulatory 94 2 16 279

COPD 118 2 27 344

Other 54 2 17 148

Site of service

Home 91 4 26 242

Nursing facility 105 3 20 307

Assisted living facility 153 5 51 436

Hospice

For profit 109 3 23 319

Nonprofit 67 2 13 181

Freestanding 91 2 18 259

Home health based 68 2 14 186

Hospital based 56 2 12 149

Note: COPD (chronic obstructive pulmonary disease). Average length of stay is calculated for Medicare beneficiaries who died 

in 2017 and used hospice that year, and it reflects the total number of days the decedent was enrolled in the Medicare 

hospice benefit during his or her lifetime. “Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data, Medicare Beneficiary Database, Medicare 

hospice cost reports, and Provider of Services file data from CMS.

• Hospice average length of stay among decedents varies by both beneficiary and provider 

characteristics. Most of this variation reflects differences in length of stay among patients 

with the longest stays (i.e., at the 90th percentile). Length of stay varies much less for 

patients with shorter stays (i.e., at the 10th or 50th percentile).

• Beneficiaries with neurological conditions and COPD have the longest stays while 

beneficiaries with cancer have the shortest stays, on average.

• Beneficiaries who receive hospice services in assisted living facilities have longer stays on 

average than beneficiaries who receive care at home or in a nursing facility.

• For-profit and freestanding hospices have longer average lengths of stay than nonprofit and 

provider-based (home health−based and hospital-based) hospices. 
A Data Book: Health care spending and the Medicare program, June 2019 189

Chart 11-13. More than half of Medicare hospice spending in

2017 was for patients with stays exceeding 180

days

Medicare hospice spending, 2017

(in billions)

All hospice users in 2016 $17.9

Beneficiaries with LOS > 180 days 10.1

Days 1–180 3.4

Days 181–365 3.2

Days 366+ 3.6

Beneficiaries with LOS ≤ 180 days 7.8

Note: LOS (length of stay). LOS reflects the beneficiary’s lifetime LOS as of the end of 2017 (or at the time of death or discharge 

in 2017 if the beneficiary was not enrolled in hospice at the end of 2017). All spending reflected in the chart occurred only 

in 2017. Break-out groups do not sum to total because of rounding.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data and the common Medicare enrollment file from 

CMS. 

• In 2017, Medicare hospice spending on patients with stays exceeding 180 days was about 

$10.1 billion, more than half (56 percent) of all Medicare hospice spending that year.

• About $3.6 billion, or about 20 percent, of Medicare hospice spending in 2017 was on 

hospice care for patients who had already received at least one year of hospice.
190 Other services

Chart 11-14. Hospice aggregate Medicare margins, 2012–2016

Share of Medicare margin

hospices

(2016) 2012 2013 2014 2015 2016

All 100% 10.0% 8.5% 8.2% 9.9% 10.9%

Freestanding 77 13.3 12.0 11.6 13.8 13.9

Home health based 11 5.5 2.5 3.7 3.3 6.2

Hospital based 11 –17.1 –17.4 –20.8 –23.8 –16.7

For profit 67 15.4 14.7 14.6 16.5 16.8

Nonprofit 29 3.6 0.9 –0.9 0.1 2.7

Government 4 N/A N/A N/A N/A N/A

Urban 79 10.3 8.8 8.7 10.4 11.4

Rural 21 7.3 5.9 3.3 4.8 6.2

Below cap 87.3 10.3 8.6 8.4 9.9 10.7

Above cap 12.7 5.2 7.0 6.0 9.8 12.6

Above cap (including 

cap overpayments) 12.7 21.3 20.1 18.8 21.4 20.2

Note: N/A (not available). Margins for all provider categories exclude overpayments to above-cap hospices except where 

specifically indicated. Margins are calculated based on Medicare-allowable, reimbursable costs. The percentages of 

freestanding and provider-based (home health–based and hospital-based) hospices do not sum to 100 percent because

skilled nursing facility–based hospices are not broken out separately.

Source: MedPAC analysis of Medicare hospice cost reports, 100 percent hospice claims standard analytic file, and Medicare 

Provider of Services data from CMS.

• The aggregate Medicare margin was 10.9 percent in 2016, up from 9.9 percent in 2015.

• In 2016, freestanding hospices had higher margins (13.9 percent) than home health–based 

(6.2 percent) and hospital-based hospices (–16.7 percent).

• The 2016 margin among for-profit hospices was high at 16.8 percent. Nonprofit hospices as 

a group had a margin of 2.7 percent in 2016, but the subset of nonprofit hospices that were 

freestanding had a higher margin, 6.4 percent (latter figure not shown in chart).

• The aggregate 2016 margin was higher for urban hospices (11.4 percent) than rural 

hospices (6.2 percent). 

• Hospices that exceeded the cap (Medicare’s aggregate average per beneficiary payment 

limit) had a 2016 margin of about 20 percent before the return of the cap overpayments.
A Data Book: Health care spending and the Medicare program, June 2019 191

Chart 11-15. Medicare margins were higher among hospices with

more long stays, 2016

Note: Margins exclude overpayments to hospices that exceeded the cap on the average annual Medicare payment per 

beneficiary. Margins are calculated based on Medicare-allowable, reimbursable costs. For hospice providers in the lowest 

(first) quintile, the share of stays greater than 180 days was less than 12.9 percent; it was between 12.9 percent and 20.0

percent in the second quintile; it was between 20.0 percent and 26.5 percent in the third quintile; it was between 26.5

percent and 34.1 percent in the fourth quintile; and it was greater than 34.1 percent in the highest (fifth) quintile. 

Source: MedPAC analysis of Medicare hospice cost reports and 100 percent hospice claims standard analytic file from CMS.

• Medicare’s per diem payment system for hospice has provided an incentive for longer 

lengths of stay.

• Hospices with more patients who had stays greater than 180 days generally had higher 

margins in 2016. Hospices in the lowest length-of-stay quintile had a margin of –5.4 percent 

compared with a 20.0 percent margin for hospices in the second highest length-of-stay 

quintile. 

(Chart continued next page)

-5.4

5.8

14.8

20.0

15.0

-10

-5

0

5

10

15

20

25

1 2 3 4 5

Margin (in percent)

Share of providers' patients with stays greater than 180 days, by quintiles
192 Other services

Chart 11-15. Medicare margins were higher among hospices with

more long stays, 2016 (continued)

• Margins were somewhat lower in the highest length-of-stay quintile (15.0 percent) compared 

with the second highest quintile (20.0 percent) because some hospices in the highest 

quintile exceeded Medicare’s aggregate payment cap and were required to repay the 

overage. Hospices exceeding the cap had a margin of about 20 percent before the return of 

overpayments (see Chart 11-14).

• The 2016 margin estimates reflect hospices’ financial performance in the first year of the 

new payment system, which began January 2016. (Because some providers’ cost report 

years begin before January, the 2016 margins include some payments made under the old 

payment system. However, we estimate about 90 percent of payments reflected in the 2016 

margins were made under the new payment system.) 

• The 2016 payment reforms modestly reduced the variation in profitability by length of stay. 

In 2015, there was a 29 percentage point spread in the margins between the lowest length 

of stay quintile (–8.9 percent) and the second highest length of stay quintile (20.4 percent) 

(data not shown). In 2016, the difference in margins between those length of stay quintiles 

narrowed slightly to 25 percentage points, as shown in the chart.
A Data Book: Health care spending and the Medicare program, June 2019 193

Chart 11-16. Hospices that exceeded Medicare’s annual

payment cap, selected years

2002 2013 2014 2015 2016

Share of hospices 

 exceeding the cap 2.6% 10.7% 12.2% 12.3% 12.7%

Average payments over

 the cap per hospice

 exceeding the cap

 (in thousands) $470 $460 $370 $320 $295

Payments over the cap

 as a share of overall

 Medicare hospice spending 0.6% 1.3% 1.2% 1.0% 1.0%

Note: The cap year is defined as the period beginning November 1 and ending October 31 of the following year. These 

estimates of hospices that exceeded the aggregate cap are based on the Commission’s analyses. While the estimates 

are intended to approximate those of the Medicare claims-processing contractors, they are not necessarily identical to the 

contractors’ estimates because of differences in available data and methodology.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data, Medicare hospice cost reports, Provider of 

Services file data from CMS, and CMS Providing Data Quickly system. Data on total spending for each fiscal year are

from the CMS Office of the Actuary.

• The share of hospices exceeding the aggregate cap was 12.7 percent in 2016, up slightly 

from 2015. 

• Medicare payments over the cap represented 1.0 percent of total Medicare hospice 

spending in 2016.

• On average, above-cap hospices exceeded the cap by about $295,000 per provider in 2016, 

down from about $320,000 per provider in 2015.
194 Other services

Chart 11-17. Hospice live-discharge rates, 2013–2017

2013 2015 2016 2017

Live discharge as a share of 

all discharges, by reason for 

live discharge

All live discharges 18.4% 16.7% 16.9% 16.7%

No longer terminally ill 7.8 6.9 6.8 6.5

Beneficiary revocation 7.3 6.3 6.4 6.4

Transfer hospice providers 2.0 2.1 2.1 2.1

Move out of service area 0.9 1.0 1.2 1.4

Discharge for cause 0.4 0.3 0.3 0.3

Providers’ overall rate of live discharge as a

share of all discharges, by percentile

10th percentile 9.3 8.4 8.3 8.3

25th percentile 13.2 12.0 12.2 12.6

50th percentile 19.4 18.4 19.1 19.3

75th percentile 30.2 29.6 31.3 31.8

90th percentile 47.2 50.0 53.3 53.0

Note: Percentages may not sum to totals due to rounding. “All discharges” includes patients discharged alive or deceased.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file. 

• In 2017, the overall live-discharge rate was 16.7 percent, and has changed little since 2015.

• The most common reasons for live discharge were the beneficiary no longer being terminally 

ill and the beneficiary revoking the hospice benefit, with each accounting for just over 38 

percent of live discharges, and about 6.5 percent of all discharges. Less frequent reasons 

for live discharges were: a beneficiary transferring hospice providers, a beneficiary moving 

out of the service area, and a beneficiary being discharged for cause. 

• Live discharges accounted for more than half of total discharges for the 10 percent of 

hospices with the highest live-discharge rates (i.e., the 90th percentile) in 2017.
A Data Book: Health care spending and the Medicare program, June 2019 195

Chart 11-18. Medicare spending for clinical laboratory services,

2005–2018

 

Note: Spending is for services paid under the clinical laboratory fee schedule. Hospital-based services are furnished in labs 

owned or operated by hospitals. The components of each bar may not sum to the total at the top of each bar due to 

rounding. The spending data include only program payments; there is no beneficiary cost sharing for clinical lab services. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds, 2015 and 2019.

• Medicare spending for clinical laboratory services in all settings grew by an average of 3.4

percent per year between 2005 and 2013. 

• From 2013 to 2014, Medicare spending for lab services declined by about 9 percent because, 

beginning in 2014, many lab tests provided in hospital outpatient departments are no longer paid 

separately under the clinical lab fee schedule. Instead, many of these tests are packaged with 

their associated visits or procedures under the hospital outpatient prospective payment system. 

• Medicare spending for lab services increased by an average of 0.9 percent per year from 

2014 to 2017.

• Beginning in 2018, clinical laboratory fee schedule payment rates are based on private 

sector rates. From 2017 to 2018, Medicare spending for lab services grew 3.4 percent.

3.6 3.7 4.0 4.3 4.7 4.8 4.6 5.1 5.2 5.6 5.7 5.5 5.6 5.9

3.4 3.5

3.6

3.7

3.5 3.6 3.8

4.0 4.0 2.7 2.8 2.9 2.9

2.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Dollars (in billions)

Calendar year

Independent and physician office Hospital based

8.5 8.4 8.8 8.5

7.0 7.3

7.6

8.0 8.2 8.4 8.5

9.2 9.2

8.3
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