A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2015
A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2015

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 

through 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. 

Several charts in this Data Book use data from the Medicare Current Beneficiary Survey 

(MCBS). We use the MCBS to compare beneficiary groups with different characteristics. The 

MCBS is a survey, so expenditure amounts that we show may not match actual Medicare 

expenditure amounts from CMS’s program offices or the Office of the Actuary.

A number of charts in the Data Book use information that is typically published in the annual 

report of the Boards of Trustees of the Medicare Trust Funds. At the time this Data Book was 

prepared, the trustees’ report had not yet been released for 2015. Charts that use data from the 

trustees’ report reflect data from the 2014 report and are flagged accordingly. The reader is 

advised to consult the 2015 trustees’ report directly, when available, for the most current data.

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 Aggregate Medicare spending among FFS beneficiaries, by sector, 2004–2013 ..................................

1-2 Per capita Medicare spending among FFS beneficiaries, by sector, 2004–2013......................................

1-3 Medicare is the largest single purchaser of personal health care, 2013 ....................................................

1-4 Medicare’s share of spending on personal health care varies by type of service, 2013 ............................

1-5 Historically, health care spending has risen as a share of GDP; recently, its growth has slowed..............

1-6 Trustees project Medicare spending to continue to increase as a share of GDP.......................................

1-7 Changes in spending per enrollee, Medicare and private health insurance ..............................................

1-8 Trustees and CBO project Medicare spending to exceed $1 trillion by the early part 

of the next decade .................................................................................................................................

1-9 Medicare spending is concentrated in certain services and has shifted over time...................................

1-10 FFS program spending is highly concentrated in a small group of beneficiaries, 2011..........................

1-11 Medicare HI trust fund is projected to be insolvent in 2030 under 

trustees’ intermediate assumptions........................................................................................................

1-12 General revenue is paying for a growing share of Medicare spending...................................................

1-13 Medicare enrollment is rising while the number of workers per HI beneficiary is declining .................

1-14 Medicare HI and SMI benefits and cost sharing per FFS beneficiary....................................................

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

program spending, 2011........................................................................................................................

2-2 Medicare enrollment and spending by age group, 2011 ........................................................................

2-3 Beneficiaries who report being in poor health account for a disproportionate share of

Medicare spending, 2011 .....................................................................................................................

2-4 Enrollment in the Medicare program is projected to grow rapidly in the next 20 years ........................

2-5 Characteristics of the Medicare population, 2011..................................................................................

3-1 Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 2011...............

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

by beneficiaries’ characteristics, 2011...................................................................................................

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

by source of payment, 2011..................................................................................................................

3-4 Per capita total spending on health care services among noninstitutionalized FFS beneficiaries, 

by source of payment, 2011..................................................................................................................
vi

3-5 Variation in and composition of total spending among noninstitutionalized FFS beneficiaries, 

by type of supplemental coverage, 2011 ...............................................................................................

3-6 Out-of-pocket spending for premiums and health services per beneficiary, 

by insurance and health status, 2011 .....................................................................................................

4-1 Dual-eligible beneficiaries account for a disproportionate share of Medicare spending, 2011...............

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

under age 65 and disabled, 2011 ...........................................................................................................

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

poorer health status, 2011......................................................................................................................

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

beneficiaries, 2011................................................................................................................................

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

and non-dual-eligible beneficiaries, 2011..............................................................................................

4-6 Both Medicare and total spending are concentrated among dual-eligible beneficiaries, 2011................

5-1 In-hospital and 30-day postdischarge mortality rates improved from 2010 to 2013...............................

5-2 Most hospital inpatient patient safety indicators were stable from 2010 to 2013 ...................................

5-3 SNFs improved on risk-adjusted rates of community discharge and potentially avoidable 

rehospitalizations, but there was no change in patient functional status.................................................

5-4 Risk-adjusted home health quality measures held steady or improved slightly from 2008 to 2013 .......

5-5 Dialysis quality of care: Some measures show progress, others need improvement, 2008–2012 ..........

5-6 Medicare Advantage quality measures generally show improvement between 2012 and 2014.............

5-7 Use and spending for selected services detected by measures of low-value care in fee-for-service 

Medicare, 2012.....................................................................................................................................

5-8 Use of services detected by selected measures of low-value care, by category, 2012............................

5-9 Spending on services detected by selected measures of low-value care, by category, 2012...................

6-1 Annual changes in number of acute care hospitals participating in the 

Medicare program, 2000–2013.............................................................................................................

6-2 Percent change in hospital employment, by occupation, 2008–2013.....................................................

6-3 Growth in Medicare’s FFS payments for hospital inpatient and outpatient services, 1999–2013.......

6-4 Share of Medicare acute care hospital inpatient discharges by hospital group, 2013 .............................

6-5 Major diagnostic categories with highest volume, fiscal year 2013.......................................................

6-6 Cumulative change in total all-payer inpatient admissions and outpatient visits, 2000–2013 ................

6-7 Cumulative change in Medicare outpatient services and inpatient discharges 

per FFS beneficiary, 2006–2013...........................................................................................................
vii

6-8 Cumulative change in Medicare inpatient discharges per FFS beneficiary 

by length of stay, 2006–2013................................................................................................................

6-9 Trends in Medicare and non-Medicare inpatient length of stay, 2006–2013 .........................................

6-10 Share of inpatient admissions preceded by emergency department visit 

by hospital group, 2006–2013...............................................................................................................

6-11 Share of Medicare Part A fee-for-service beneficiaries with at least one hospitalization, 2006–2013...

6-12 Number of Medicare outpatient observation visits and inpatient claims preceded by 

observation care per 1,000 beneficiaries increased from 2006 to 2013..................................................

6-13 Hospital occupancy rates, 2006–2013...................................................................................................

6-14 Medicare inpatient payments, by source and hospital group, 2013........................................................

6-15 Discharge destination of Medicare fee-for-service beneficiaries, 2006–2013........................................

6-16 Medicare acute inpatient PPS margin, 2002–2013................................................................................

6-17 Medicare acute inpatient PPS margin, by urban and rural location, 2002–2013....................................

6-18 Overall Medicare margin, 2002–2013...................................................................................................

6-19 Overall Medicare margin, by urban and rural location, 2002–2013.......................................................

6-20 Medicare hospital outpatient, inpatient, and overall Medicare margins, 2002–2013..............................

6-21 Hospital total all-payer margin, 2002–2013 ..........................................................................................

6-22 Hospital total all-payer margin, by urban and rural location and critical access hospitals, 2002–2013...

6-23 Hospital total all-payer margin, by teaching status, 2002–2013.............................................................

6-24 Medicare margins by teaching and disproportionate share status, 2013.................................................

6-25 Financial pressure leads to lower costs..................................................................................................

6-26 Change in Medicare hospital inpatient costs per discharge and private payer payment-to-cost ratio,

19872011............................................................................................................................................

6-27 Markup of hospital charges above costs for Medicare services, 2002–2012..........................................

6-28 Number of critical access hospitals, 1999–2015....................................................................................

6-29 Medicare payments to inpatient psychiatric facilities, 2002–2014.........................................................

6-30 Number of inpatient psychiatric facility cases remained steady in 2012................................................

6-31 Inpatient psychiatric facilities, 2004–2012............................................................................................

6-32 One diagnosis accounted for almost three-quarters of IPF cases in 2012...............................................

6-33 Characteristics of IPF users, 2012.........................................................................................................

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

and other health professionals, 2003–2013............................................................................................

7-2 Volume growth has raised physician spending more than input prices and 

payment updates, 2000–2013................................................................................................................

7-3 Medicare beneficiaries reported better ability to get timely appointments with physicians 

compared with privately insured individuals, 2011–2014 .....................................................................

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

reported more difficulty finding one in primary care, 2011–2014 .........................................................

7-5 Access to physician care was better for Medicare beneficiaries than privately insured individuals, 

but minorities in both groups reported unwanted delays slightly more frequently, 2014 .......................

7-6 Differences in obtaining access to a new physician did not vary significantly between White and 

minority Medicare patients, 2014..........................................................................................................
viii

7-7 Growth in volume per beneficiary of physician and other health professional services, 2000–2013......

7-8 Changes in physicians’ professional liability insurance premiums, 2007–2014..................................

7-9 Spending on hospital outpatient services covered under the outpatient PPS, 2004–2014 ...................

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

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

by type of service, 2013 ....................................................................................................................

7-12 Hospital outpatient services with the highest Medicare expenditures, 2013 .......................................

7-13 Medicare coinsurance rates, by type of hospital outpatient service, 2013...........................................

7-14 Effects of hold-harmless and SCH transfer payments on hospitals’ outpatient revenue, 2011–2013..

7-15 Number of observation hours increased, 2006–2013..........................................................................

7-16 Number of Medicare-certified ASCs increased by 15 percent, 2007–2014........................................

7-17 Medicare spending for imaging services under the fee schedule for physicians and other health 

professionals, by type of service, 2013...............................................................................................

7-18 Growth in the number of CT, MRI, and cardiac imaging services per 1,000 beneficiaries, 

2000–2013........................................................................................................................................

8-1 Number of post-acute care providers decreased slightly or remained stable in 2014 ..........................

8-2 Home health care and skilled nursing facilities have fueled growth in Medicare’s post-acute 

care expenditures...............................................................................................................................

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

and Medicare spending ......................................................................................................................

8-4 SNF service use continued to decline between 2012 and 2013...........................................................

8-5 Freestanding SNF Medicare margins remain high despite reductions in payments............................

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

SNFs in 2013.....................................................................................................................................

8-7 Financial performance of relatively efficient SNFs reflects a combination of lower cost per 

day and higher payments per day.......................................................................................................

8-8 Spending on home health care, 2001–2013........................................................................................

8-9 Trends in the provision of home health care.......................................................................................

8-10 Home health episodes not preceded by a hospitalization accounted for the majority of 

services in 2012 .................................................................................................................................

8-11 Medicare margins for freestanding home health agencies..................................................................

8-12 Number of IRF FFS patients was stable in 2013................................................................................

8-13 Most common types of inpatient rehabilitation facility cases, 2013....................................................
ix

8-14 Inpatient rehabilitation facilities’ Medicare margin by type of facility, 2004–2013............................

8-15 Low standardized costs lead to high margins for both hospital-based and freestanding IRFs, 2013 ...

8-16 The top 25 MS–LTC–DRGs made up two-thirds of LTCH discharges in 2013.................................

8-17 The number of Medicare LTCH cases and users decreased between 2012 and 2013.........................

8-18 LTCHs’ per case costs increased at a rate faster than payments in 2013.............................................

8-19 The aggregate average LTCH Medicare margin fell in 2013 .............................................................

9-1 MA plans available to almost all Medicare beneficiaries ..........................................................

9-2 Average monthly rebate dollars, by plan type, 2010–2015.......................................................

9-3 Enrollment in MA plans, 1995–2015.......................................................................................

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

9-5 MA and cost plan enrollment by state and type of plan, 2015 ...................................................

9-6 MA plan benchmarks, bids, and Medicare program payments relative to FFS spending, 2015 .......

9-7 Enrollment in employer group MA plans, 2006–2015 ..............................................................

9-8 Number of special needs plan enrollees, 2007–2015.................................................................

9-9 Number of SNPs declined and SNP enrollment rose from 2014 to 2015....................................

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

the CMS–HCC model, 2013 ...................................................................................................

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

status, December 2013............................................................................................................

9-12 Distribution of MA plans and enrollment by CMS overall star ratings, March 2015 ..................

10-1 Medicare spending for Part B drugs furnished in physicians’ offices or by suppliers.........................

10-2 Top 10 Part B drugs furnished in physicians’ offices, by suppliers, and in hospital outpatient 

departments (in millions), 2012 and 2013..........................................................................................

10-3 In 2012, almost 90 percent of Medicare beneficiaries were enrolled in Part D plans or had 

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

10-4 Changes in parameters of the Part D defined standard benefit over time............................................

10-5 Characteristics of Medicare PDPs......................................................................................................

10-6 Characteristics of MA–PDs...............................................................................................................

10-7 Change in average Part D premiums, 2011–2015 ..............................................................................

10-8 More premium-free (for LIS enrollees) PDPs in 2015, but some are unavailable to new enrollees....

10-9 In 2015, most Part D enrollees are in plans that use a five-tier formulary structure ............................

10-10 In 2015, use of prior authorization continues to increase for both PDPs and MA–PDs......................

10-11 Characteristics of Part D enrollees, 2013............................................................................................

10-12 Part D enrollment trends, 2007–2013.................................................................................................

10-13 Part D enrollment by region, 2013 .....................................................................................................

10-14 The majority of Part D spending is incurred by only one-quarter of all Part D enrollees, 2012...........

10-15 Characteristics of Part D enrollees, by spending levels, 2012.............................................................

10-16 Part D spending and use per enrollee, 2012........................................................................................
x

10-17 Trends in Part D spending and use per enrollee, 2007–2012..............................................................

10-18 Top 15 therapeutic classes of drugs covered under Part D, by spending and volume, 2012................

10-19 Generic dispensing rate for selected therapeutic classes, by plan type, 2007–2012.............................

10-20 Generic dispensing rate for selected therapeutic classes, by LIS status, 2012.....................................

10-21 Drug spending and use, and characteristics of beneficiaries filling the most prescriptions, 2012........

10-22 Part D spending and use, 2013...........................................................................................................

10-23 Part D patterns of prescribing by provider type, 2013 ........................................................................

10-24 Part D patterns of prescribing for selected specialties, 2013...............................................................

11-1 Number of dialysis facilities is growing, and share of for-profit and freestanding dialysis 

providers is increasing........................................................................................................................

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

dialysis facilities, 2012 and 2013 .......................................................................................................

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, 2013...................................................

11-6 Aggregate margins vary by type of freestanding dialysis facility, 2013 ............................................

11-7 Medicare hospice spending and average length of stay were virtually unchanged in 2013...............

11-8 Hospice use increased across beneficiary groups from 2000 to 2013................................................

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, 2013........................................................................

11-11 Hospice length of stay changed little in 2013, after a more than decade-long period of 

growth in the longest stays.................................................................................................................

11-12 Hospice length of stay among decedents, by beneficiary and hospice characteristics, 2013.............

11-13 More than half of Medicare hospice spending in 2013 was for patients with stays 

exceeding 180 days............................................................................................................................

11-14 Hospice aggregate Medicare margins, 2006–2012 ............................................................................

11-15 Medicare margins are higher among hospices with more long stays, 2012.......................................

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

11-17 Length-of-stay and live-discharge rates for above- and below-cap hospices, 2012...........................

11-18 Margins are higher among hospices with a greater share of their patients in

nursing facilities, 2012 .......................................................................................................................

11-19 Medicare spending for clinical laboratory services, 2004–2013........................................................
1

A Data Book: Health care spending and the Medicare program, June 2015 3

Chart 1-1. Aggregate Medicare spending among FFS 

beneficiaries, by sector, 2004–2013

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: CMS Office of the Actuary, based on the FY 2016 President’s budget and on the annual report of the Boards of Trustees

of the Medicare trust funds 2014.

AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 Medicare spending among FFS beneficiaries has increased significantly since 2004 across all 

sectors, even though spending growth has slowed recently. The slowdown in spending growth 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 2 percent per year from 2004 to 2010. It declined to about 1 percent per year from 

2010 to 2013. The decline in the last three years 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. Despite the slowdown, spending 

on inpatient hospital services increased, on aggregate, 16 percent from 2004 to 2013.

 Spending growth for outpatient hospital services remained strong throughout the period,

averaging 10 percent per year from 2004 to 2007 and 9 percent per year from 2007 to 2013.

Aggregate spending on outpatient hospital services increased 118 percent from 2004

to 2013.

118

125 125 126 130 131 134 136 136 137

53 56 57 57 58 60 63 66 68 67

29 32 35 38 42 45 48 50 47 47 

17 20 21 22 24 27 29 32 35 37

0

20

40

60

80

100

120

140

160

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Medicare spending (dollars in billions)

Calendar year

Inpatient hospital

Physician fee schedule

Skilled nursing facilities and home health agencies

Outpatient hospital
4 National health care and Medicare spending

Chart 1-2. Per capita Medicare spending among FFS 

beneficiaries, by sector, 2004–2013

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 1-1) divided by FFS 

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

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

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

Source: CMS Office of the Actuary, based on the FY 2016 President’s budget and the annual report of the Boards of Trustees of 

the Medicare trust funds 2014.

AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 Medicare spending per beneficiary in FFS Medicare has increased substantially since 2004

across all sectors, despite slowing down recently.

 Growth in spending per beneficiary for inpatient hospital services, the sector with the highest 

level of spending, averaged 3 percent per year from 2004 to 2007 and 2 percent per year 

from 2007 to 2010. It declined to about –1 percent per year from 2010 to 2013. Despite the 

slowdown in the last three years, spending per beneficiary for inpatient hospital services 

increased, on aggregate, 13 percent from 2004 to 2013.

 Growth in spending per beneficiary for outpatient hospital services remained strong 

throughout the period, averaging 11 percent per year from 2004 to 2007, 8 percent per year 

from 2007 to 2010, and 7 percent per year from 2010 to 2013. Spending per beneficiary for 

outpatient hospital services increased, on aggregate, 113 percent from 2004 to 2013.

3,261

3,427 3,504 3,567 3,688 3,739 3,760 3,747 3,672 3,695

1,580 1,661 1,730 1,758 1,822 1,883 1,959 2,030 2,053 2,020

797 882 972 1,078 1,186 1,275 1,319 1,364 1,248 1,257

463 533 576 628 679 751 795 864 927 987

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Medicare spending (dollars per capita)

Calendar year

Inpatient hospital

Physician fee schedule

Skilled nursing facilities and home health agencies

Outpatient hospital
A Data Book: Health care spending and the Medicare program, June 2015 5

Chart 1-3. Medicare is the largest single purchaser of personal 

health care, 2013

Note: “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 health insurance programs” includes the 

Children’s Health Insurance Program, Department of Defense, and Department of Veterans’ Affairs. “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. 

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 1970–2013,” released January 

2015.

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

spending accounted for by private health insurance (34 percent in 2013) is greater than 

Medicare’s share (22 percent in 2013). 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 $2.5 trillion spent on 

personal health care in 2013, Medicare accounted for 22 percent, or $551 billion (as noted 

above, this amount includes spending on direct patient care and excludes certain 

administrative and business costs).

 Thirty-four percent of spending was financed through private health insurance payers, and 

14 percent was from consumer out-of-pocket spending.

 Medicare and private health insurance spending include premium contributions from 

enrollees. 

Medicare

22%

Medicaid

17%

Other third-party 

payers

9%

Private health 

insurance

34%

Out of pocket

14%

Other health 

insurance 

programs

4%

Total = $2.5 trillion
6 National health care and Medicare spending

Chart 1-4. Medicare’s share of spending on personal health 

care varies by type of service, 2013

Note: SCHIP (State 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.

Source: CMS Office of the Actuary, National Health Expenditure Accounts, “Table 19: National Health Expenditures by Type of 

Expenditure and Program: Calendar Year 2013,” released January 2015.

 While Medicare’s share of total personal health care spending was 22 percent in 2013, its 

share of spending by type of service varied, with a slightly higher share of spending on 

hospital care (26 percent) and a much higher share of spending on home health services

(43 percent), partly because that category, in the chart above, includes hospice services.

 Medicare’s share of spending on nursing homes 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.

 In 2013, Medicare accounted for 26 percent of spending on hospital care, 22 percent of 

physician and clinical services, 43 percent of home health services, 22 percent of nursing 

home care, 18 percent of durable medical equipment, and 28 percent of prescription drugs.

26 22

43

22 18

28

18

9

37

30

12

8

56

69

20

48

70 64

0

10

20

30

40

50

60

70

80

90

100

Hospital Physician and

clinical

services

Home health Nursing home Durable

medical

equipment

Prescription

drugs

Share of spending (in percent)

Medicare Medicaid and all SCHIP Other
A Data Book: Health care spending and the Medicare program, June 2015 7

Chart 1-5. Historically, health care spending has risen as a 

share of GDP; recently, its growth has slowed

Note: GDP (gross domestic product). 

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2015.

 Historically, health care spending has risen as a share of GDP, but recently its growth rate 

has slowed. That general trend is true for health care spending by private sector payers as

well as by Medicare.

 As a share of GDP, total health care spending more than doubled from 1973 to 2013, 

increasing from 7.2 percent to 17.4 percent. As a share of GDP, private health insurance 

spending more than tripled over that same time period, increasing from 1.6 percent to 5.7 

percent. As a share of GDP, Medicare spending went up by almost a factor of five, 

increasing from 0.8 percent to 3.5 percent.

 However, as seen in the chart above, health care spending as a share of GDP has 

remained relatively constant since 2009.

0

2

4

6

8

10

12

14

16

18

20

1973 1978 1983 1988 1993 1998 2003 2008 2013

Share of GDP (in percent)

Calendar year

Total health care spending

Private health insurance spending

Medicare spending

Recent slowdown 

in health care 

spending growth
8 National health care and Medicare spending

Chart 1-6. Trustees project Medicare spending to continue to 

increase as a share of GDP

Note: GDP (gross domestic product). Shares for year 2015 and later are projections and based on the trustees’ intermediate set 

of assumptions.

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

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

percent in 1975, it is projected to reach 6.8 percent of GDP in 2085.

 The Medicare trustees project that spending will rise from 3.4 percent of GDP in 2015 to 5.4

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

and then to 6.8 percent of GDP in 2085, with growth in spending per beneficiary becoming 

the larger factor in 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. Nominal Medicare spending grew on average 9.8 percent per year over the 

period from 1975 to 2013, considerably faster than nominal growth in the economy, which 

averaged 6.2 percent per year over the same time frame. Future Medicare spending is 

projected to continue growing faster than GDP, averaging 5.5 percent per year between 2013 

and 2085 compared with an annual average growth rate of 4.5 percent for the economy as a 

whole. 

1.0

1.6

2.4 2.6

3.4

4.4

5.4

5.8

6.1

6.4

6.7 6.8

0

1

2

3

4

5

6

7

8

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

Share of GDP (percent)

Calendar year

Part D

Part B

Part A
A Data Book: Health care spending and the Medicare program, June 2015 9

Chart 1-7. Changes in spending per enrollee, Medicare and 

private health insurance

Note: PHI (private health insurance). Medicare expenditures include both fee-for-service and private plans.

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2015.

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

followed a similar pattern over the last four decades. Recently, rates of growth in per capita 

spending have slowed for both Medicare and private health insurance.

 Differences between the rates of growth do appear to be more pronounced since the mid1980s. Some analysts believe that those differences are attributable to the introduction of 

the prospective payment system for hospital inpatient services that began in 1985. 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 the growth 

of per capita spending for private payers.

 Comparisons are problematic since private insurers and Medicare do not buy the same mix 

of services, and 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 

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

Change in spending per enrollee (percent)

Calendar year

Medicare PHI

Medicare PHI

1969–1979 12.4 14.9

1979–1989 10.5 12.0

1989–1999 6.1 6.9

1999–2009 6.8 7.2

2009–2013 0.9 3.6

1969–2013 8.2 9.6

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

Chart 1-8. 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: CBO 2014 Baseline; the annual report of the Boards of Trustees of the Medicare trust funds 2014.

AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 Medicare spending has nearly doubled since 2005, increasing from $337 billion to $600

billion by 2014 (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 2014 and 2025 

will grow at an average annual rate of 7.1 percent and 6.4 percent, respectively. Medicare 

spending will reach $1 trillion in 2022 under the trustees’ projections, and in 2023 under the 

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

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 2015 11

Chart 1-9. Medicare spending is concentrated in certain 

services and has shifted over time

Total spending 2006 = $401 billion Total spending 2013 = $574 billion

Note: SNF (skilled nursing facility), DME (durable medical equipment). 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. Totals may not sum to 100 percent due to rounding.

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

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

 In 2013, Medicare spending totaled $574 billion for benefit expenses. Managed care was

the largest spending category (25 percent), followed by inpatient hospital services (24

percent), services reimbursed under the physician fee schedule (12 percent), outpatient 

prescription drugs provided under Part D (12 percent), and services provided in other 

settings (8 percent).

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

2013 than it was in 2006, falling from 31 percent to 24 percent. Spending on beneficiaries 

enrolled in managed care plans grew from 16 percent to 25 percent over the same period. 

Medicare managed care enrollment increased 87 percent over the same period.

Inpatient 

hospital

31%

Home 

health

3%

Hospice

2%

Managed care

16%

Physician fee 

schedule

14%

DME

2%

Outpatient 

hospital

5%

Other

9%

Prescription 

drugs provided 

under Part D

12%

SNF

5%

Inpatient 

hospital

24%

Home 

health

3%

Hospice

3%

Managed care

25%

Physician fee 

schedule

12%

DME

1%

Outpatient 

hospital

6%

Other

8%

Prescription 

drugs provided 

under Part D

12%

SNF

5%
12 National health care and Medicare spending

Chart 1-10. FFS program spending is highly concentrated in a 

small group of beneficiaries, 2011

Note: FFS (fee-for-service). All data are for calendar year 2011. Analysis excludes beneficiaries with any group health 

enrollment during the year. “Percent of program spending" total may not sum to 100 percent due to rounding.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use files 2011. 

 Medicare FFS spending is concentrated among a small number of beneficiaries. In 2011, 

the costliest 5 percent of beneficiaries accounted for 39 percent of annual Medicare FFS 

spending, and the costliest 25 percent accounted for 82 percent. 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%

25

Next 5%

18

Next 4%

24

Most 

costly 1%

15

0

10

20

30

40

50

60

70

80

90

100

Percent of beneficiaries Percent of program spending

Percent

82
A Data Book: Health care spending and the Medicare program, June 2015 13

Chart 1-11. Medicare HI trust fund is projected to be insolvent 

in 2030 under trustees’ intermediate assumptions

Estimate

Year costs

exceed income

Year HI trust

fund assets exhausted

High 2008 2021

Intermediate 2008 2030

Low 2008 Never*

Note: HI (Hospital Insurance). All years represent calendar years. 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.

*Under the low-cost assumption, trust fund assets would start to increase in 2015 and continue to increase throughout the 

projection period.

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 The Hospital Insurance (HI) trust fund funds Part A, which helps pay for inpatient hospital 

stays and post-acute care such as skilled nursing facilities and hospice. Part A is funded 

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

 Since 2008, the HI trust fund has run an annual deficit (i.e., paid more in benefits than it 

collects in payroll taxes). The trust fund still has interest income generated from loaning 

funds to other parts of the government during times of surplus, but those assets are 

projected to be exhausted by 2030 under the trustees’ intermediate assumptions. Under

high-cost assumptions, the HI trust fund could be exhausted as early as 2021. Under lowcost assumptions, it would remain able to pay full benefits indefinitely.

 The trustees estimate that the payroll tax would immediately need to be increased from its 

current rate of 2.9 percent to 3.8 percent to balance the HI trust fund over the next 75 years. 

Alternatively, Part A spending would immediately need to be reduced by 19 percent.
14 National health care and Medicare spending

Chart 1-12. 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. The drug fee is the fee imposed in 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: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 The Medicare trustees project that Medicare’s share of GDP will rise to 5.6 percent by 2040 

and to 6.8 percent by 2085.

 As spending grows, financing from general revenues will grow as a share of total Medicare 

spending (from 41 percent of spending today to 45 percent of spending in about 15 years).

 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 other national priorities.

0

1

2

3

4

5

6

7

8

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

Percent of GDP

Calendar year

Historical Projected

Total Medicare spending

General revenue transfers

State 

transfers and 

drug fees

Premiums

Payroll taxes

Tax on 

benefits

Dedicated 

revenues
A Data Book: Health care spending and the Medicare program, June 2015 15

Chart 1-13. Medicare enrollment is rising while the number of 

workers per HI beneficiary is declining

 Medicare enrollment Workers per HI beneficiary

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

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 As the baby-boom generation ages, enrollment in the Medicare program will surge. In 15 

years, Medicare is projected to have over 80 million beneficiaries—up from 54 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 3.1 today and is projected by the Medicare trustees to fall to 2.3 by 

2030.

 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
16 National health care and Medicare spending

Chart 1-14. Medicare HI and SMI benefits and cost sharing

per FFS beneficiary

Average benefit in 2013

(in dollars)

Average cost sharing in 2012*

(in dollars)

HI $5,069 $422

SMI 5,169 1,278

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.

*Data for average cost sharing in 2013 is not yet available from CMS.

Source: CMS Office of the Actuary, 2014 annual report of the Boards of Trustees of the Medicare trust funds; Medicare and 

Medicaid Statistical Supplement 2013, CMS Office of Information Services.

AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 In calendar year 2013, the Medicare program made $5,069 in HI (Part A) benefit payments 

and $5,169 in Supplementary Medical Insurance (SMI) (Part B) benefit payments on 

average per beneficiary. 

 Beneficiaries owed an average of $422 in cost sharing for HI, $1,278 in cost sharing for SMI,

and a total of $1,550 (not shown in chart) in cost sharing for both in calendar year 2012 (the 

latest year for which such data are available). 

 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 2015 19

Chart 2-1. Aged beneficiaries account for the greatest share of 

the Medicare population and program spending, 

2011

Percent of beneficiaries Percent of spending

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

“disabled" category refers to beneficiaries under age 65 without ESRD. The “ESRD” category refers to 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 and exclusion of an “other” category.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2011.

 In 2011, beneficiaries ages 65 or older without ESRD composed 82.8 percent of the 

beneficiary population and accounted for 76.6 percent of Medicare spending. Beneficiaries 

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

population and spending.

 In 2011, average Medicare spending per beneficiary was $10,793.

 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 (65 years or older without ESRD) or for beneficiaries 

under age 65 with disability (non-ESRD). In 2011, $76,078 was spent per ESRD beneficiary 

versus $9,978 per aged beneficiary and $11,507 per beneficiary under age 65 enrolled 

because of disability.

Disabled

16.4%

ESRD

0.8%

Aged

82.8%

Disabled

17.5%

ESRD

5.0%

Aged

76.6%
20 Medicare beneficiary demographics

Chart 2-2. Medicare enrollment and spending by age group, 

2011

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 2011.

 For the aged population (65 or older), per capita expenditures increase with age. In 2011, 

per capita expenditures were $7,859 for beneficiaries 65 to 74 years old, $12,805 for those 

75 to 84 years old, and $13,788 for those 85 or older (data not shown).

 In 2011, per capita expenditures for Medicare beneficiaries under age 65 who were enrolled 

because of end-stage renal disease or disability were $12,630 (data not shown). 

Under 

65

16.7%

65-74

44.2%

75-84

26.3%

85+

12.7% Under 

65

20.3%

65-74

32.2%

75-84

31.3%

85+

16.2%

Average per capita = $10,793
A Data Book: Health care spending and the Medicare program, June 2015 21

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

account for a disproportionate share of 

Medicare spending, 2011

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 2011. 

 In 2011, most beneficiaries reported fair to excellent health. Fewer than 10 percent reported

poor health. 

 Medicare spending is strongly associated with self-reported health status. In 2011, per 

capita expenditures were $5,938 for those who reported excellent or very good health, 

$13,250 for those who reported good or fair health, and $21,440 for those who reported

poor health (data not shown).

Poor 

health

8.2%

Good or 

fair 

health

47.8%

Excellent 

or very 

good 

health

43.5%

Poor 

health

16.2%

Good or 

fair 

health

58.7%

Excellent 

or very 

good 

health

23.9%

Average per capita = $10,793
22 Medicare beneficiary demographics

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

grow rapidly in the next 20 years

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

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 The total number of people enrolled in the Medicare program will increase from about 50 

million in 2012 to about 81 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

64.0

81.4

88.9

92.4

98.7

106.1

112.7

0

20

40

60

80

100

120

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

Beneficiaries (in millions)

Historic Projected
A Data Book: Health care spending and the Medicare program, June 2015 23

Chart 2-5. Characteristics of the Medicare population, 2011

Percent of the Percent of the

Medicare Medicare

Characteristic population Characteristic population

Total (48,420,576) 100% Living arrangement

Institution 5%

Sex Alone 28

Male 45 Spouse 48

Female 55 Other 19

Race/ethnicity Education

White, non-Hispanic 76 No high school diploma 22

African American, High school diploma only 28

non-Hispanic 9 Some college or more 48

Hispanic 9

Other 5 Income status

Below poverty 15

Age 100–125% of poverty 8

<65 16 125–200% of poverty 21

65–74 44 200–400% of poverty 28

75–84 26 Over 400% of poverty 26

85+ 13

Supplemental insurance status

Health status Medicare only 16

Excellent or very good 43 Managed care 27

Good or fair 49 Employer-sponsored insurance 28

Poor 8 Medigap 14

Medigap with employerResidence sponsored insurance 1

Urban 77 Medicaid 14

Rural 23 Other 1

Note: “Urban” indicates beneficiaries living in metropolitan statistical areas (MSAs). “Rural” indicates beneficiaries living outside 

MSAs. In 2011, poverty was defined as income of $10,788 for people living alone and $13,609 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/hhes/www/poverty/data/threshld/). Some beneficiaries may have more 

than one type of supplemental insurance.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2011.

 Most Medicare beneficiaries are female and White. 

 Close to one-quarter of beneficiaries live in rural areas. 

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

 Close to one-quarter of beneficiaries have no high school diploma.

 Most Medicare beneficiaries have some source of supplemental insurance. Employersponsored plans are the most common source of supplemental coverage.

3

A Data Book: Health care spending and the Medicare program, June 2015 27

Chart 3-1. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, 2011

Note: Beneficiaries are assigned to the supplemental coverage category they were in for the most time in 2011. They could 

have had coverage in other categories during 2011. “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 2011 or who had Medicare 

as a secondary payer.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2011.

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

or replaces the Medicare benefit package. In 2011, about 86 percent of beneficiaries had

supplemental coverage or participated in Medicare managed care.

 About 44 percent of beneficiaries had private sector supplemental coverage such as medigap 

(about 17 percent) or employer-sponsored retiree coverage (about 26 percent).

 About 13 percent of beneficiaries had public sector supplemental coverage, primarily Medicaid.

 About 30 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 to it.

 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 by the charts. This chart excludes beneficiaries in 

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

4-1 excludes beneficiaries in Medicare Advantage. 

Medigap

17.3%

Employersponsored 

insurance

26.3%

Medicaid

12.2%

Other public sector

0.9%

Medicare managed 

care

29.8%

No supplemental 

coverage

13.5%
28 Medicare beneficiary and other payer financial liability

Chart 3-2. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, by 

beneficiaries’ characteristics, 2011

Number of Employer- Medicare Other

beneficiaries sponsored Medigap managed public Medicare

(thousands) insurance insurance Medicaid care sector only

All beneficiaries 42,697 26% 17% 12% 30% 1% 14%

Age

<65 6,983 11 3 32 24 1 29

65–69 10,119 26 17 6 32 1 18

70–74 8,129 30 19 6 34 1 10

75–79 6,826 30 20 7 33 1 10

80–84 5,253 33 23 6 28 1 10

85+ 5,087 31 25 7 27 1 10

Income category

<$10,000 5,481 5 9 48 24 1 12

$10,000–$19,999 11,880 14 15 14 33 2 22

$20,000–$29,999 8,689 27 19 1 36 1 16

$30,000–$39,999 5,034 34 21 0 31 0 14

$40,000–$59,999 5,375 41 20 0 28 0 11

$60,000–$79,999 2,620 50 19 0 23 0 6

≥$80,000 3,616 49 23 0 20 0 8

Eligibility status

Aged 35,492 29 20 6 31 1 12

Disabled 6,818 10 3 32 24 1 29

ESRD 346 16 13 26 22 2 21

Residence

Urban 32,546 27 15 9 34 1 14

Rural 10,151 25 25 14 16 1 20

Sex

Male 18,984 28 16 9 29 1 17

Female 23,713 25 18 12 30 1 13

Health status

Excellent/very good 19,021 31 20 5 30 1 13

Good/fair 20,287 24 16 13 31 1 15

Poor 3,206 14 9 27 22 2 26

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

most time in 2011. They could have had coverage in other categories during 2011. 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. Married people have joint income reported on the data file. We divided their income by 

1.26 to create an equal measure with unmarried people. “Urban” indicates beneficiaries living in metropolitan statistical 

areas (MSAs). “Rural” indicates beneficiaries living outside MSAs. Analysis includes beneficiaries living in the community. 

It excludes beneficiaries who were not in both Part A and Part B throughout their enrollment in 2011 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 rows may not sum to 100 due to rounding.

Source: MedPAC analysis of 2011 Medicare Current Beneficiary Survey, Cost and Use file.

 Beneficiaries most likely to have employer-sponsored supplemental coverage are those who are older 

than 64, have income over $20,000, are eligible because of age, and report better than poor health.

 Medigap is most common among those who are ages 65 or older, have income over $20,000, are 

eligible because of age or ESRD, are rural dwelling, and report better than poor health. 

 Medicaid coverage is most common among those who are under age 65, have income below $20,000, 

are eligible because of disability or ESRD, are rural dwelling, female, and report poor health. 

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

are under age 65, have income of $10,000 to $20,000, 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 2015 29

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

noninstitutionalized FFS Medicare beneficiaries, by 

source of payment, 2011

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. “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.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2011.

 Among FFS beneficiaries living in the community, the total cost of health care services 

(defined as 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 $13,900 in 2011. Medicare was the largest source of payment: It paid 65

percent of the health care costs for FFS beneficiaries living in the community, an average of 

$9,107 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 15 percent of beneficiaries’ costs, an average of $2,141 per beneficiary.

 Beneficiaries paid 13 percent of their health care costs out of pocket, an average of $1,840

per beneficiary.

 Public sources of supplemental coverage—primarily Medicaid—paid 6 percent of 

beneficiaries’ health care costs, an average of $848 per beneficiary.

Medicare

65%

Beneficiaries' 

direct spending

13%

Private 

supplements

15%

Public 

supplements

6%

Per capita total spending = $13,935
30 Medicare beneficiary and other payer financial liability

Chart 3-4. Per capita total spending on health care services 

among noninstitutionalized FFS beneficiaries, by 

source of payment, 2011

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.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2011.

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

the community in 2011. Per capita spending for the 10 percent of beneficiaries with the 

highest total spending averaged $65,127. Per capita spending for the 10 percent of 

beneficiaries with the lowest total spending averaged $389.

 Among FFS beneficiaries living in the community, Medicare paid a larger percentage as 

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

percentage as total spending increased. For example, Medicare paid 65 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

13 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.

389 1,810

4,577

10,190

22,767

65,127

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

< 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
A Data Book: Health care spending and the Medicare program, June 2015 31

Chart 3-5. Variation in and composition of total spending 

among noninstitutionalized FFS beneficiaries, by 

type of supplemental coverage, 2011

Note: FFS (fee-for-service). Beneficiaries are assigned to the supplemental coverage category they were in for the most time in 

2011. They could have had coverage in other categories during 2011. “Other public sector” includes federal and state 

programs not included in the other categories. “Private supplemental” includes employer-sponsored plans and individually 

purchased coverage. “Public supplemental” includes Medicaid, Department of Veterans Affairs, and other public coverage. 

Analysis excludes beneficiaries who are not in FFS Medicare or live in institutions such as nursing homes. It excludes 

beneficiaries who were not in both Part A and Part B throughout their enrollment in 2011 or had Medicare as a second payer. 

“Out-of-pocket” spending includes Medicare cost sharing and noncovered services, but not supplemental premiums.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2011.

 The level of total spending (defined as beneficiaries’ out-of-pocket spending as well as 

expenditures by Medicare, other public sector sources, and all private sector sources on all 

health care goods and services) among FFS beneficiaries living in the community varied by 

the type of supplemental coverage they had. Total spending was lower for those 

beneficiaries with no supplemental coverage than for those beneficiaries who had

supplemental coverage. Beneficiaries with Medicaid coverage had the highest level of total 

spending—63 percent higher than those with no supplemental coverage in 2011.

 Medicare was the largest source of payment for beneficiaries in each supplemental 

insurance category, but the second largest source of payment differed. Among those with 

employer-sponsored, medigap, or Medicaid supplemental coverage, combined public and

private supplemental coverage was the second largest source of payment. Among those 

who were covered only by Medicare, beneficiaries’ out-of-pocket spending was the second 

largest source of payment.

8,163

10,299

7,753

16,910

8,422 9,535

3,204

1,850

2,828

50

835

286

613

584

181

1,557

692

1,738

2,069

2,221

1,901

984

2,009

2,063

0

5,000

10,000

15,000

20,000

25,000

Employer

sponsored

Medigap Medigap and

employer

Medicaid No supplemental

coverage

Other

public sector

Dollars

Medicare Private supplemental Public supplemental Out of pocket
32 Medicare beneficiary and other payer financial liability

Chart 3-6. Out-of-pocket spending for premiums and health 

services per beneficiary, by insurance and health 

status, 2011

Note: ESI (employer-sponsored supplemental insurance). Out-of-pocket premium costs are much higher than in our June 2014

Data Book (especially for those who have medigap coverage) because the 2011 database includes Part C and Part D 

premiums in the out-of-pocket premium variable, whereas the 2010 database did not.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2011.

 This diagram illustrates out-of-pocket spending on services and premiums by beneficiaries’ supplemental 

insurance and health status in 2011. For example, beneficiaries who had only traditional Medicare coverage 

(“Medicare only”) and reported fair or poor health averaged $1,360 in out-of-pocket spending on premiums and 

$2,613 on services in 2011. Those who had Medicare-only coverage and reported good, very good, or excellent 

health averaged $1,439 in out-of-pocket spending on premiums and $1,744 on services.

 Insurance that supplements Medicare does not shield beneficiaries from all out-of-pocket costs. Beneficiaries 

who reported being in fair or poor health spent more out of pocket for health services than those reporting good, 

very good, or excellent health, regardless of the type of coverage they had to supplement Medicare, except for 

those who had both ESI and medigap coverage.

 Despite having supplemental coverage, beneficiaries who had ESI or medigap had out-of-pocket spending that 

was more than those who had only coverage under traditional Medicare (“Medicare only”). This result likely 

reflects the fact that beneficiaries who had ESI or medigap had higher incomes and were likely to have stronger 

preferences for health care.

 What beneficiaries actually pay out of pocket varies by type of supplemental coverage. For those with medigap, 

out-of-pocket spending generally reflects the premiums and costs of services not covered by Medicare. 

Beneficiaries with ESI usually pay less out of pocket for Medicare noncovered services than those with medigap 

but may pay more in Medicare deductibles and cost sharing.

1,360

1,439

2,749

3,152

4,573

4,780 4,7864,294

92 126

1,211

2,529

2,613

1,744

3,339

1,762

2,8442,083 1,729

1,935

1,140 832

2,191

2,022

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Medicare only ESI Medigap Medigap

& ESI

Medicaid Other

Dollars

Premiums paid by beneficiaries

Out-of-pocket spending by beneficiaries

 +

 Beneficiaries who report they are in fair or poor health

+ Beneficiaries who report they are in good, very good, or excellent health

 +  +  +  +  +
4

A Data Book: Health care spending and the Medicare program, June 2015 35

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

disproportionate share of Medicare spending, 2011

Percent of FFS beneficiaries Percent of FFS spending

Note: FFS (fee for service). Dual-eligible beneficiaries are designated as such if the months they were enrolled in Medicaid 

exceeded the months they were enrolled in supplemental insurance.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2011.

 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. As 18 percent of the Medicare FFS population, they represented 33 percent of 

aggregate Medicare FFS spending in 2011. 

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

beneficiaries compared with non-dual-eligible beneficiaries: In 2011, $19,113 was spent per 

dual-eligible beneficiary, and $8,685 was spent per non-dual-eligible beneficiary.

 In 2011, average total spendingwhich includes Medicare, Medicaid, supplemental 

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

about $30,500 per beneficiary, about twice the amount for other Medicare beneficiaries.

Dual 

eligible

18%

Non-dual 

eligible

82%

Dual 

eligible

33%

Non-dual 

eligible

67%
36 Dual-eligible beneficiaries

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

non-dual-eligible beneficiaries to be under age 65 

and disabled, 2011

Dual-eligible beneficiaries Non-dual-eligible beneficiaries

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

age 65, they are counted as aged beneficiaries. Dual-eligible beneficiaries are designated as such if the months they were 

enrolled in Medicaid exceeded the months they were enrolled in supplemental insurance. Totals may not sum to 100 

percent due to rounding.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2011.

 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 2011, 44 percent of dual-eligible beneficiaries were under age 65 

and disabled compared with 12 percent of the non-dual-eligible population. 

Under 65 

(disabled)

44%

65-74

25%

75-84

18%

85+

12%

Under 65 

(disabled)

12%

65-74

47%

75-84

28%

85+

13%
A Data Book: Health care spending and the Medicare program, June 2015 37

Chart 4-3. Dual-eligible beneficiaries are more likely than nondual-eligible beneficiaries to report poorer health 

status, 2011

Dual-eligible beneficiaries Non-dual-eligible beneficiaries

Note: Dual-eligible beneficiaries are designated as such if the months they were enrolled in Medicaid exceeded the months they 

were enrolled in supplemental insurance. Totals may not sum to 100 percent due to rounding or nonresponse to survey 

question.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2011.

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

poorer health status. In 2011, 20 percent of dual-eligible beneficiaries reported being in poor 

health compared with 6 percent of non-dual-eligible beneficiaries. 

 Almost half of non-dual-eligible beneficiaries (47 percent) reported being in excellent or very 

good health in 2011. In comparison, less than one-fifth (19 percent) of dual-eligible 

beneficiaries reported being in excellent or very good health.

Poor 

health

20%

Good or 

fair health

59%

Excellent 

or very 

good 

health

19%

Poor 

health

6%

Good or 

fair health

46%

Excellent 

or very 

good 

health

47%
38 Dual-eligible beneficiaries

Chart 4-4. Demographic differences between dual-eligible

beneficiaries and non-dual-eligible beneficiaries, 2011

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

Sex

Male 39% 46%

Female 61 54

Race/ethnicity

White, non-Hispanic 58 79

African American, non-Hispanic 18 8

Hispanic 14 8

Other 10 4

Limitations in ADLs

No ADLs 43 69

1–2 ADLs 27 21

3–6 ADLs 31 10

Residence

Urban 70 78

Rural 30 22

Living arrangement

Institution 18 2

Alone 30 28

Spouse 14 54

Children, nonrelatives, others 37 16

Education

No high school diploma 48 18

High school diploma only 26 29

Some college or more 23 52

Income status

Below poverty 61 9

100–125% of poverty 18 7

125–200% of poverty 17 21

200–400% of poverty 4 33

Over 400% of poverty 1 30

Supplemental insurance status

Medicare or Medicare/Medicaid only 93 18

Medicare managed care 3 31

Employer-sponsored insurance 1 32

Medigap 1 17

Medigap/employer 0 1

Other* 4 1

Note: ADL (activity of daily living). Dual-eligible beneficiaries are designated as such if the months they were enrolled in Medicaid exceeded

the months they were enrolled in other supplemental insurance. “Urban” indicates beneficiaries living in metropolitan statistical areas 

(MSAs). “Rural” indicates beneficiaries living outside MSAs. In 2011, poverty was defined as income of $10,788 for people living 

alone and $13,609 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/hhes/www/poverty/data/threshld/). 

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2011.

 Dual-eligible beneficiaries qualify for Medicaid due in part to low incomes. In 2011, 61 percent lived

below the federal poverty level, and 95 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, reside in a rural area, and live in an institution. They are less likely to have sources of 

supplemental coverage other than Medicaid.
A Data Book: Health care spending and the Medicare program, June 2015 39

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

between dual-eligible beneficiaries and non-dualeligible beneficiaries, 2011

Dual-eligible Non-dual-eligible

Service beneficiaries beneficiaries

Average FFS Medicare payment for all beneficiaries

Total Medicare FFS payments $19,113 $8,685

Inpatient hospital 5,488 2,772

Physiciana3,308 2,416

Outpatient hospital 2,040 1,168

Home health 854 416

Skilled nursing facilityb1,489 561

Hospice 511 229

Prescribed medicationc5,396 1,117

Percent of FFS beneficiaries using service

Percent using any type of service 97.5% 86.3%

Inpatient hospital 23.6 16.2

Physiciana92.6 82.1

Outpatient hospital 79.0 61.0

Home health 13.1 8.2

Skilled nursing facilityb7.8 4.1

Hospice 3.6 2.0

Prescribed medicationc78.0 44.4

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

as such if the months they were enrolled in Medicaid exceeded the months they were enrolled in supplemental insurance. 

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, Cost and Use file 2011.

 Average per capita Medicare FFS spending for dual-eligible beneficiaries was more than 

twice that for non-dual-eligible beneficiaries$19,113 compared with $8,685. 

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

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

higher use of these services by dual-eligible beneficiaries compared with their non-dualeligible counterparts. Dual-eligible beneficiaries are more likely than non-dual-eligible 

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

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

among dual-eligible beneficiaries, 2011

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

beneficiaries are designated as such if the months they were enrolled in Medicaid exceeded the months they were 

enrolled in supplemental insurance. Totals may not sum to 100 percent due to rounding.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use files 2011.

 Annual Medicare FFS spending on dual-eligible beneficiaries is concentrated among a small 

number. The costliest 20 percent of dual-eligible beneficiaries accounted for 66 percent of 

Medicare spending and 63 percent of total spending on dual-eligible beneficiaries in 2011. In

contrast, the least costly 50 percent of dual-eligible beneficiaries accounted for only 9

percent of Medicare spending and 9 percent of total spending on dual-eligible beneficiaries. 

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

in 2011 was about twice that for non-dual-eligible beneficiaries—about $30,500 compared 

with about $15,178.

9

50

9

25

30

28

34

15

37

32

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 2015 43

Chart 5-1. In-hospital and 30-day postdischarge mortality rates 

improved from 2010 to 2013

Risk-adjusted rate Risk-adjusted rate Directional

per 100 eligible per 100 eligible change in rate,

Condition or procedure discharges, 2010 discharges, 2013 2010–2013

In-hospital mortality

Acute myocardial infarction 7.33 5.73 Better

Congestive heart failure 3.54 2.89 Better

Stroke 10.00 8.06 Better

Hip fracture 3.09 2.50 Better

Pneumonia 3.73 2.91 Better

30-day postdischarge mortality

Acute myocardial infarction 11.38 11.54 No difference

Congestive heart failure 9.56 9.48 No difference

Stroke 23.08 21.77 Better

Hip fracture 8.24 8.18 No difference

Pneumonia 9.10 8.31 Better

Note: Rates are calculated based on the discharges eligible to be counted in each measure. Rates do not include deaths in 

non–inpatient prospective payment system hospitals or Medicare Advantage plans. “Better” indicates that the riskadjusted rate decreased by a statistically significant amount from 2010 to 2013 using a p ≤ 0.01 criterion. “No difference” 

indicates that the change in the rate was not statistically significant from 2010 to 2013 using a p ≤ 0.01 criterion.

Source: MedPAC analysis of CMS Medicare Provider Analysis and Review data using Agency for Healthcare Research and 

Quality (AHRQ) Inpatient Quality Indicators version 4.1b (with modifications for 30-day mortality rate calculations).

 Our most recent analysis of mortality rates of Medicare beneficiaries treated for the five 

medical conditions listed in this chart shows generally positive trends. We used five of the 

Inpatient Quality Indicators developed by AHRQ to measure risk-adjusted mortality rates

during a hospital stay for treatment of the referenced medical condition (the in-hospital rate) 

as well as mortality in the 30-day period following Medicare patients’ discharges from the 

hospital. The rates are calculated using software developed by AHRQ applied to Medicare 

inpatient hospital discharge data. We examine the magnitude and direction of changes in 

the rates over time to assess whether inpatient care quality for Medicare beneficiaries is 

improving, worsening, or not changing. 

 Risk-adjusted rates of in-hospital mortality for all five conditions improved (i.e., the rates 

declined) by a statistically significant amount from 2010 to 2013.

 Over the same period (2010 to 2013), risk-adjusted rates of mortality within 30 days after 

discharge also improved (declined) for hospital stays related to treatment of stroke and 

pneumonia and remained unchanged (showed no statistically significant improvement or 

decline) for patients treated for acute myocardial infarction, congestive heart failure, and hip 

fracture.
44 Quality of care in the Medicare program

Chart 5-2. Most hospital inpatient patient safety indicators 

were stable from 2010 to 2013

Patient safety indicator

Risk-adjusted rate

per 100 eligible

discharges, 2010

Risk-adjusted rate

per 100 eligible

discharges, 2013

Directional change

in rate,

2010–2013

Death among surgical inpatients with 

treatable serious complications

11.45 11.72 No difference

Iatrogenic pneumothorax 0.02 0.03 No difference

Postoperative respiratory failure 0.88 0.83 No difference

Postoperative PE or DVT 0.41 0.35 Better

Postoperative wound dehiscence 0.22 0.17 No difference

Accidental puncture or laceration 0.14 0.13 Better

Note: PE (pulmonary embolism), DVT (deep vein thrombosis). “Better” indicates that the risk-adjusted rate decreased by a 

statistically significant amount from 2010 to 2013 using a p ≤ 0.01 criterion. 

Source: MedPAC analysis of CMS Medicare Provider Analysis and Review data using Agency for Healthcare Research and 

Quality (AHRQ) Patient Safety Indicators, version 4.1b.

 We analyzed six Patient Safety Indicators (PSIs) developed by AHRQ to measure the 

frequency of potentially preventable adverse events that can occur during an inpatient stay. 

Examples of PSIs include the development immediately after surgery of a blood clot that can 

suddenly obstruct an artery or vein, or a patient’s death after suffering serious but treatable 

complications following surgery. The rates are calculated using AHRQ software and 

Medicare inpatient hospital discharge data.

 From 2010 to 2013, rates improved by a statistically significant amount for two of the six 

PSIs we analyzed: development of postoperative pulmonary embolism or deep-vein 

thrombosis, and accidental puncture or laceration during a procedure. The other four PSIs 

did not change (did not improve or worsen) from 2010 to 2013. The rate changes are tested 

for statistical significance using a stringent criterion (p ≤ 0.01) to minimize the probability that 

the observed change in the rates is because of random variation.

 Care should be taken in interpreting all of the reported PSI rates. These measures assess 

rates of very rare events, which makes it difficult to detect statistically significant changes, 

even when the measurement sample includes all inpatient prospective payment system

hospitals. Further, the statistical reliability of some, if not all, PSIs can be affected by 

variations over time in hospital diagnostic coding practices. The Commission monitors these 

PSIs as high-level indicators, but not definitive evidence, of trends in the rates of these types 

of serious treatment-related harm to patients that can be avoided with adherence to known 

clinical safety practices. 
A Data Book: Health care spending and the Medicare program, June 2015 45

Chart 5-3. SNFs improved on risk-adjusted rates of community 

discharge and potentially avoidable 

rehospitalizations, but there was no change in 

patient functional status

Measure 2011 2012 2013

Discharged to the community 33.2% 35.6% 37.5%

Potentially avoidable rehospitalizations during SNF stay 12.4 11.5 11.1

Potentially avoidable rehospitalizations during 30 days 

 after discharge from SNF 5.8 5.6 5.5

Combined rate of rehospitalization during SNF stay or 

 within 30 days after discharge from SNF 

16.5 15.5 15.1

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

Rate of no decline in mobility 87.2 87.2 87.2

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

High rehospitalization rates indicate worse quality. 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. The 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 rehospitalization 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: Kramer, A., M. Lin, R. Fish, et al. 2015. Refinement of community discharge, potentially avoidable readmission, and 

functional outcome SNF quality measures. Report prepared by staff from Providigm LLC for the Medicare Payment 

Advisory Commission. Washington, DC: MedPAC. 

 Rates of risk-adjusted community discharge and potentially avoidable rehospitalization 

among SNF patients improved between 2012 and 2013. A higher percentage of 

beneficiaries were discharged home, and a lower percentage was readmitted to an acute 

care hospital for 1 of 13 potentially avoidable conditions. The rates vary slightly from rates 

reported last year because of minor changes in the methodologies. 

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

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

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 risk-adjusted measures of change in functional status were essentially unchanged 

between 2012 and 2013. The mobility measures are composites of the patients’ abilities 

regarding bed mobility, transfer, and ambulation, and they consider the likelihood that a 

patient will change, given her functional ability at admission. A facility admitting patients with 

worse prognoses will have a lower expected rate of achieving these outcomes, and this 

difference will be reflected in the risk-adjusted rates. The rate of improvement in mobility 

shows the share of stays with improvement in one, two, or three ADLs: bed mobility, 

transfer, and ambulation. The rate of no decline in mobility is the share of stays with no 

decline in any of the three ADLs. The rates differ from those reported last year because of

changes in the methodologies.
46 Quality of care in the Medicare program

Chart 5-4. Risk-adjusted home health quality measures held 

steady or improved slightly from 2008 to 2013

Functional measure 2008 2011 2012 2013

Improvements in:

Transferring 51% 51% 52% 52%

Bathing 62 62 63 63

Walking N/A 53 55 57

Medication management N/A 43 45 46

Pain management N/A 65 65 65

Note: N/A (not applicable). The measures for walking, medication management, and pain management changed in 2011, and 

therefore the 2008 results shown are not comparable with data from later years.

Source: MedPAC analysis of Outcome and Assessment Information Set, home health standard analytic file, and CMS Home 

Health Compare data.

 Medicare publishes risk-adjusted home health quality measures that track changes in the 

functional abilities for patients who receive home health care. These measures do not 

include home health episodes that end with a hospitalization.

 Since 2008, the rates of functional improvement have generally held steady or have slightly 

improved each year. 
A Data Book: Health care spending and the Medicare program, June 2015 47

Chart 5-5. Dialysis quality of care: Some measures show 

progress, others need improvement, 2008–2012

Outcome measure 2008 2010 2012

Percent of in-center hemodialysis patients:

Receiving adequate dialysis N/A 96% 97%

Anemia measures

Mean hemoglobin 10 to < 12 g/dL 51% 60 71

Mean hemoglobin ≥ 12 g/dL* 41 30 7

Mean hemoglobin < 10 g/dL 8 10 22

Dialyzed with an AV fistula* 50 56 60

Percent of peritoneal dialysis patients:

Receiving adequate dialysis N/A 88 90

Anemia measures

Mean hemoglobin 10 to < 12 g/dL 52 60 64

Mean hemoglobin ≥ 12 g/dL* 36 27 7

Mean hemoglobin < 10 g/dL 12 14 29

Percent of all dialysis patients wait-listed for a kidney 17 17 17

Renal transplant rate per 100 dialysis-patient years 4.4 4.1 3.7

Annual mortality rate per 100 patient years* 19.7 18.5 17.1

Total admissions per patient year* 1.9 1.9 1.7

Hospital days per patient year 12.9 12.1 11.0

Note: g/dL (grams per deciliter [of blood]), AV (arteriovenous), N/A (not available). 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, use 

of fistulas, and anemia management 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. 

Because of CMS’s claims reporting requirements, 2010 dialysis adequacy reflects data from July 1, 2010, to December 

31, 2010.

*Lower values suggest higher quality.

Source: Compiled by MedPAC from Fistula First, the United States Renal Data System, and 2010 and 2012 institutional outpatient 

files from CMS. 

 Quality of dialysis care is mixed. Performance has improved on some measures, but 

performance on others remains unchanged.

 All hemodialysis patients require vascular access—the site on the patient’s body where blood 

is removed and returned during dialysis. Between 2008 and 2012, use of arteriovenous 

fistulas, considered the best type of vascular access, increased from 50 percent to 60 percent 

of hemodialysis patients. Between 2008 and 2012, overall adjusted mortality rates decreased 

but remained high among dialysis patients.

 Between 2010 and 2012, the proportion of hemodialysis patients receiving adequate dialysis 

remained high. Between 2008 and 2012, 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 2008 and 2012, the proportion of 

dialysis patients accepted on the kidney transplant waiting list remains low, and the renal 

transplant rate per 100 dialysis patient years declined. 
48 Quality of care in the Medicare program

Chart 5-6. Medicare Advantage quality measures generally 

show improvement between 2012 and 2014

HMO averages

(cost plans included) Local PPO averages

Measures 2012 2013 2014 2012 2013 2014

HEDIS®administrative measures 

Osteoporosis management 22.5 24.8 29.2a19.3 19.4 22.7ab

Rheumatoid arthritis management 72.6 75.4a76.1 77.7 79.3 80.6b

HEDIS®hybrid measures 

BMI documented 68.1 81.7a90.1ab63.2 77.1a86.5ab

Colorectal cancer screening 60.0 63.1a65.1ab55.5 59.1a61.8ab

Cholesterol screening for patients with heart disease 88.9 89.5 89.8b88.4 87.7 88.0b

Controlling blood pressure 64.0 63.9 65.8a61.3 60.0 63.9a

Cholesterol screening for patients with diabetes 88.3 88.7 89.6a86.7 86.7 88.0a

Eye exam to check for damage from diabetes 66.0 67.6 68.8 64.3 65.5 67.3 

Kidney function testing for members with diabetes 89.8 90.5a91.4ab88.1 88.5 89.6ab

Diabetics not controlling blood sugar (lower rate better) 26.5 25.4 24.3b28.4 28.6 25.1ab

Measures from HOSc

Advising physical activity 48.6 50.0a50.3b47.7 49.1a48.4b

Improving bladder control 34.9 34.6 34.3b35.8 35.9 36.3b

Reducing the risk of falling 60.5 61.8a60.8b54.3 56.6a56.5b

Other measures based on HOS

Improving or maintaining physical health 65.5 66.5a68.8a65.6 67.1a68.3a

Improving or maintaining mental health 76.5 77.5a79.1ab77.8 78.0 80.3ab

Measures from CAHPS®

Annual flu vaccine 68.0 70.7a72.3a68.8 72.0a73.8

Ease of getting needed care and seeing specialists 84.4 84.9 83.6ab85.9 86.1 85.3ab

Getting appointments and care quickly 75.5 75.7 76.0b76.5 76.2 77.2ab

Overall rating of health care quality 85.8 85.9 86.0 86.5 86.3 86.4

Overall rating of plan 86.2 86.2 85.8 85.1 85.0 85.1

Care coordination N/R 84.8 85.1 N/R 85.8 85.8

Note: HMO (health maintenance organization), PPO (preferred provider organization), HEDIS®(Healthcare Effectiveness Data and 

Information Set, a registered trademark of the National Committee for Quality Assurance), BMI (body mass index), HOS 

(Health Outcomes Survey), CAHPS®(Consumer Assessment of Healthcare Providers and Systems, a registered trademark 

of the Agency for Healthcare Research and Quality), N/R (not reported). Data exclude regional PPOs, private fee-for-service 

plans, and employer-directed plans. Cost-reimbursed HMO plans are included. HEDIS administrative measures are 

calculated using administrative data; hybrid measures can involve sampling medical records to determine a rate. Averages 

are for all reporting plans in each year; results may therefore differ from those shown in other MedPAC reporting of scores for 

plans that report measures for both years of a two-year time period.

a Statistically significant difference in performance from previous year (p < 0.05).

b Statistically significant difference in performance in 2014 between HMO and PPO results (p < 0.05).

c Results shown for HEDIS measures taken from HOS (the three measures listed) include scores for plans not reporting 

other HEDIS data. Results may therefore differ from those shown in other MedPAC reporting of these scores.

Source: MedPAC analysis of CMS HEDIS public use files for HEDIS measures and star ratings data for measures based on HOS 

and for CAHPS measures.

(Chart continued on next page)
A Data Book: Health care spending and the Medicare program, June 2015 49

Chart 5-6. Medicare Advantage quality measures generally 

show improvement between 2012 and 2014 

(continued) 

 The chart displays the simple averages across all plans in each category (HMOs and local 

PPOs) for each year. 

 The measures listed are included in the measures that CMS uses to develop plan star 

ratings, which are the basis of quality bonus payments for plans (see Chart 9-12). For star 

rating purposes, measures have different weights. Process measures, such as each of the 

HEDIS administrative measures in the table, have a weight of 1.0. Patient experience 

measures, including the last four items in the table, have a weight of 1.5. Outcome 

measures have a weight of 3. The table includes two HEDIS outcome measures used in the 

star ratings: controlling blood pressure (for all patients with hypertension) and poor control of 

blood glucose among diabetics. In the last year, the former measure showed statistically 

significant improvement for both HMO and PPO enrollees, and the latter measure showed 

statistically significant improvement among PPO enrollees. The HOS-based outcome 

measures, which track changes over a two-year period in plan enrollees’ self-reported 

mental and physical health, improved from 2013 to 2014 for both HMOs and PPOs. 

 Among HMOs, 10 of the 21 measures shown in the chart had statistically significant 

improvement between 2013 and 2014. In addition to the HEDIS- and HOS-based outcome 

measures, HMOs improved on four screening or testing measures, on influenza vaccination 

rates, and on osteoporosis management for women with a fracture. HMOs showed a decline 

in the CAHPS measure of ease of getting needed care and seeing specialists, as was true 

of PPOs. Among local PPOs, 11 measures showed statistically significant improvement 

between 2013 and 2014, including the same 4 screening or testing measures with HMO 

improvement. The HEDIS- and HOS-based outcome measures also showed improvement. 

 In 2014, HMOs performed better than local PPOs on eight measures shown in the chart. For 

five of the eight HEDIS hybrid measures—which are measures that can involve 

documentation from a review of a sample of medical records—HMOs continue to perform 

better than local PPOs, though PPOs showed statistically significant improvement on six of 

the hybrid measures between 2013 and 2014. HMOs also performed better than local PPOs 

in osteoporosis management in women who have had a fracture; advising enrollees to 

engage in physical activity; reducing the risk of falling among members with a problem 

falling, walking, or maintaining balance; and the CAHPS measure of the overall rating of the 

plan. 

 In 2014, local PPOs performed better than HMOs on eight measures, including a measure 

of rheumatoid arthritis management and a measure of improving bladder control. In patient 

experience measures, PPOs performed better than HMOs in members’ perception of their 

ease of getting needed care, but HMO plans had higher overall plan ratings. 

 HEDIS includes a measure of hospital readmissions that is an element of the CMS star 

system (readmission within 30 days of a hospital admission, for any cause). For this 

measure (with a weight of 3 in the star rating system), HMOs and local PPOs had 

readmission rates below expected rates, and results improved between 2013 and 2014 for 

both types of plans (not shown in chart). 
50 Quality of care in the Medicare program

Chart 5-7. Use and spending for selected services detected by 

measures of low-value care in fee-for-service 

Medicare, 2012 

Measure

Broader version of measures Narrower version of measures

Count per 

100 

beneficiaries

Share of 

beneficiaries 

affected

Spending 

(millions)

Count per 

100 

beneficiaries

Share of 

beneficiaries 

affected

Spending 

(millions)

Imaging for nonspecific

low back pain 12.0 8.9% $224 3.6 3.3% $67

PSA screening at age ≥ 75 years 9.6 6.6 82 5.5 4.5 47

Colon cancer screening 

for older adults 8.7 8.2 435 0.4 0.4 4

Carotid artery disease screening in 

asymptomatic patients 5.5 5.0 286 4.5 4.2 236

Preoperative chest radiography 5.1 4.6 74 1.3 1.2 19

Stress testing for stable 

coronary disease 4.8 4.6 1,334 0.5 0.5 152

PTH testing in early CKD 4.2 2.4 77 3.7 2.1 67

Head imaging for headache 3.8 3.4 248 2.6 2.4 167

Cervical cancer screening at 

age > 65 years 2.9 2.9 59 2.6 2.6 52

Homocysteine testing in 

cardiovascular disease 1.5 1.2 12 0.5 0.4 4

Head imaging for syncope 1.3 1.2 82 0.8 0.8 55

Preoperative echocardiography 0.8 0.8 61 0.3 0.2 20

Carotid artery disease screening 

for syncope 0.7 0.7 38 0.5 0.5 26

Preoperative stress testing 0.7 0.7 186 0.2 0.2 66

CT for rhinosinusitis 0.6 0.5 39 0.3 0.3 18

BMD testing at frequent intervals 0.5 0.5 10 0.3 0.3 7

Cancer screening for patients with 

CKD on dialysis 0.4 0.3 7 0.1 0.1 1

PCI/stenting for stable 

coronary disease 0.3 0.3 1,258 0.1 0.1 204

Arthroscopic surgery for knee 

osteoarthritis 0.3 0.3 222 0.1 0.1 116

Vertebroplasty 0.2 0.2 361 0.2 0.2 352

Renal artery stenting 0.2 0.2 445 0.0 0.0 85

IVC filter placement 0.2 0.2 40 0.2 0.2 40

Hypercoagulability testing after DVT 0.1 0.1 4 0.0 0.0 1

Preoperative PFT 0.1 0.1 1 0.1 0.1 1

Carotid endarterectomy for 

asymptomatic patients 0.1 0.1 176 0.0 0.0 75

EEG for headache 0.1 0.1 4 0.0 0.0 2

Total 64.5 36.9 5,765 28.4 20.8 1,884

Note: PSA (prostate-specific antigen), PTH (parathyroid hormone), CKD (chronic kidney disease), CT (computed tomography),

BMD (bone mineral density), PCI (percutaneous coronary intervention), IVC (inferior vena cava), DVT (deep vein 

thrombosis), PFT (pulmonary function test), EEG (electroencephalography). “Count” refers to the number of unique 

services. Numbers may not sum to totals due to rounding. The total for share of beneficiaries affected does not equal the 

column sum because some beneficiaries received multiple low-value services.

Source: MedPAC analysis of 100 percent Medicare claims using measures developed by Schwartz et al. (2014).

(Chart continued on next page)
A Data Book: Health care spending and the Medicare program, June 2015 51

Chart 5-7. Use and spending for selected services detected by 

measures of low-value care in fee-for-service 

Medicare, 2012 (continued)

 Low-value care is the provision of a service that has little or no clinical benefit, or a service 

for which the risk of harm outweighs its potential benefit.

 The measures of low-value care in this chart were developed by a team of researchers that 

included two physicians (Schwartz, A. L., B. E. Landon, A. G. Elshaug, M. E. Chernew, and 

J. M. McWilliams. 2014. Measuring low-value care in Medicare. JAMA Internal Medicine

174: 1067–1076). The measures are drawn from evidence-based lists—such as Choosing 

Wisely—and the medical literature. We applied these measures to 100 percent Medicare 

claims data from 2012.

 The researchers developed two versions of each measure: a broader one with higher

sensitivity (and lower specificity) and a narrower one with higher specificity (and lower 

sensitivity). Increasing the sensitivity of a measure captures more potentially inappropriate 

use, but also is more likely to misclassify some appropriate use as inappropriate. Increasing 

a measure’s specificity leads to less misclassification of appropriate use as inappropriate at 

the expense of potentially missing some inappropriate use. 

 Based on the broader versions of each measure, there were about 65 instances of lowvalue care per 100 beneficiaries across all the measures, and about 37 percent of 

beneficiaries received at least one low-value service. Based on the narrower versions of 

each measure, there were about 28 instances of low-value care per 100 beneficiaries, and 

about 21 percent of beneficiaries received at least one low-value service.
52 Quality of care in the Medicare program

Chart 5-8. Use of services detected by selected measures of 

low-value care, by category, 2012 

Note: “Count” refers to the number of unique services provided to fee-for-service Medicare beneficiaries. 

Source: MedPAC analysis of 100 percent Medicare claims using measures developed by Schwartz et al. (2014).

 Following the methodology described in Schwartz et al. (2014), we assigned each of the 26 

measures of low-value care in Chart 5-7 to 1 of 6 clinical categories. 

 Imaging and cancer screening measures accounted for most of the volume of low-value 

care in 2012: about 70 percent of the instances of low-value care per 100 beneficiaries in 

both the broader and narrower versions of the measures. The imaging category includes 

back imaging for patients with nonspecific low back pain and screening for carotid artery 

disease in asymptomatic patients. The cancer screening category includes prostate-specific 

antigen testing for men age 75 or older and colorectal cancer screening for older patients.

 Because we used claims data to measure low-value care, our analysis likely represents a 

conservative estimate of the amount of low-value care in Medicare. 

0

10

20

30

40

50

60

70

Broader measures Narrower measures

Count per 100 beneficiaries

Other surgery

Cardiovascular testing and procedures

Diagnostic and preventive testing

Preoperative testing

Cancer screening

Imaging

Total: 65

Total: 28
A Data Book: Health care spending and the Medicare program, June 2015 53

Chart 5-9. Spending on services detected by selected 

measures of low-value care, by category, 2012

Note: Spending includes Medicare Part A and Part B program spending and beneficiary cost sharing for services detected by 

measures of low-value care. To estimate spending, we used standardized prices to adjust for regional differences in 

payment rates. The standardized price is the median payment per service in 2009. This method was developed by 

Schwartz et al. (2014). 

Source: MedPAC analysis of 100 percent Medicare claims using measures developed by Schwartz et al. (2014).

 Cardiovascular testing and procedures and imaging accounted for most of the spending on 

low-value care, comprising 60 percent of total spending on low-value care using the 

narrower measures and 72 percent of total spending using the broader measures. 

 The cardiovascular testing and procedures category includes stress testing for stable 

coronary disease and percutaneous coronary intervention with balloon angioplasty or stent 

placement for stable coronary disease. The imaging category includes screening for carotid 

artery disease in asymptomatic patients and head imaging for uncomplicated headache.

 The spending estimates probably understate actual spending on low-value care because 

they do not include downstream services (e.g., follow-up tests and procedures) that may 

result from the initial low-value service.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Broader measures Narrower measures

Medicare spending (billions of dollars)

Other surgery

Cardiovascular testing and procedures

Diagnostic and preventive testing

Preoperative testing

Cancer screening

Imaging

Total: $5.8

Total: $1.9

6

A Data Book: Health care spending and the Medicare program, June 2015 57

Chart 6-1. Annual changes in number of acute care hospitals 

participating in the Medicare program, 2000–2013

Note: “Hospitals” in this chart refers specifically to general short-term acute care hospitals. 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 or critical access hospital.

Source: MedPAC analysis of CMS’s Provider of Service file, inpatient prospective payment system final rule impact file, and 

hospital cost reports.

 The number of hospital closures exceeded the number of openings in 2013, with 25 acute 

care hospitals closing and 15 hospitals starting participation in the Medicare program.

 In 2013, over 4,600 acute care hospitals (including critical access hospitals) participated in 

the Medicare program. 

44

48 49

73

85

65

37

32

39 41 39

17 17 15

69

63

34

46

63

32

28 28

24

30

5

14

24 25

0

10

20

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Number of hospitals

Calendar year

Opened Closed
58 

Acute inpatient services

Chart 6-2. Percent change in hospital employment, by 

occupation, 2008–2013

Percent change in

Total hospital Total hospital total hospital 

employment employment employment

(May 2008) (May 2013) (2008–2013)

All hospital occupations 5,096,190 5,271,310 3.4%

Internists (direct employment) 8,100 11,900 46.9

Life, physical, and social science 25,550 32,460 27.1

Computer and math science 52,180 65,970 26.4

Surgeons (direct employment) 5,730 7,110 24.1

Diagnostic sonographers 28,930 34,580 19.5

Physician assistants 16,820 19,380 15.2

Pharmacists 55,530 63,870 15.0

Business and finance 92,160 105,990 15.0

Management 175,390 195,120 11.2

Registered nurses 1,458,520 1,553,080 6.5

Radiation technologists 125,640 133,710 6.4

HC clinicians and technical 2,712,350 2,878,800 6.1

Community and social services 103,380 100,110 3.2

LPNs/LVNs 163,360 112,480 31.1

Note: HC (health care), LPN (licensed practical nurse), LVN (licensed vocational nurse). “HC clinicians and technical 

occupations” represents an overall sum of occupations such as physicians, nurses, pharmacists, and imaging technicians. 

Source: MedPAC analysis of Bureau of Labor Statistics, Occupational Employment Statistics data set as of September 2013.

 From May 2008 to May 2013, hospital employment increased 3.4 percent. By the end of this

period, the hospital sector employed over 5.2 million individuals. 

 Six occupations with notable growth in the hospital sector from 2008 to 2013 include 

internists employed directly by hospitals (46.9 percent); life, physical, and social science 

positions (27.1 percent); computer and math science positions (26.4 percent); surgeons 

employed directly by hospitals (24.1 percent); diagnostic sonographers (19.5 percent); and 

physician assistants (15.2 percent). Growth in the two physician groups suggests that 

hospitals have been more active in recent years in hiring physicians directly. Growth in 

computer and math science positions, in particular, may reflect hospitals’ efforts to 

implement electronic health record systems.

 LPNs and LVNs, as well as community and social service positions (social workers), were 

among the few occupations to experience a decline in the number of individuals employed 

by hospitals from 2008 to 2013, declining by 31.1 percent and 3.2 percent, respectively. 

During the same period, the number of registered nurses employed by hospitals increased 

6.5 percent (94,560 registered nurses), suggesting a continued shift toward employing 

nurses with a higher level of training.

 In 2013, hospital employment accounted for approximately 3.5 percent of the all U.S. 

nonfarm employment. 
A Data Book: Health care spending and the Medicare program, June 2015 59

Chart 6-3. Growth in Medicare’s FFS payments for hospital 

inpatient and outpatient services, 1999–2013

Note: FFS (fee-for-service). Analysis includes inpatient services covered by the acute inpatient prospective payment system 

(PPS); psychiatric, rehabilitation, long-term care, cancer, and children’s hospitals and units; 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 kidney disease. The growth in 

spending was slowed in 2006 by increases in the number of Medicare Advantage enrollees, who are not included in these 

aggregate totals.

Source: CMS, Office of the Actuary.

 Aggregate Medicare FFS inpatient spending was $151 billion and outpatient spending was 

$48 billion in 2013. From 2012 to 2013, inpatient spending decreased about 1 percent, while 

outpatient spending increased about 8 percent.

 A freeze in inpatient payment rates in the Balanced Budget Act of 1997 reduced growth in 

inpatient spending from 1999 to 2000. Spending increased substantially between 2001 and 

2005 but remained relatively unchanged from 2005 to 2007. Payment growth began to 

increase in 2008 for inpatient and, particularly, outpatient services.

 Outpatient spending has increased as a share of total Medicare hospital-based spending in 

the past 15 years. In 1999, outpatient spending accounted for almost 16 percent of all 

hospital spending; in 2013, outpatient spending grew to approximately 24 percent of total

Medicare hospital spending.

 Outpatient spending per FFS beneficiary was about $1,440 in 2013, up from approximately 

$590 in 1999, an increase of 144 percent.

97 98 108 116 122 129 137 138 139 143 145 148 149 150 151

18 18

20

21 22

25

28 29 31 32 35 37 41 44 48

0

50

100

150

200

250

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Billions of dollars

Calendar year

Outpatient

Inpatient
60 

Acute inpatient services

Chart 6-4. Share of Medicare acute care hospital inpatient 

discharges by hospital group, 2013

Hospitals Medicare discharges

Hospital group Number

Share 

of total

Number

(thousands)

Share 

of total

All PPS and CAHs 4,662 100.0% 9,906 100.0%

CAHs 1,329 28.5 347 3.5

PPS hospitals 3,333 71.5 9,560 96.5

Urban (PPS only) 2,473 53.0 8,488 88.8

 Large urban 1,350 29.0 4,667 48.8

 Other urban 1,123 24.1 3,821 40.0

Rural (PPS only) 860 18.4 1,072 11.2

 Rural referral 112 2.4 286 3.0

 Sole community 371 8.0 492 5.1

 Other rural < 50 beds 200 4.3 94 1.0

 Other rural ≥ 50 beds 177 3.8 200 2.1

Tax status (PPS only)

 Voluntary 1,908 57.2 6,753 70.6

 Proprietary 872 26.2 1,685 17.6

 Government 553 16.6 1,122 11.7

Teaching status (PPS only)

 Major teaching 296 8.9 1,678 17.6

 Other teaching 726 21.8 3,361 35.2

 Nonteaching 2,311 69.3 4,521 47.3

Note: PPS (prospective payment system), CAH (critical access hospital). Maryland hospitals are excluded. Large urban areas 

are those with populations of more than 1 million. Major teaching hospitals are defined by a ratio of at least 0.25 of interns 

and residents to beds. Other teaching hospitals have a ratio below 0.25. Data are limited to providers with complete 2013

cost reports. See Chart 6-28 for more information about CAHs. Hospitals in urban, rural, tax status, and teaching status 

categories are all PPS hospitals. Numbers may not sum to totals due to rounding. 

Source: MedPAC analysis of PPS impact files and Medicare cost report data from CMS.

 In 2013, 3,333 hospitals provided nearly 9.6 million discharges under Medicare’s acute 

inpatient PPS, and 1,329 CAHs provided nearly 350,000 discharges. The number of PPS 

discharges continued to decline from 2012 to 2013, in part because of a shift in services to 

the outpatient setting.

 Approximately 10.4 percent of PPS hospitals are covered by two special payment provisions 

(rural referral centers (RRCs) and sole community hospitals (SCHs)) intended to help rural 

facilities that are not CAHs; these facilities account for 8.1 percent of all discharges. 

 About 90 percent of rural hospitals were given special payments through either the CAH, 

SCH, or RRC program in 2013. Collectively, these three types of hospitals provide 79

percent of all rural Medicare discharges (not shown in chart).
A Data Book: Health care spending and the Medicare program, June 2015 61

Chart 6-5. Major diagnostic categories with highest volume, 

fiscal year 2013

Share of Share of

MDC Share of all medical surgical

number MDC name discharges discharges discharges

5 Circulatory system 21% 20% 24%

4 Respiratory system 15 20 3

8 Musculoskeletal system and connective tissue 13 3 39

6 Digestive system 11 11 10

1 Nervous system 8 9 5

11 Kidney and urinary tract 8 9 4

18 Infectious and parasitic diseases 7 8 3

10 Endocrine, nutritional and metabolic system 4 4 2

7 Hepatobiliary system and pancreas 3 3 3

9 Skin, subcutaneous tissue and breast 3 3 2

 Total 91 90 94

Note: MDC (major diagnostic category). Numbers may not sum to totals due to rounding.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 In fiscal year 2013, 10 major diagnostic categories accounted for 91 percent of all 

discharges from hospitals paid under the acute inpatient prospective payment system.

 Circulatory system cases accounted for about one-quarter of surgical cases and one-fifth of 

all cases. 

 Respiratory system cases accounted for 20 percent of medical discharges. 

 Musculoskeletal system cases accounted for 39 percent of surgical discharges.
62 

Acute inpatient services

Chart 6-6. Cumulative change in total all-payer inpatient 

admissions and outpatient visits, 2000–2013

Note: Cumulative change is the total percentage increase from 2000 through 2013. Data are admissions and outpatient visits to 

about 5,000 community hospitals across all payers.

Source: American Hospital Association, AHA Hospital Statistics.

 In 2013, community hospitals provided nearly 678 million outpatient visits and slightly fewer 

than 34 million inpatient admissions (data not shown).

 Hospital outpatient service use grew much more rapidly from 2000 to 2013 than inpatient 

service use. Total hospital outpatient visits increased 30 percent from 2000 to 2013. 

 Outpatient visits increased 0.5 percentage points from 2012 to 2013, or by nearly 3 million 

visits. 

 Total inpatient admissions grew by over 8 percent between 2000 and 2008 but have since 

declined. Inpatient admissions decreased by 2.4 percentage points from 2012 to 2013, or 

over 800,000 admissions. 

0.0 2.2

4.2

5.1

6.0 6.5 6.9 6.8

8.1 7.4

6.2

5.3

4.0

1.6

0.0

3.3

6.7

8.0

9.6

12.1

15.0 15.7

19.7

23.1

24.9

25.8

29.5 30.0

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Percent

Fiscal year

Total inpatient admissions

Total outpatient visits
A Data Book: Health care spending and the Medicare program, June 2015 63

Chart 6-7. Cumulative change in Medicare outpatient services 

and inpatient discharges per FFS beneficiary, 

2006–2013

Note: FFS (fee-for-service). Data are for short-term general and surgical hospitals, including critical access and children’s 

hospitals.

Source: MedPAC analysis of Medicare Provider Analysis and Review and hospital outpatient claims data from CMS.

 From 2006 to 2013, the number of Medicare inpatient discharges per FFS beneficiary 

declined by 17 percent. From 2006 to 2007, inpatient volume per beneficiary was relatively 

flat, but the volume of discharges began to decline beginning in 2008. 

 From 2006 to 2013, the number of outpatient services per FFS beneficiary increased 33

percent. 

 Together these two trends suggest a shift in services from the inpatient to the outpatient 

setting as well as secular trends in increasing outpatient and decreasing inpatient utilization. 

 From 2012 to 2013, the number of Medicare inpatient discharges per FFS beneficiary 

declined approximately 4 percentage points, or approximately twice the average annual 

decline from 2006 to 2012.

 From 2012 to 2013, the number of Medicare outpatient services per FFS beneficiary 

increased approximately 4 percentage points, slightly less than the average annual increase 

from 2006 to 2012. 

33%

17%

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013

Cumulative percent change

Fiscal year

Outpatient visits per Part B beneficiary

Inpatient discharges per Part A beneficiary
64 

Acute inpatient services

Chart 6-8. Cumulative change in Medicare inpatient 

discharges per FFS beneficiary by length of stay, 

2006–2013

Note: FFS (fee-for-service). Data are for short-term general and surgical hospitals, including critical access and children’s 

hospitals.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 In recent years, one-day inpatient discharges declined more rapidly than inpatient discharges of 

greater lengths. From 2006 to 2013, one-day inpatient stays declined nearly 28 percent per FFS 

beneficiary. In 2013, there were approximately 1.3 million one-day discharges, representing 12 

percent of all discharges (data not shown). 

 From 2006 to 2013, three-day inpatient stays declined least rapidly. From 2006 to 2011, threeday stays increased. However, three-day inpatient stays began to decline in 2011. In 2013, there 

were approximately 2 million three-day discharges, representing 18 percent of all discharges

(data not shown). 

 Collectively, inpatient discharges of five or more days declined rapidly from 2006 to 2013, at 19

percent per beneficiary. Rates of decline for these longer stays varied depending on the number 

of days, but ranged from 18 percent to 22 percent for the most common lengths (five-day, sixday, seven-day, and eight-day discharges). In 2013, there were approximately 4.7 million 

discharges of five or more days in length, representing 43 percent of all discharges (data not 

shown). 

 From 2006 to 2013, inpatient surgical discharges per beneficiary declined approximately 23 

percent (data not shown), or an average of slightly more than 3 percent per year. Over the same 

period, inpatient medical discharges per beneficiary declined approximately 14 percent, or an 

average of 2 percent per year. 

28%

10%

5%

16%

19%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

2006 2007 2008 2009 2010 2011 2012 2013

Cumulative percent change

Fiscal year

1-day discharges

2-day discharges

3-day discharges

4-day discharges

5 or more day discharges
A Data Book: Health care spending and the Medicare program, June 2015 65

Chart 6-9. Trends in Medicare and non-Medicare inpatient length 

of stay, 2006–2013

Note: Length of stay is calculated from discharges and patient days for more than 3,000 hospitals covered by the acute inpatient 

prospective payment system. Chart excludes critical access hospitals.

Source: MedPAC analysis of Medicare cost report data from CMS.

 While Medicare length of stay fell between 2006 and 2013, the average length of stay for 

non-Medicare inpatients was relatively unchanged. 

 The average length of inpatient stays for Medicare beneficiaries was essentially flat between 

2012 and 2013, ending a period of several years in which length of stay had been declining. 

Length of stay fell nearly 7 percent from 2006 to 2012. 

 In 2013, the average length of inpatient stays for Medicare beneficiaries was 0.7 of a day 

longer than for non-Medicare inpatients. In 2006, the difference was more than a full day. 

4.94 4.91 4.89 4.80 4.70 4.67 4.60 4.61

3.91 3.92 3.96 3.95 3.91 3.90 3.90 3.94

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013

Inpatient days

Fiscal year

Medicare beneficiaries

Non-Medicare inpatients
66 

Acute inpatient services

Chart 6-10. Share of inpatient admissions preceded by 

emergency department visit by hospital group,

2006–2013

Average annual

Percent percent change Percent change

2013 20062012 20122013

All hospitals 71.2% 1.9% 1.6%

Urban 70.8 2.0 1.5

 Large urban 72.6 1.8 1.4

 Other urban 68.8 2.2 1.7

Rural 73.8 1.9 2.4

 Rural referral 73.1 1.8 2.4

 Sole community 73.5 1.8 2.7

 Other rural < 50 beds 69.6 1.6 2.0

 Other rural ≥ 50 beds 77.4 2.1 2.0

Tax status

 Voluntary 71.2 1.9 1.5

 Proprietary 72.0 2.0 1.7

 Government 69.7 2.4 2.0

Teaching status

 Major teaching 63.4 1.8 1.3

 Other teaching 69.9 2.1 1.5

 Nonteaching 75.0 2.0 1.9

Note: Years are fiscal years.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 In 2013, 71.2 percent of inpatient admissions entered the hospital through the emergency 

department (ED). 

 From 2012 to 2013, the share of inpatient admissions entering the hospital through the ED 

increased 1.6 percent, a slightly slower rate of change than the average annual rate from 

2006 to 2012 (1.9 percent). The change from 2012 to 2013 was the result of a decrease of 

77,000 inpatient admissions preceded by an ED visit and a decrease of 274,000 inpatient 

admissions overall.

 The share of inpatient admissions preceded by an ED visit is consistently higher for rural 

hospitals than for urban hospitals. In 2013, approximately 74 percent of inpatient admissions 

provided at rural hospitals were preceded by an ED visit. By contrast, approximately 71

percent of inpatient admissions provided at urban hospitals were preceded by an ED visit.
A Data Book: Health care spending and the Medicare program, June 2015 67

Chart 6-11. Share of Medicare Part A fee-for-service 

beneficiaries with at least one hospitalization, 

2006–2013

Note: Analysis excludes Medicare Advantage claims and claims for non–inpatient prospective payment system hospitals such 

as critical access hospitals and hospitals located in Maryland. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

 The share of Medicare fee-for-service beneficiaries with Part A coverage who had at least 

one inpatient hospitalization in a given year declined by nearly 4 percentage points from 

2006 to 2013. In 2013, 19.7 percent of Medicare beneficiaries had at least one inpatient stay

covered under Part A.

 Medicare fee-for-service beneficiaries with Part A coverage that used inpatient hospital 

services in 2013 had an average of 1.69 inpatient claims over the course of the year (data 

not shown). The average number of inpatient claims per inpatient service user declined from 

2006 to 2013 by approximately 2 percent, from 1.73 claims per year to 1.69 claims per year. 

 A portion of the decline in beneficiaries’ use of inpatient services could reflect the increase in 

the number of cases in which beneficiaries are served in outpatient observation status. In 

addition, this decline could represent, in part, a secular trend in reduced use of inpatient 

services. 

23.4 22.9 22.6

21.8 21.5 21.2

20.2 19.7

10

12

14

16

18

20

22

24

26

2006 2007 2008 2009 2010 2011 2012 2013

Percent

Fiscal year
68 

Acute inpatient services

Chart 6-12. Number of Medicare outpatient observation visits

and inpatient claims preceded by observation care 

per 1,000 beneficiaries increased from 2006 to 2013

Source: Medicare hospital cost reports and Medicare outpatient claims data.

 In 2013, approximately 2.6 million observation stays occurred (data not shown). Among this total, 

approximately 800,000 were observation stays that preceded an inpatient stay, and 1.8 million 

were exclusively outpatient stays.

 The number of Medicare outpatient observation visits increased approximately 96 percent from 

2006 to 2013. During this period, the rate of outpatient observation visits per Part B beneficiary 

increased from approximately 28 visits per 1,000 beneficiaries to 56 visits per 1,000 

beneficiaries. 

 The number of Medicare inpatient admissions preceded by observation care increased 

approximately 120 percent from 2006 to 2013, from 10 inpatient admissions preceded by 

observation per 1,000 Part A beneficiaries to 22 per 1,000 beneficiaries. 

 The length of outpatient observation visits increased in recent years (data not shown). From 

2006 to 2013, the average length of outpatient observation visits increased by approximately 4 

hours, from 25.6 hours in 2006 to 29.5 hours in 2013. The average length of observation care 

associated with a corresponding inpatient stay increased less rapidly, from 22.8 hours to 23.3 

hours over the same period. 

 In 2013, approximately 360,000 observation visits were 48 hours or longer, representing 

approximately 14 percent of all observation stays (data not shown). 

28

33

36

41

44 47

53 56

10 10 12 13 15 17 19 22

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013

Visits or claims per 1,000 beneficiaries

Fiscal year

Outpatient observation visits per 1,000 Part B beneficiaries

Inpatient claims preceded by observation care per 1,000 Part A beneficiaries
A Data Book: Health care spending and the Medicare program, June 2015 69

Chart 6-13. Hospital occupancy rates, 2006–2013

Note: Hospital occupancy rates were defined as total bed days used (including swing bed days) and observation bed days used, 

minus nursery bed days used, over total bed days available. A consistent cohort of approximately 3,300 prospective 

payment system and critical access hospitals was used in this analysis. 

Source: MedPAC analysis of Medicare’s Hospital Cost Reports.

 In the aggregate, hospital occupancy rates have been relatively stable over the past decade

but have edged down slightly in more recent years as total inpatient admissions have fallen. 

In 2013, occupancy rates were 60 percent across all hospitals, their lowest level in the past 

12 years. 

 Occupancy rates are generally higher for urban than for rural hospitals. In 2013, the 

aggregate occupancy rate for urban hospitals was 63 percent and the aggregate occupancy 

rate for rural hospitals was 42 percent. 

 The decline in occupancy rates from 2006 to 2013 has been more rapid for rural hospitals 

than for urban hospitals. During this period, rural occupancy rates declined 6 percentage 

points and urban occupancy rates declined nearly 4 percentage points. 

 Occupancy rates vary across markets and are inversely correlated with the number of beds 

per capita in a market (data not shown). For example, the average occupancy rate for 

hospitals in Seattle, WA, was 67 percent in 2013 compared with an average occupancy rate 

of 57 percent for hospitals in Jackson, MS. The 10 metropolitan areas with the lowest 

number of beds per capita had an average occupancy rate of 60 percent, and the 10 

markets with the highest number of beds per capita had an average occupancy rate of 56 

percent. 

67 67 67 66 65 65 64 63

48 48 48 47 45 45 43 42

64 64 64 63 62 62 61 60

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013

Occupancy rate (percent)

Fiscal year

Urban

Rural

All hospitals
70 

Acute inpatient services

Chart 6-14. Medicare inpatient payments, by source and hospital 

group, 2013 

Percent of total payments 

Total 

 Additional rural payments 

Hospital group Base IME DSH Outlier hospital* (millions) 

All hospitals 79.9% 5.2% 9.7% 3.8% 1.7% $112,168 

Urban 79.6 5.6 10.2 4.1 0.8 102,759 

Rural 82.4 0.8 5.1 1.1 11.4 9,409 

 

Large urban 77.9 6.9 10.8 4.6 0.2 58,506 

Other urban 81.9 4.0 9.5 3.5 1.3 42,788

Rural referral 88.3 1.4 8.3 2.1 0.2 2,891 

SCH (federal rate) 84.5 3.4 8.1 1.6 2.6 1,363

SCH (HSP rate) 76.3 0.1 0.0 0.3 25.1 3,408

Medicare dependent 79.9 0.1 7.4 1.2 11.8 1,313

Other rural < 50 beds 83.0 0.1 6.9 1.2 8.9 310

Other rural > 50 beds 89.0 0.5 7.5 1.6 1.8 1,304

 

Voluntary 80.4 5.5 9.0 3.9 1.5 80,221 

Proprietary 83.2 1.9 11.0 2.8 1.3 17,723 

Government 72.7 7.5 12.4 4.8 2.9 14,224

Major teaching 66.2 15.9 12.3 5.8 0.1 27,929 

Other teaching 82.1 3.6 10.0 3.5 1.1 39,256

Nonteaching 86.4 0.0 8.0 3.0 3.1 44,984 

Note: IME (indirect medical education), DSH (disproportionate share), SCH (sole community hospital), HSP (hospital-specific 

payment [rate]). Chart includes hospitals covered by the inpatient prospective payment system and excludes critical access 

hospitals. The “Medicare-dependent” hospital category includes facilities paid at either the HSP or the federal rate. Rows may 

not sum to totals due to rounding. Simulated payments reflect 2013 payment rules applied to actual number of cases in 2013. 

Direct graduate medical education payments are excluded. 

*“Additional rural hospital payments” are the total payments made to hospitals beyond the federal base rate, including SCH 

add-on payments, Medicare-dependent hospital add-on payments, and low-volume add-on payments; for SCHs paid the 

HSP, this category also includes the payments they received indirectly attributable to the costs associated with residency 

programs, low-income patients, and outlier cases. 

Source: MedPAC analysis of claims and impact file data from CMS. 

 Medicare inpatient payments in 2013 to hospitals covered by the acute inpatient prospective payment 

system (IPPS) exceeded $112 billion. About $103 billion (92 percent) went to urban hospitals, and 

about $9 billion went to rural hospitals. This figure does not reflect $2.7 billion in payments to critical 

access hospitals (CAHs) for inpatient care. Cost-based reimbursement for CAHs results in payments 

that are significantly above what CAHs would have been paid under the IPPS. 

 Base payments accounted for 79.9 percent of all inpatient payment in 2013. Special payments—

including IME, DSH, and outlier payments, as well as additional payments to rural hospitals through the 

SCH and Medicare-dependent hospital programs—accounted for 20.1 percent of all inpatient payments. 

 In 2013, additional payments to rural hospitals amounted to 1.7 percent of inpatient payments, or 

approximately $1.9 billion. 

 Outlier payments accounted for 3.8 percent of total inpatient payments in 2013. 
A Data Book: Health care spending and the Medicare program, June 2015 71

Chart 6-15. Discharge destination of Medicare fee-for-service 

beneficiaries, 2006–2013

Percentage

point change

Destination 2006 2009 2012 2013 2006–2013

Home self-care 52.3% 50.1% 48.0% 46.9% 5.4%

Skilled nursing or swing bed 18.8 19.8 20.3 20.6 1.8

Home with organized home health care 13.8 15.2 15.9 16.7 2.9

Inpatient rehabilitation facility 3.4 3.3 3.5 3.5 0.1

Long-term care hospital 0.9 1.1 1.2 1.2 0.3

Inpatient psychiatric facility 0.4 0.5 0.5 0.5 0.1

Hospice 1.6 2.1 2.7 2.8 1.2

Other setting (e.g., ICF, nursing facility) 2.0 1.6 1.7 1.6 0.4

Transferred to other acute care hospital 2.5 2.2 2.2 2.1 0.3

Left against medical advice 0.6 0.7 0.8 0.8 0.1

Died in hospital 3.8 3.5 3.3 3.4 0.4

Note: ICF (intermediate care facility).

Source: Medicare inpatient claims data.

 In 2013, 46.9 percent of all Medicare fee-for-service patients were discharged from an acute-care 

hospital to home under self-care, without any organized post-acute care. The share of beneficiaries 

discharged home under self-care has decreased since 2006 with greater use of different post-acute 

care providers, particularly home health care, skilled nursing care, and hospice.

 About one in five beneficiaries are discharged to skilled nursing care, ether in a skilled nursing 

facility (SNF) or hospital swing bed. The share of beneficiaries being discharged to SNF-level 

care increased 1.8 percentage points between 2006 and 2013. 

 An increasing share of beneficiaries are being discharged home with organized home health 

care, going from 13.8 percent of discharges in 2006 to 16.7 percent in 2013.

 About 5 percent of beneficiaries are discharged to hospital-level post-acute care in an inpatient 

rehabilitation facility (3.5 percent), long-term care hospital (1.2 percent) or inpatient psychiatric 

facility (0.5 percent). 

 Discharges to hospice care have shown substantial growth, rising from 1.6 percent of discharges 

in 2006 to 2.8 percent of discharges in 2013. A little more than half of these hospice discharges 

are to medical facility–level care rather than to home care. 

 The share of patients dying in the hospital or being transferred to another acute care hospital 

has been declining.
72 

Acute inpatient services

Chart 6-16. Medicare acute inpatient PPS margin, 2002–2013

Note: PPS (prospective payment system). A margin is calculated as revenue minus costs, divided by revenue. Data are based 

on Medicare-allowable costs and exclude critical access hospitals. The Medicare acute inpatient margin includes services 

covered by the acute care inpatient PPS. Maryland hospitals are excluded from this analysis.

Source: MedPAC analysis of Medicare cost report data from CMS.

 Medicare’s acute inpatient margin reflects payments and costs for services covered by 

Medicare’s inpatient hospital PPS. The inpatient margin may be influenced by how hospitals 

allocate overhead costs across service lines. Only by combining data for all major services 

can we estimate Medicare costs without the potential influence of how overhead costs are 

allocated (see Chart 6-18).

 Following implementation of the Balanced Budget Act of 1997, inpatient margins declined 

over the next 10 years as costs rose faster than the 3 percent average annual increase in 

Medicare payments. In 2013, the margin was –5.3 percent, down from –4.4 percent in 2012.

 Medicare inpatient margins vary widely. In 2013, one-quarter of hospitals had Medicare 

inpatient margins that were 4.9 percent or higher, and another one-quarter had inpatient 

margins that were –21.8 percent or lower (data not shown). Thirty-five percent of hospitals 

had positive inpatient Medicare margins in 2013.

6.6

2.5

0.2 0.4

2.2

3.7

4.6

2.3 1.8

3.4

4.4

5.3

-10

-8

-6

-4

-2

0

2

4

6

8

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2015 73

Chart 6-17. Medicare acute inpatient PPS margin, by urban and

rural location, 2002–2013

Note: PPS (prospective payment system). A margin is calculated as revenue minus costs, divided by revenue. Data are based 

on Medicare-allowable costs and exclude critical access hospitals. The Medicare acute inpatient margin includes services 

covered by the acute care inpatient PPS. Maryland hospitals are excluded from this analysis.

Source: MedPAC analysis of Medicare cost report data from CMS.

 Urban hospitals have historically had higher Medicare inpatient margins than rural hospitals 

(not shown in chart), but the gap narrowed in 2002 and 2003. One factor in this gap was that 

urban hospitals had greater success in controlling cost growth, at least partly in response to 

pressures from managed care. Since 2004, however, rural hospitals’ inpatient margins have 

been higher than those for urban hospitals. 

 In 2013, the Medicare inpatient margins of rural and urban hospitals were –3.3 percent and 

–5.5 percent, respectively. The narrowing and subsequent reversal of margin trends 

between these two groups of hospitals since 2002 were the result of payment policies 

targeted at raising rural hospital payments as well as growth in the number of critical access 

hospitals, which removed many rural hospitals with low margins from the PPS.

7.1

2.6

0.3 0.5

2.3

3.8

4.8

2.4 2.0

3.8

4.6

5.5

1.5

0.7 0.6 0.6

1.0

1.9

2.7

1.2

0.7

0.1

2.2

3.3

-10

-8

-6

-4

-2

0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year

Urban

Rural
74 

Acute inpatient services

Chart 6-18. Overall Medicare margin, 2002–2013

Note: A margin is calculated as revenue minus costs, divided by revenue. Data are based on Medicare-allowable costs and 

exclude critical access hospitals. 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 and bad debts. Maryland hospitals are excluded from this analysis.

Source: MedPAC analysis of Medicare cost report data from CMS.

 The overall 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, and Medicare payments 

for health information technology. The overall margin follows a trend similar to that for the 

Medicare inpatient margin.

 The overall Medicare margin in 2002 was 2.2 percent. In fiscal year 2013, it was 

–5.4 percent.

 In 2013, 25 percent of hospitals had overall Medicare margins of 7.2 percent or higher, and 

another 25 percent had margins of –15.0 percent or lower. About 41 percent of hospitals 

had positive overall Medicare margins in 2013.

2.2

1.3

3.0 3.1

4.8

6.1

7.3

5.3

4.8

5.4 5.4 5.4

-8

-6

-4

-2

0

2

4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2015 75

Chart 6-19. Overall Medicare margin, by urban and rural 

location, 2002–2013

Note: A margin is calculated as revenue minus costs, divided by revenue. Data are based on Medicare-allowable costs and 

exclude critical access hospitals. Overall Medicare margins cover the costs and payments of acute hospital inpatient, 

outpatient, inpatient psychiatric and rehabilitation unit, skilled nursing facility, and home health services, as well as direct 

graduate medical education and bad debts. Maryland hospitals are excluded from this analysis.

Source: MedPAC analysis of Medicare cost report data from CMS.

 As with inpatient margins, overall Medicare margins historically were higher for urban 

hospitals than for rural hospitals, but since 2005, overall Medicare margins for rural hospitals 

have exceeded those for urban hospitals, and the difference has widened to about 6 

percentage points in 2013.

 The difference in overall Medicare margins between urban and rural hospitals narrowed 

throughout the middle of the past decade. In 2002, the overall margin for urban hospitals 

was 2.7 percent compared with –2.5 percent for rural hospitals. In 2004, the overall 

Medicare margin for urban hospitals was –3.0 percent compared with –3.2 percent for rural 

hospitals. Most recently, in 2013, the overall Medicare margin for urban hospitals was –5.9

percent compared with 0.2 percent for rural hospitals. Policy changes made in the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 helped to improve the 

relative financial position of rural hospitals. Further legislation to assist rural hospitals was 

implemented after 2008. Payments for health information technology adoption also helped 

to push the overall Medicare margins to 0.2 percent in 2013.

2.7

1.0

3.0

3.1

4.9

6.3 7.4

5.5 5.1

5.7

5.9 5.9

2.5

3.9

3.2

2.6

4.2

4.9

5.8

4.2

2.8 2.4

1.4

0.2

-8

-6

-4

-2

0

2

4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year

Urban

Rural
76 

Acute inpatient services

Chart 6-20. Medicare hospital outpatient, inpatient, and overall 

Medicare margins, 2002–2013

Note: A margin is calculated as revenue minus costs, divided by revenue. Data are based on Medicare-allowable costs. 

Analysis excludes critical access hospitals. “Overall Medicare margins” includes the costs and payments of hospital 

inpatient, outpatient, psychiatric, and rehabilitation services (not paid under the prospective payment system); hospitalbased skilled nursing facilities and home health services; and graduate medical education. Maryland hospitals are 

excluded from this analysis.

Source: MedPAC analysis of Medicare cost report data from CMS.

 In 2013, while the aggregate overall Medicare margin was –5.4 percent, one-quarter of 

hospitals had margins of –15.0 percent or lower, and one-quarter had margins of 7.2

percent or higher.

 Hospitals’ overhead costs are allocated across different types of services (e.g., inpatient and 

outpatient). Therefore, margins for hospital inpatient and outpatient services must be 

considered in the context of Medicare payments and hospital costs for the full range of 

services provided to Medicare beneficiaries, or what we refer to as the overall Medicare 

margin. 

 Inpatient margins are higher than outpatient margins because of indirect medical education 

and disproportionate share add-on payments, which increased inpatient payments by 

roughly 15 percent in 2012.

 In 2013, one-quarter of hospitals had outpatient margins of 2.0 percent or higher, and 

another one-quarter had margins of –25.0 percent or lower (data not shown). About 29

percent of hospitals had positive outpatient margins in 2013.

6.6

2.5

0.2 0.4

2.2

3.6

4.6

2.3 1.8

3.4

4.4

5.3

2.2

1.3

3.0 3.1

4.8

6.1

7.3

5.3 4.8 5.4 5.4 5.4

8.3

11.5 10.5

9.2

11.8 12.1

13.6

11.4 10.7 10.6 11.1

12.4

-20

-15

-10

-5

0

5

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year

Inpatient margin

Overall Medicare margin

Outpatient margin
A Data Book: Health care spending and the Medicare program, June 2015 77

Chart 6-21. Hospital total all-payer margin, 2002–2013

Note: 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. Analysis excludes critical access hospitals. Maryland hospitals are excluded from 

this analysis. 

*The significant drop in total margin includes investment losses stemming from the decline of the U.S. stock market in 2008.

Source: MedPAC analysis of Medicare cost report data from CMS.

 The 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—Medicare 

inpatient margin and overall Medicare margin—are operating margins that do not include 

investment income. 

 From 2002 to 2007, total margins increased to the highest level in a decade. In 2008, the 

total margin declined to 1.8 percent. The 2008 decline of the U.S. stock market resulted in 

significant investment losses for hospitals, which resulted in a corresponding decline in total 

margin. In 2013, total margins increased to 7.2 percent from 6.4 percent in 2012, reaching 

their highest levels since we started tracking total all-payer margins. 

 In 2013, 73 percent of hospitals had positive total margins. The total margin varied much 

less than the Medicare inpatient or overall Medicare margin (data not shown). In 2013, onequarter of hospitals had total margins that were 10.6 percent or higher, while another onequarter had margins that were –0.5 percent or lower, a spread of 11 percentage points 

compared with a 27 percentage point interquartile spread for Medicare inpatient margins 

and a 22 percentage point interquartile spread for overall Medicare margins.

3.7

4.3 4.3

4.8

5.4

6.0

1.8

4.3

6.3

5.9

6.4

7.2

0

1

2

3

4

5

6

7

8

9

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year

* *
78 

Acute inpatient services

Chart 6-22. Hospital total all-payer margin, by urban and rural 

location and critical access hospitals, 2002–2013

Note: 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 revenues. Maryland hospitals are excluded from this 

analysis.

* Significant drop in total margin includes investment losses resulting from the U.S. stock market decline of 2008. 

Source: MedPAC analysis of Medicare cost report data from CMS.

 Since 2009, urban hospitals have had higher total (all-payer) margins than rural hospitals. In 

2013, total margins were 7.4 percent for urban hospitals and 4.9 percent for rural hospitals. 

From 2009 to 2013, the growth in urban and rural total all-payer margins reflects low cost 

growth and increasing private payer reimbursement rates. 

 In 2008, both rural and urban hospitals experienced their lowest level of total (all-payer) 

margins in the past 15 years. Hospitals’ total margins include all patient care services 

funded by all payers, plus nonpatient revenue such as investment revenue. The 2008 

decline of the U.S. stock market resulted in significant investment losses for hospitals, which 

in turn resulted in a corresponding decline in total margins. Other types of margins we 

track—Medicare inpatient margin and overall Medicare margin—are operating margins that 

do not include investment income. 

 Historically, all-payer margins for critical access hospitals have been lower than for urban or 

other rural hospitals.

3.9

4.0

4.9

5.6 5.7

5.8

2.1

3.7

5.2

4.7

5.0 4.9

3.6

4.3

4.2

4.7

5.3

6.0

1.8

4.3

6.4 6.0

6.6

7.4

1.6 1.3

2.0

3.2

4.2

4.7

2.7

2.7

3.2 3.3 3.5 3.6

0

1

2

3

4

5

6

7

8

9

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year

Rural

Urban

Critical access hospitals

*
A Data Book: Health care spending and the Medicare program, June 2015 79

Chart 6-23. Hospital total all-payer margin, by teaching status, 

2002–2013 

Note: Major teaching hospitals are defined by a ratio of 0.25 or greater of interns and residents to beds, while other teaching 

hospitals have a ratio of greater than 0 and less than 0.25. 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. Analysis excludes 

critical access hospitals. Maryland hospitals are excluded from this analysis. 

 *Significant drop in total margin includes investment losses resulting from the U.S. stock market decline of 2008. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

 The total all-payer margins for major teaching hospitals have consistently been lower than 

those for other teaching and nonteaching hospitals. In 2013, the total margin for major 

teaching hospitals stood at 6.0 percent compared with other teaching hospitals and 

nonteaching hospitals at 8.5 percent and 7.2 percent, respectively. 

 Beginning in 2002, major teaching hospitals’ total (all-payer) margins steadily increased, 

reaching 5.4 percent in 2007. However, in 2008, this trend was interrupted by a steep 

decline in their investment revenues, resulting in a negative total margin. Since then, total 

margins have recovered and remain above their historic average. 

4.5 4.9

4.6

5.2

5.4

5.8

3.0

4.8

6.5 6.3

6.9 7.2

4.6 4.9

5.0 5.3

6.1

6.9

2.4

5.3

7.3 7.0 7.1

8.5

1.7

3.0 3.3

3.7

4.6

5.4

0.3

2.7

5.0

4.5

5.2

6.0

-2

0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Margin (percent)

Fiscal year

Nonteaching

Other teaching

Major teaching

*

*

*
80 

Acute inpatient services

Chart 6-24. Medicare margins by teaching and disproportionate 

share status, 2013

Share of 

Medicare Medicare Overall

Share of inpatient inpatient Medicare

Hospital group hospitals payments margin margin

All hospitals 100% 100% –5.3% –5.4%

Major teaching 10 29 2.3 –3.6

Other teaching 21 32 –5.8 –5.0

Nonteaching 69 40 –10.4 –6.8

Both IME and DSH 28 56 –1.0 –3.7

IME only 4 4 –15.5 –13.2

DSH only 53 32 –8.1 –5.3

Neither IME nor DSH 15 7 –20.6 –13.7

Note: IME (indirect medical education), DSH (disproportionate share). Numbers may not sum to totals due to rounding.

Maryland hospitals are excluded from this analysis.

Source: MedPAC analysis of 2013 Medicare cost report data from CMS.

 By contrast with all-payer total margins, major teaching hospitals had the highest Medicare 

inpatient and overall Medicare margins in 2013. 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 received neither IME nor DSH payments had the lowest Medicare margins. In 

2013, the Medicare inpatient margin of these hospitals was about –20.6 percent, well below 

the margins of major teaching hospitals (2.3 percent) and the all-hospital average (5.3

percent).

 The pattern of Medicare inpatient and overall Medicare margins by teaching status—major 

teaching hospitals have higher Medicare margins than other hospitals—is the opposite of 

the pattern for total margins by teaching status—major teaching hospitals have lower total 

(all-payer) margins than other hospitals (see Chart 6-23).
A Data Book: Health care spending and the Medicare program, June 2015 81

Chart 6-25. Financial pressure leads to lower costs

Level of financial pressure, 2008–2012

High pressure Low pressure

(non-Medicare Medium (non-Medicare

margin ≤ 1%) pressure margin > 5%)

Number of hospitals 685 445 1,614

Financial characteristics, 2013 (medians)

Non-Medicare margin

(private, Medicaid, uninsured) –2.8% 3.4% 13.3%

Standardized cost per discharge 

(as a share of the national median)

For-profit and nonprofit hospitals 95 98 105

Nonprofit hospitals 95 101 107

For-profit hospitals 94 95 102

Annual growth in cost per

discharge, 2010–2013 4% 3% 3%

Overall 2012 Medicare margin (medians) 4% 3% 9%

Patient characteristics (medians)

Total hospital discharges in 2012 4,563 6,899 7,036

Medicare share of inpatient days 41% 40% 40%

Medicaid share of inpatient days 10 9 8

Medicare case-mix index 1.37 1.48 1.55

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 2014. A “high-pressure hospital” is one with a median non-Medicare 

profit margin of 1 percent or less from 2008 to 2012 and a net worth that grew by less than 1 percent per year from 2008

to 2012 if the hospital’s Medicare profits had been zero. A “low-pressure hospital” is one with a median non-Medicare 

profit margin greater than 5 percent from 2008 to 2012 and a net worth that grew by more than 1 percent per year from 

2008 to 2012 if the hospital’s Medicare profits had been zero. Hospitals are categorized as “medium-pressure” if they fit 

into neither the high- nor the low-pressure categories.

Source: MedPAC analysis of Medicare cost report and claims files from CMS.

 Higher financial pressure tends to lead to lower standardized cost per discharge and higher 

Medicare margins. Hospitals with a lower inpatient volume and a lower case mix are more 

likely to be under financial pressure. 
82 

Acute inpatient services

Chart 6-26. Change in Medicare hospital inpatient costs per

discharge and private payer payment-to-cost ratio, 

19872011

Note: Data are for community hospitals (including critical access hospitals and Maryland hospitals) and cover all hospital 

services. Imputed values were used for missing data (about one-third of observations). Data for 2006–2010 exclude 

Medicare and Medicaid managed care patients from the private payment-to-cost ratio. The private payment-to-cost ratio 

includes self-pay patients. 

Source: MedPAC analysis of Medicare Cost Report files from CMS and CMS’s rules for the acute inpatient prospective payment 

system and American Hospital Association Annual Survey of Hospitals.

 Changes in Medicare costs per discharge suggest that hospitals have responded to the 

incentives posed by the rise and fall of financial pressure from private payers over four 

distinct periods between 1987 and 2011.

 During the first period, 1987 to 1992, private payers’ payments rose much faster than the 

cost of treating patients (seen in the chart as a steep increase in the payment-to-cost ratio). 

This result suggests minimal pressure from private payers. Medicare costs per discharge 

rose 8.3 percent per year during these years, more than 3 percentage points a year above 

the increase in Medicare’s market basket index.

(Chart continued next page)

9.2

8.6

5.3

0.8

1.2

1.1

2.4

8.1

5.6

5.1

5.5

3.5

1.6

2.5

1.20

1.22

1.28

1.32

1.24

1.22

1.16 1.16

1.19

1.29 1.30

1.27

1.34

1.36 1.37

1.40

1.46 1.47

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

1.40

1.45

1.50

-2

0

2

4

6

8

10

12

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Payment-to-cost ratio

Percent change in cost per discharge

Fiscal year

Change in Medicare acute inpatient costs per discharge

Payment-to-cost ratio (all private payers excluding Medicare and Medicaid managed care)

Payment-to-cost ratio (third-party payers only; excludes self-pay patients)
A Data Book: Health care spending and the Medicare program, June 2015 83

Chart 6-26. Change in Medicare hospital inpatient costs per 

discharge and private payer payment-to-cost ratio, 

19872011 (continued)

 As health maintenance organizations and other private insurers exerted more pressure 

during the second period, 1993 to 1999, the private payer payment-to-cost ratio dropped 

substantially. The rate of cost growth plummeted to an average of only 0.8 percent per year, 

which was more than 2 percentage points below the average increase in the market basket.

 As pressure from private payers waned after 1999, the private payer payment-to-cost ratio 

rose sharply, and hospital cost growth exceeded growth in the market basket by 2 

percentage points a year. Between 2005 and 2008, the growth in the private payer paymentto-cost ratio (profit margins) slowed, and in 2008, cost growth more closely matched the 

market basket.

 Cost growth has slowed since 2008. This decline is partly due to the general slowing of the 

economy, which has reduced input price inflation. In addition, uncertainty about economic 

growth in future years and enactment of laws restraining Medicare and Medicaid prices may 

be inducing hospitals to restrain their cost growth to the level of input price inflation. The 

combination of lower annual cost growth and continued increases in private insurers’ prices 

has resulted in increases in the profit margins on privately insured patients. 
84 

Acute inpatient services

Chart 6-27. Markup of hospital charges above costs for 

Medicare services, 2002–2012

Note: Analysis includes all community hospitals (including critical access hospitals and hospitals in Maryland). Markups are 

calculated as the amount of charges over the amount of costs, minus the amount that charges equal costs 

(charges/costs – 1). 

Source: American Hospital Association Annual Survey of Hospitals, 20022012.

 The average markup of hospitals’ charges above costs rose from about 139 percent in 2002 to 

227 percent in 2012. Hospital charges ($604 billion) are now more than three times costs ($185 

billion).

 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). The unusually large increases in charges in 2003 and 2004 may have 

resulted from some hospitals manipulating Medicare outlier payments. Toward the end of fiscal 

year 2003, Medicare revised its outlier policy in an attempt to curb hospitals’ opportunity to 

increase their outlier payments through excessive increases in charges.

 The markup of charges over costs is generally higher for urban hospitals (237 percent in 2012) 

than for rural hospitals (164 percent in 2012).

 Among urban hospitals in 2012, the markup of charges over costs was higher for for-profit 

hospitals (462 percent) than for nonprofit hospitals (234 percent). Rural for-profit hospitals have 

a higher markup of charges over costs (374 percent) than nonprofit hospitals (175 percent).

139

157

167

176 181 185

193

207

218

229 227

0

50

100

150

200

250

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Percent

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2015 85

Chart 6-28. Number of critical access hospitals, 1999–2015

Source: The Medicare Rural Hospital Flexibility Program and CMS. 

 The number of critical access hospitals (CAHs) grew rapidly from 1999 to 2006 but has 

since leveled off at approximately 1,300 facilities.

 The increase in CAHs between 1999 and 2006 was partly due to a series of legislative 

changes that made conversion to CAH status easier and expanded the services that qualify 

for cost-based reimbursement. Currently, CAHs are paid their Medicare costs plus 1 percent 

for inpatient services, outpatient services (including laboratory and therapy services), and 

post-acute services in swing beds.

 Before 2006, a hospital could convert to CAH status if (1) it was 35 miles by primary road or 

15 miles by secondary road from the nearest hospital, or (2) the state waived the distance 

requirement by declaring the hospital a “necessary provider.” Starting in 2006, states could 

no longer waive the distance requirement. While most existing CAHs fail the distance test, 

they are grandfathered into the program. Among small rural hospitals that have not 

converted, most would not meet the distance requirement. Therefore, we expect the number 

of CAHs to remain fairly constant going forward, absent any additional statutory changes.

41

341

722

1,055

1,283 1,302 1,324 1,328 1,332

0

200

400

600

800

1,000

1,200

1,400

1999 2001 2003 2005 2007 2009 2011 2013 2015

Number of critical access hospitals

Calendar year
86 

Acute inpatient services

Chart 6-29. Medicare payments to inpatient psychiatric facilities, 

2002–2014

Source: CMS, Office of the Actuary.

 The inpatient psychiatric facility prospective payment system started January 1, 2005. The 

new payment system was phased in over a three-year period.

 Medicare program spending for beneficiaries’ care in inpatient psychiatric facilities grew an 

average of 2.4 percent per year between 2002 and 2014.

 Inpatient psychiatric care furnished in scatter beds in acute care hospitals and paid under 

the acute care inpatient prospective payment system is not included in this chart.

3.5 3.5

3.8

4.0 4.1 4.0 4.0 4.1 4.2 4.3 4.4 4.5

4.7

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Dollars (in billions)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2015 87

Chart 6-30. Number of inpatient psychiatric facility cases 

remained steady in 2012

Average annual

change

2006– 2009–

2006 2007 2008 2009 2010 2011 2012 2009 2012

Cases 474,417 456,045 442,759 431,276 447,897 450,655 450,731 –3.1% 1.5%

Cases per 1,000 FFS

beneficiaries 13.1 12.8 12.5 12.1 12.4 12.3 12.1 –2.5 0.2

Spending per FFS 

beneficiary $104.9 $106.2 $109.0 $110.3 $115.5 $117.5 $117.5 1.7 2.1

Payment per case $7,989 $8,315 $8,742 $9,080 $9,288 $9,515 $9,718 4.4 2.3

Payment per day $677 $698 $728 $763 $782 $803 $819 4.1 2.4

Length of stay (in days) 13.0 13.0 13.1 13.1 13.0 12.7 12.8 0.3 –0.9

Note: FFS (fee-for-service). Numbers of cases and patients reflect Medicare FFS use of services furnished in inpatient 

psychiatric facilities (IPFs). Scatter bed cases and spending are excluded, as are cases and spending for beneficiaries 

enrolled in Medicare Advantage plans.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 The number of IPF cases remained steady between 2011 and 2012. Controlling for the 

number of FFS beneficiaries, however, the number of cases declined slightly, falling from 

12.3 cases per 1,000 FFS beneficiaries to 12.1 cases.
88 

Acute inpatient services

Chart 6-31. Inpatient psychiatric facilities, 2004–2012

Average

TEFRA PPS annual

change

Type of IPF 2004 2005 2006 2007 2008 2009 2010 2011 2012 2004–2012

All 1,657 1,645 1,648 1,653 1,634 1,610 1,591 1,536 1,531 –1.0%

Urban 1,301 1,295 1,285 1,277 1,262 1,243 1,223 1,178 1,177 –1.2

Rural 356 350 363 376 372 367 368 358 352 –0.1

Freestanding 352 366 396 412 419 432 447 426 434 2.7

Hospital-based units 1,305 1,279 1,252 1,241 1,215 1,178 1,144 1,110 1,097 –2.1

Nonprofit 949 917 903 879 865 837 803 757 747 –2.9

For profit 327 347 348 365 358 374 386 404 421 3.2

Government 381 381 397 409 411 399 402 375 363 –0.6

Note: IPF (inpatient psychiatric facility), TEFRA (Tax Equity and Fiscal Responsibility Act of 1982), PPS (prospective payment 

system). CMS began a three-year phase-in of the IPF PPS on January 1, 2005. Numbers are for facilities that submitted 

valid Medicare cost reports in the given fiscal year. Numbers may not sum to totals due to missing data.

Source: MedPAC analysis of Medicare cost report files from CMS.

 In 2012, 434 freestanding IPFs and 1,097 hospital-based psychiatric units provided 

inpatient-level care to Medicare beneficiaries. Since 2004, the number of psychiatric units 

filing Medicare cost reports has declined, on average, 1 percent per year. At the same time, 

the number of freestanding IPFs has grown, on average, 2.7 percent per year.

 A growing share of Medicare IPF users receives care in for-profit facilities. Since 2004, the 

number of nonprofit IPFs has fallen 2.9 percent per year, on average, compared with a 3.2 

percent increase in for-profit IPFs. 
A Data Book: Health care spending and the Medicare program, June 2015 89

Chart 6-32. One diagnosis accounted for almost three-quarters

of IPF cases in 2012

MS–DRG Diagnoses Percentage

885 Psychosis 72.6%

057 Degenerative nervous system disorders without MCC 7.1

884 Organic disturbances and mental retardation 6.3

897 Alcohol/drug abuse or dependency, no rehabilitation, without MCC 4.6

881 Depressive neurosis 3.4

882 Neurosis except depressive 1.2

895 Alcohol/drug abuse or dependency with rehabilitation, without MCC 1.0

880 Acute adjustment reaction and psychosocial dysfunction 0.7

056 Degenerative nervous system disorders with MCC 0.5

886 Behavioral and developmental disorders 0.4

883 Disorders of personality and impulse control 0.4

894 Alcohol/drug use—left AMA 0.3

896 Alcohol/drug abuse or dependency without rehabilitation, with MCC 0.2

876 OR procedure with principal diagnosis of mental illness 0.1

081 Nontraumatic stupor and coma without MCC 0.1

887 Other mental disorders 0.1

080 Nontraumatic stupor and coma with MCC 0.0

Nonpsychiatric MS–DRGs 0.9

Total 100.0

Note: IPF (inpatient psychiatric facility), MCC (major comorbidity or complication), MS–DRG (Medicare severity–diagnosis 

related group), AMA (against medical advice), OR (operating room). 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 Medicare patients in IPFs are generally assigned to 1 of 17 psychiatric MS–DRGs.

 The most frequently occurring IPF diagnosis—accounting for about 73 percent of IPF 

discharges in 2012—was psychosis. In 2012, the next most common discharge diagnosis, 

accounting for about 7 percent of IPF cases, was degenerative nervous system disorder.
90 

Acute inpatient services

Chart 6-33. Characteristics of IPF users, 2012

Share of users

Share of with more than

Characteristic total IPF users one IPF stay

Current eligibility status*

Aged 41.0% 28.3%

Disabled 58.9 71.3

ESRD only 0.1 0.4

Age (years)

<45 23.8 31.5

45–64 34.6 39.5

65–79 24.5 19.5

80+ 17.1 9.5

Race

White 78.4 75.1

African American 15.8 18.7

Hispanic 2.7 3.1

Other 3.1 3.1

All 100.0 28.0

Note: IPF (inpatient psychiatric facility), ESRD (end-stage renal disease). Numbers may not sum to totals due to rounding.

*Some aged beneficiaries are also disabled.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 About 59 percent of Medicare beneficiaries who had at least one IPF stay in 2012 qualified 

for Medicare because of a disability. These beneficiaries tend to be younger and poorer than 

the typical fee-for-service beneficiary.

 About 28 percent of Medicare beneficiaries who used an IPF in 2012 had more than one IPF 

stay during the year. These beneficiaries were far more likely than all IPF users to be 

disabled.

 A majority of beneficiaries admitted to IPFs are dually eligible for Medicare and Medicaid. In 

2012, 57 percent of Medicare beneficiaries with at least one IPF stay were dually eligible for 

at least one month of the year (data not shown).
7

A Data Book: Health care spending and the Medicare program, June 2015 93

Chart 7-1. Medicare spending per FFS beneficiary on services

in the fee schedule for physicians and other health 

professionals, 2003–2013

Note: FFS (fee-for-service). Dollar amounts are Medicare spending only and do not include beneficiary coinsurance. 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: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 The fee schedule for physicians and other health professionals includes a broad range of 

services such as office visits, surgical procedures, and a variety of diagnostic and 

therapeutic services furnished in all health care settings. “Other health professionals” refers 

to nurse practitioners, physician assistants, chiropractors, and physical therapists.

 Except for a small decrease in spending for aged beneficiaries in 2013, FFS spending per 

beneficiary for fee-schedule services has increased annually. From 2003 to 2013, spending 

grew 40 percent.

 Growth in spending on fee-schedule services is one of several contributing factors in Part B 

premium increases over this period.

 Per capita spending for disabled beneficiaries (under age 65) is lower than per capita 

spending for aged beneficiaries. In 2013, for example, per capita spending for disabled 

beneficiaries was $1,776 compared with $2,090 for aged beneficiaries. 

1,485

1,724

1,837

1,963

2,115 2,090

1,274

1,391 1,432

1,574

1,724 1,776

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2003 2005 2007 2009 2011 2013

Spending per beneficiary (dollars)

Aged

Disabled
94 

Ambulatory care

Chart 7-2. Volume growth has raised physician spending more 

than input prices and payment updates, 2000–2013

Note: MEI (Medicare Economic Index).

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 From 2000 to 2013, Medicare spending per beneficiary for physician services increased by 

67 percent. 

 Spending per beneficiary grew much more rapidly over the period than both the payment 

rate updates and the MEI. Physician fee-schedule payment updates totaled 9 percent, and 

the MEI increased 28 percent.

 Growth in the volume of services contributed much more to the rapid increase in Medicare 

spending than payment rate updates. Both factors—updates and volume growth—combined

to increase physician revenues.

0

10 12

19

30

37

42 45

50

55

62

67

69

67

0

2

5

8

11

14

18

20 22 24 26 26 27 28

0

5

0

1

3

5 5 5 5

7

8

9 9 9

-10

0

10

20

30

40

50

60

70

80

 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Cumulative percent change

Spending per beneficiary

MEI

Updates
A Data Book: Health care spending and the Medicare program, June 2015 95

Chart 7-3. Medicare beneficiaries reported better ability to get 

timely appointments with physicians compared with 

privately insured individuals, 2011–2014

Medicare (ages 65 or older) Private insurance (ages 50–64)

Survey question 2011 2012 2013 2014 2011 2012 2013 2014

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 74% 77%b73% 72%a71% 72% 69% 69%a

Sometimes 18 17b20 20a21 21b23 23a

Usually 3 3 3 3 4 3 4 4

Always 2

b

 2

b

 3 3 3 3 3 3

For illness or injury

Never 82 84 82 83

a

79 80 77 79a

Sometimes 14 12 14 12a17 16 17 16a

Usually 2 2 2 2 2 2 3

a

 2

Always 1 1 1 1

a

 1

b

 2

a

 2 2

a

Note: Numbers may not sum to 100 percent due to rounding. Missing responses (“Don’t Know” or “Refused”) are not presented. 

Overall sample sizes for each group (Medicare and privately insured) were 4,000 in years 2011 to 2014. 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 2013 within the same insurance coverage 

category.

Source: MedPAC-sponsored annual telephone surveys conducted 2011–2014.

 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 report better access to physicians for appointments than privately 

insured individuals ages 50 to 64. For example, in 2014, 72 percent of Medicare 

beneficiaries and 69 percent of privately insured individuals reported “never” having to wait 

longer than they wanted to get an appointment for routine care. 

 Medicare beneficiaries also report more timely appointments for injury and illness than 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.
96 

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, 2011–2014

Medicare (ages 65 or older) Private insurance (ages 50–64)

Survey question 2011 2012 2013 2014 2011 2012 2013 2014

Looking for a new physician “In the past 12 months, have you tried to get a new ...?” (Percent 

answering “Yes”)

Primary care physician 6%

b

 7%

b

 7% 8% 7% 7% 8% 8%

Specialist 14b13b14b17 16 18 16 17

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 65 72 70 67 68 75 67 63

Small problem 12 14 11 16 16 9 15 16

Big problem 23b14 17 15 14a15 18 19

Specialist

No problem 84 87 86 85 86 86 87 85

Small problem 8 6 8 7 8 7

b

 6 9

Big problem 7 7 5 7 6 7 7 6

Note: Numbers may not sum to 100 percent due to rounding. Missing responses (“Don’t Know” or “Refused”) are not presented. 

Overall sample sizes for each group (Medicare and privately insured) were 4,000 in 2011 to 2014. 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 2014 within the same insurance coverage category.

Source: MedPAC-sponsored annual telephone surveys, conducted 2011–2014.

 In 2014, only 8 percent of Medicare beneficiaries and 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 8 percent of Medicare beneficiaries who looked for a new primary care physician in 2014, 31

percent reported problems finding one: 15 percent reported their problem as “big,” and 16 percent 

reported their problem as “small.” Although this number indicates that only about 2 percent of the total 

Medicare population reported problems finding a primary care physician, the Commission is 

concerned about the continuing trend of greater problems accessing primary care.

 Of the 8 percent of privately insured individuals who looked for a new primary care physician in 2014,

35 percent reported problems finding one: 19 percent reported their problem as “big,” and 16 percent 

reported their problem as “small.”

 In 2014, 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 2015 97

Chart 7-5. Access to physician care was better for Medicare 

beneficiaries than privately insured individuals, but 

minorities in both groups reported unwanted delays 

slightly more frequently, 2014

Medicare (ages 65 or 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 72%

a

 73%

a

 72%

a

 69%

a

 70%

a

 66%

a

Sometimes 20a20a19

a

23

a

23

a

 24

a

Usually 3 3 3 4 4 4

Always 3 2 3 3 2

b

5

b

For illness or injury

Never 83a84

ab 80a

79

a

80ab73ab

Sometimes 12

a

12

a

14

a

16

a

16

ab

19

ab

Usually 2 2 2 2 2 3

Always 1

a

1 2

a

2

a

 2

b

 4

ab

Note: Numbers may not sum to 100 percent due to rounding. Missing responses (“Don’t Know” or “Refused”) are not presented. 

Overall sample size for each group (Medicare and privately insured) was 4,000 in 2014. 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 race 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 2014.

 In 2014, Medicare beneficiaries reported better access to physicians for appointments than

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 2014, 84 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 80 percent of minority beneficiaries. 

 Although minorities experienced slightly more access problems, minorities with Medicare 

were less likely to experience problems than minorities with private insurance.
98 

Ambulatory care

Chart 7-6. Differences in obtaining access to a new physician 

did not vary significantly between White and 

minority Medicare patients, 2014

Medicare (ages 65 or 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 8% 8% 8% 8% 7% 9%

Specialist 17 18

b

14

b

17 18

b

14

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 67 67 69 63 60 72

Small problem 16 16 16 16 17 14

Big problem 15 15 13 19 22 13

Specialist

No problem 85 85 83 85 86 84

Small problem 7 7 5 9 8 10

Big problem 7 7 8 6 6 7

Note: Numbers may not sum to 100 percent due to rounding. Missing responses (“Don’t Know” or “Refused”) are not presented. 

Overall sample size for each group (Medicare and privately insured) was 4,000 in 2014. 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 race 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 2014.

 Among the small percentage of Medicare beneficiaries and privately insured individuals 

looking for a new specialist, minorities were slightly more likely than Whites to report 

problems finding one, although differences in 2014 were small and not statistically 

significant. 
A Data Book: Health care spending and the Medicare program, June 2015 99

Chart 7-7. Growth in volume per beneficiary of physician and 

other health professional services, 2000–2013

Note: “Volume” refers to the units of service multiplied by relative value units from the fee schedule for services furnished by 

physicians and other qualified health professionals. Volume for all years is measured on a common scale, with relative 

value units for 2013. Volume growth for evaluation and management (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 2013, 

we used a growth rate for 2009 to 2010 of 1.9 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.

 From 2000 to 2013, the volume of some services furnished by physicians and other qualified 

health professionals grew much more than others.

 The volume of tests grew by 86 percent, the volume of imaging grew by 71 percent, and the 

volume of “other procedures” (procedures other than major procedures) grew by 69 percent. 

The comparable growth rates for E&M services and major procedures were only 39 percent

and 36 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. Overall volume increases translate directly to growth in both Part B 

spending and premiums. Rapid volume growth may be a sign that some services in the 

physician fee schedule are mispriced.

86

71

69

39

36

0

10

20

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Cumulative percent change

Tests

Imaging

Other procedures

Evaluation & management

Major procedures
100 

Ambulatory care

Chart 7-8. Changes in physicians’ professional liability 

insurance premiums, 2007–2014

Note: Bars represent a four-quarter moving average percent 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 

physician fee schedule. PLI premiums generally follow 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. 

 The change in PLI premiums over the last 13 years reflects a cyclical pattern. Premiums 

increased from 2002 through 2006 (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 and began falling during the second quarter 

of 2014. 

1.5

1.3

2.7 2.8

3.2

4.0

3.6

2.1

1.2 1.0

0.2

1.2

1.6

1.0

0.3

0.5

-5

-4

-3

-2

-1

0

1

2

3

4

5

2007 2008 2009 2010 2011 2012 2013 2014

Percent
A Data Book: Health care spending and the Medicare program, June 2015 101

Chart 7-9. Spending on hospital outpatient services covered 

under the outpatient PPS, 2004–2014

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. 

*Estimate.

Source: CMS, Office of the Actuary.

 Overall spending by Medicare and beneficiaries on hospital outpatient services covered 

under the outpatient PPS from calendar year 2004 to 2014 increased by 108 percent, 

reaching $51 billion. The Office of the Actuary projects continued growth in total spending, 

averaging 9.4 percent per year from 2014 to 2016.

 In 2001, the first full year of the outpatient PPS, spending under the PPS was $20.1 billion, 

including $12.1 billion by the program and $8.0 billion in beneficiary cost sharing. Spending 

under the outpatient PPS is expected to rise to $51 billion in 2014 ($39.6 billion in program 

spending, $11.4 billion in beneficiary copayments). The outpatient PPS accounted for about 6

percent of total Medicare spending by the program in 2014.

 Beneficiary cost sharing under the outpatient PPS includes the Part B deductible and 

coinsurance for each service. Under the outpatient PPS, beneficiary cost sharing is 

generally higher than for other sectors, about 22 percent in 2013. Chart 7-13 provides more 

detail on coinsurance.

16.4 19.1 20.2 21.9 23.6 26.0 27.9 30.5 33.4 35.0

8.1 39.6

8.3 8

8

7.8

8

8.4

8.8

9.4

10.2

11.4

0

10

20

30

40

50

60

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014*

Dollars (in billions)

Beneficiary cost sharing

Program payments
102 

Ambulatory care

Chart 7-10. Most hospitals provide outpatient services

Percent offering

Outpatient Outpatient Emergency

Year Hospitals services surgery services

2004 3,882 94% 86% N/A

2006 3,651 94 86 N/A

2008 3,607 94 87 N/A

2010 3,518 95 90 N/A

2012 3,483 95 91 93%

2013 3,456 96 92 93

2014 3,429 96 92 93

Note: N/A (not applicable). We list emergency services from 2004 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 percentage 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 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 (PPS) sharply declined from 2002 through 2006, largely because of growth 

in the number of hospitals converting to critical access hospital status, which allows payment 

on a cost basis. Since 2006, the decline in the number of outpatient PPS hospitals has 

slowed.

 The percent of hospitals providing outpatient services remained stable, and the percent 

offering outpatient surgery steadily increased from 2004 through 2014. The percent offering 

emergency services has remained stable over the period we are able to measure accurately

(in 2011, CMS changed the variable in the Provider of Services file we use to calculate the 

share of hospitals offering emergency services, so the numbers for 2012 through 2014 are 

not precisely comparable with prior years).
A Data Book: Health care spending and the Medicare program, June 2015 103

Chart 7-11. Payments and volume of services under the

Medicare hospital outpatient PPS, by type of 

service, 2013

Payments Volume

Note: PPS (prospective payment system), E&M (evaluation and management). Payments include both program spending and 

beneficiary cost sharing but do not include hold-harmless payments. Services are grouped into evaluation and 

management, procedures, imaging, and tests according to the Berenson–Eggers Type of Service classification developed 

by CMS. Pass-through drugs and separately paid drugs and blood products are classified by their payment status 

indicator. Percentages may not sum to 100 percent due to rounding.

Source: MedPAC analysis of standard analytic file of outpatient claims for 2013.

 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 than volume. For example, in 2013, 

procedures accounted for 50 percent of payments but only 18 percent of volume.

 Procedures (e.g., endoscopies, surgeries, and skin and musculoskeletal procedures) 

accounted for the greatest share of payments for services (50 percent) in 2013, followed by 

imaging services (16 percent), separately paid drugs and blood products (14 percent), and 

evaluation and management services (14 percent).

Tests

3%

Pass-through 

drugs

1%

Procedures

50%

Imaging

16%

E&M

14%

Separately 

paid 

drugs/blood 

products

14%

Tests

10%

Pass-through 

drugs

5%

Procedures

18%

Imaging

12%

E&M 16%

Separately paid 

drugs/blood 

products

40%
104 

Ambulatory care

Chart 7-12. Hospital outpatient services with the highest 

Medicare expenditures, 2013

Share of Volume Payment

APC title payments (thousands) rate

Total 43%

All emergency visits 6 12,634 $202

All clinic visits 5 26,329 77

Diagnostic cardiac catheterization 2 476 2,650

Level II extended assessment & management composite 2 2,297 798

Cataract procedures with IOL insert 2 512 1,730

Level II implantation of cardioverter-defibrillatorsa2 26 30,680

Level I implantation of cardioverter-defibrillatorsb2 34 22,512

Transcatheter placement of intracoronary drug-eluting stents 2 103 7,763

Level I plain film except teeth 2 15,076 46

Lower gastrointestinal endoscopy 2 1,112 691

Level II endovascular revascularization of the lower extremity 1 84 8,657

Level II echocardiogram without contrast 1 1,677 390

Level III radiation therapyc1 1,298 484

Level II drug administration 1 15,345 39

Level II cardiac imaging 1 847 680

Coronary angioplasty, valvuloplasty, and level I endovascular 

revascularization of the lower extremity 1 164 4,023

Combined abdomen and pelvis CT with contrast 1 1,110 483

Level II laparoscopy 1 150 3,487

Computed tomography without contrast 1 2,790 174

Level III nerve injections 1 865 566

Level III cystourethroscopy and other genitourinary procedures 1 284 1,909

CT and CTA with contrast composite 1 678 682

Insertion/replacement/conversion of permanent dual chamber 1 45 10,187

pacemaker or pacing electrode

MRI and magnetic resonance angiography without contrast material 1 1,185 339

Level I upper gastrointestinal procedures 1 808 623

Average APC 416 143

Note: APC (ambulatory payment classification), IOL (intraocular lens), CT (computed tomography), CTA (computed tomography 

angiography), MRI (magnetic resonance imaging). The payment rate for “all emergency visits” is a weighted average of 

payment rates from 10 APCs, and the payment rate for “all clinic visits” is a weighted average of payment rates from 5 

APCs.

a

In 2012, this APC was Insertion/replacement/repair of cardioverter-defibrillator leads.

b

In 2012, this APC was Insertion of cardioverter-defibrillator pulse generator.

c

In 2012, this APC was intensity-modulated radiation therapy treatment delivery.

Source: MedPAC analysis of 5 percent analytic files of outpatient claims for calendar year 2013.

 Although the outpatient prospective payment system covers thousands of services, 

expenditures are concentrated in a handful of categories that have high volume, high 

payment rates, or both.
A Data Book: Health care spending and the Medicare program, June 2015 105

Chart 7-13. Medicare coinsurance rates, by type of hospital

outpatient service, 2013

Note: Services were grouped into categories of evaluation and management, imaging, procedures, and tests according to the 

Berenson–Eggers Type of Service classification developed by CMS. Pass-through drugs and separately paid drugs and 

blood products are classified by their payment status indicators.

Source: MedPAC analysis of the standard analytic files of outpatient claims for 2013.

 Before CMS began using the outpatient prospective payment system (PPS), beneficiary 

coinsurance payments for hospital outpatient services were based on hospital charges, 

while Medicare payments were based on hospital costs. As hospital charges grew faster 

than costs, coinsurance represented an increasingly large share of total payments. 

 In adopting the outpatient PPS, the Congress froze the dollar amounts for coinsurance. 

Consequently, beneficiaries’ share of total payments has declined over time.

 The coinsurance rate differs for each service. Some services, such as imaging, have 

relatively high rates of coinsurance—27 percent in 2013. Other services, such as 

procedures, have coinsurance rates of 20 percent.

 In 2013, the average coinsurance rate was about 21 percent. There is a small discrepancy 

between the average coinsurance rate of 21 percent and the average cost sharing of 22 

percent listed on Chart 7-9 because the cost sharing includes both coinsurance and the Part 

B deductible. 

21

27

20

26

20 20

0

5

10

15

20

25

30

35

Evaluation and

management

Imaging Procedures Tests Pass-through

drugs

Separately paid

drugs/blood

products

Coinsurance rate (in percent)

Type of service

21
106 

Ambulatory care

Chart 7-14. Effects of hold-harmless and SCH transfer payments 

on hospitals’ outpatient revenue, 2011–2013

2011 2012 2013

Share of Share of Share of

payments payments payments

from Number from Number from

Number of hold harmless of hold harmless of hold harmless

Hospital group hospitals and SCH transfer hospitals and SCH transfer hospitals and SCH transfer

All hospitals 3,087 0.4% 3,029 0.4% 2,877 0.1%

Urban 2,197 –0.3 2,170 –0.3 2,061 –0.4

Rural SCHs 378 8.0 371 8.2 354 6.2

Rural ≤ 100 beds 375 3.1 356 4.2 340 0.7

Other rural 136 –0.1 132 –0.1 121 –0.4

Major teaching 259 –0.3 260 –0.4 251 –0.3

Other teaching 730 –0.1 712 –0.1 684 –0.2

Nonteaching 2,097 1.2 2,057 1.2 1,941 0.5

Note: SCH (sole community hospital). The number of hospitals in groups in 2011 and 2013 do not sum to total because we 

could not classify one hospital in both years.

Source: MedPAC analysis of Medicare Cost Report files from CMS. 

 Medicare implemented the hospital outpatient prospective payment system (PPS) in 2000. 

Previously, Medicare paid for hospital outpatient services on the basis of hospital costs. 

Recognizing that some hospitals might receive lower payments under the outpatient PPS than 

under the earlier system, the Congress established transitional corridor payments. The corridors 

were designed to make up part of the difference between payments that hospitals would have 

received under the old payment system and those under the new outpatient PPS.

 Transitional corridor payments expired for most hospitals at the end of 2003. However, some rural 

hospitals continued to receive a special category of transitional corridor payments called “hold 

harmless” (HH) through 2012. Qualifying hospitals receive the greater of the payments they would 

have received from the previous system or the actual outpatient PPS payments.

 Hospitals that qualified for HH payments in 2004 and 2005 included rural SCHs and other small 

rural hospitals (100 or fewer beds). After 2005, small rural hospitals continued to be eligible for HH 

payments, but SCHs no longer qualified. In 2006, CMS implemented a policy (the “SCH transfer”) 

that increased outpatient payments to rural SCHs by 7.1 percent above the standard rates. This 

policy is made budget neutral by reducing payments to all other hospitals. Finally, the Congress 

reestablished HH payments for SCHs that had 100 or fewer beds in 2009 and extended HH 

payments to all SCHs in 2010 and 2011. HH payments for SCHs that had more than 100 beds 

expired on March 1, 2012, and expired for SCHs and rural hospitals that had 100 or fewer beds on 

January 1, 2013.

 HH payments and the SCH transfer represented 0.4 percent of total outpatient PPS payments for 

all hospitals in 2011. However, the percentage of total outpatient payments from these policies was 

8.0 percent for rural SCHs and 3.1 percent for small rural hospitals. Data from 2012 and 2013 

indicate transfer and HH payments to rural SCHs were 8.2 percent of their outpatient revenue in 

2012 and 6.2 percent in 2013. Hold-harmless payments were 4.2 percent of total outpatient 

payments to small rural hospitals in 2012, but only 0.7 percent in 2013.
A Data Book: Health care spending and the Medicare program, June 2015 107

Chart 7-15. Number of observation hours increased,

2006–2013

Source: MedPAC analysis of Limited Data Set claims for the outpatient prospective payment system 2006–2013.

 Hospitals use observation care to determine whether a patient should be hospitalized for 

inpatient care, transferred to an alternative treatment setting, or sent home.

 Medicare began providing separate payments to hospitals for some observation services on 

April 1, 2002. Previously, the observation services were packaged into the payments for the 

emergency department or clinic visits that occurred with observation care.

 The number of observation hours (both packaged and separately paid) has increased 

substantially, from about 23 million in 2006 to 53 million in 2013. Before 2006, it was difficult 

to count the total number of observation hours because hospitals were not required to report 

packaged observation hours on Medicare claims.

23

27

31

36

39

42

50

53

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012 2013

Observation hours (millions)
108 

Ambulatory care

Chart 7-16. Number of Medicare-certified ASCs increased by 

15 percent, 2007–2014

2007 2008 2009 2010 2011 2012 2013 2014

Medicare payments (billions of dollars) $2.9 $3.1 $3.2 $3.3 $3.4 $3.6 $3.7 $3.9

Number of centers 4,740 4,941 5,049 5,135 5,217 5,287 5,363 5,347

New centers 343 282 220 195 198 169 164 125

Closed or merged centers 79 81 112 109 116 99 88 51

Net percent growth in number

of centers from previous year 5.6% 4.2% 2.2% 1.7% 1.6% 1.3% 1.4% 1.4%

Percent of all centers that are:

For profit 95 95 95 95 95 95 95 95

Nonprofit 4 4 3 3 3 3 3 3

Government 1 1 1 1 1 1 2 2

Urban 92 92 92 92 92 93 93 93

Rural 8 8 8 8 8 7 7 7

Note: ASC (ambulatory surgical center). Medicare payments include program spending and beneficiary cost sharing for ASC 

facility services. Payments for 2014 are preliminary and subject to change. Totals may not sum to 100 percent due 

to rounding.

Source: MedPAC analysis of Provider of Services file from CMS 2014. Payment data are from CMS, Office of the Actuary. 

 ASCs are distinct entities that furnish ambulatory surgical services not requiring an overnight 

stay. The most common ASC procedures are cataract removal with lens insertion, upper 

gastrointestinal endoscopy, colonoscopy, and nerve procedures.

 Total Medicare payments for ASC services increased by 4.2 percent per year, on average, 

from 2007 through 2014. Payments per fee-for-service beneficiary grew by 3.9 percent per 

year during this period. Between 2013 and 2014, total payments rose by 4.3 percent and 

payments per beneficiary grew by 4.0 percent.

 The number of Medicare-certified ASCs grew at an average annual rate of 2 percent from 

2007 through 2014. Each year from 2007 through 2014, an average of 212 new facilities 

entered the market, while an average of 92 closed or merged with other facilities.

 The slower growth in the number of ASCs from 2009 through 2014 may reflect the 

substantially higher rates that Medicare pays for ambulatory surgical services 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. 
A Data Book: Health care spending and the Medicare program, June 2015 109

Chart 7-17. Medicare spending for imaging services under the 

fee schedule for physicians and other health 

professionals, by type of service, 2013

Note: PET (positron emission tomography), MRI (magnetic resonance imaging), CT (computed tomography). Standard imaging 

includes chest, musculoskeletal, and breast X-rays. Imaging procedures include stereoscopic X-ray guidance for delivery 

of radiation therapy, fluoroguide for spinal injection, and other interventional radiology procedures. Medicare payments 

include program spending and beneficiary cost sharing for fee schedule imaging services provided in all settings. 

Payments include carrier-priced codes but exclude radiopharmaceuticals. 

Source: MedPAC analysis of 100 percent physician/supplier procedure summary file from CMS 2013.

 About one-third of Medicare spending for imaging under the fee schedule for physicians and 

other health professionals in 2013 was for CT and MRI studies. About one-quarter was for 

various types of ultrasound (echocardiography and other echography).

 Medicare and beneficiaries spent a total of $9.6 billion for imaging services under the fee 

schedule in 2013. Spending declined from $9.9 billion in 2012 (–3.2 percent). The decline in 

spending was largely due to a 1 percent drop in the number and complexity of imaging 

services per beneficiary in 2013, CMS’s adoption of more current practice-expense data 

from a new survey of practitioners, and CMS’s update of the interest rate assumption for 

medical equipment such as imaging machines. 

Standard

23%

Other echography 

(ultrasound)

18%

CT

18%

MRI

14%

Echocardiography

9%

Nuclear medicine

7%

Imaging procedure

6%

PET

5%
110 

Ambulatory care

Chart 7-18. Growth in the number of CT, MRI, and cardiac 

imaging services per 1,000 beneficiaries, 2000–2013 

Note: CT (computed tomography), MRI (magnetic resonance imaging), FFS (fee-for-service). Data include physician fee 

schedule imaging services provided in all settings but exclude technical component–only services. The number of 

echocardiography and nuclear cardiology services excludes add-on services. 

Source: MedPAC analysis of 100 percent physician/supplier procedure summary files from CMS 2000, 2012, and 2013. 

. 

 The number of CT and MRI scans per 1,000 fee-for-service beneficiaries grew rapidly from 

2000 to 2012. There was minimal change from 2012 to 2013. For example, the number of 

CT scans of parts of the body other than the head (“CT: other”) more than doubled from 

2000 to 2013 (from 185 per 1,000 beneficiaries to 399). 

 The number of echocardiography and nuclear cardiology studies also increased from 2000 

to 2012, although not as much as CT and MRI scans. 

 Echocardiography services per 1,000 beneficiaries grew by 51 percent from 2000 to 2012 

and declined by 1 percent in 2013. Nuclear cardiology studies increased by 11 percent from 

2000 to 2012 and fell by 7 percent in 2013. 

124

185

44

58

158

67

206

389

75

130

238

74

205

399

75

131

235

68

0

50

100

150

200

250

300

350

400

450

Number of services per 1,000 FFS beneficiaries

2000

2012

2013
8

A Data Book: Health care spending and the Medicare program, June 2015 113

Chart 8-1. Number of post-acute care providers decreased 

slightly or remained stable in 2014

Average

annual

percent Percent

change change

2005 2007 2009 2011 2013 2014 20052013 20132014

Home health

agencies 8,314 9,404 10,961 12,026 12,613 12,461 5.3% 1.2%

Inpatient

rehabilitation

facilities 1,235 1,202 1,196 1,165 1,161 1,177 0.6 1.4

Long-term

care hospitals 388 396 427 437 432 422 1.4 2.3

Skilled nursing

facilities 15,026 15,047 15,062 15,120 15,163 15,173 0.1 0.1

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 declined slightly in 2014, though this decline comes 

after several years of substantial growth. The decline in agencies was concentrated in 

Texas and Florida, two states that have seen considerable growth since the implementation 

of the prospective payment system in October 2000.

 In spite of a moratorium on new long-term care hospitals (LTCHs) beginning in October 

2007, the number of these facilities continued to grow through 2011. The number of LTCHs 

has since decreased from 437 in 2011 to 422 in 2014.

 The total number of skilled nursing facilities has increased slightly since 2005, and the mix 

of facilities shifted from hospital-based to freestanding facilities. In 2013, hospital-based 

facilities made up 5 percent of all facilities, down from 8 percent in 2005. 
114 

Post-acute care

Chart 8-2. Home health care and skilled nursing facilities have 

fueled growth in Medicare’s post-acute care 

expenditures

Note: These numbers are program spending only and do not include beneficiary copayments.

Source: CMS Office of the Actuary, 2015.

.

 Increases in fee-for-service (FFS) spending on post-acute care have slowed in part because 

of expanded enrollment in managed care under Medicare Advantage; Medicare Advantage

spending is not included in this chart. 

 FFS spending on inpatient rehabilitation hospitals declined from 2005 through 2008, 

reflecting policies intended to ensure that patients who do not need this intensity of services 

are treated in less-intensive settings. However, spending on inpatient rehabilitation hospitals 

has increased since 2009.

 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) beginning October 2010. Once CMS established that the adjustment it made 

was too large, it lowered the adjustment, and spending dropped in 2012. 

29.3

32.9

34.8

39.1

43.0

45.6

48.8

52.5

56.0

58.7

61.4

58.5 59.4

13.6 15.0 15.5

17.6

19.5 21.0 22.8

24.9 26.2 27.9

31.2

28.3 28.7

9.1 9.7 10.3

11.6 13.0 14.1 15.7 17.3 19.0 19.6 18.6 18.2 18.3

4.8

5.8 6.2 6.4 6.3 6.1 5.9 5.9 6.0 6.1 6.4 6.7 6.9

1.9 2.4 3.0 3.6 4.2 4.3 4.4 4.5 4.8 5.0 5.2 5.4 5.5

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dollars (in billions)

All post-acute care

Skilled nursing facilities

Home health agencies

Inpatient rehabilitation hospitals

Long-term care hospitals
A Data Book: Health care spending and the Medicare program, June 2015 115

Chart 8-3. Freestanding SNFs and for-profit SNFs account for 

the majority of facilities, Medicare stays, and 

Medicare spending

Medicare payments

Facilities Medicare-covered stays (billions)

Type of SNF 2006 2013 2006 2013 2006 2013

Totals 15,178 14,978 2,454,263 2,365,743 $19.5 $26.6

Freestanding 92% 95% 89% 94% 94% 97%

Hospital based 8 5 11 6 6 3

Urban 67 72 79 83 81 85

Rural 33 28 21 17 19 15

For profit 68 70 67 71 73 75

Nonprofit 26 25 29 25 24 21

Government 5 5 4 3 3 3

Note: SNF (skilled nursing facility). Totals may not sum to 100 due to rounding and missing values. 

Source: MedPAC analysis of the Provider of Services and Medicare Provider Analysis and Review files, 2006 and 2013.

 The mix of where beneficiaries receive SNF services has shifted toward freestanding, urban, 

and for-profit facilities. 

 In 2013, freestanding facilities accounted for 94 percent of stays and an even larger share of

Medicare’s payments (97 percent).

 In 2013, urban facilities accounted for 72 percent of facilities, 83 percent of stays, and 85

percent of Medicare payments. 

 In 2013, for-profit facilities accounted for 70 percent of facilities, but proportionally higher 

shares of stays and Medicare payments (71 percent and 75 percent, respectively). 
116 

Post-acute care

Chart 8-4. SNF service use continued to decline between 2012

and 2013

Percent 

change

Volume measure 2006 2008 2010 2012 2013 2012–2013

Covered admissions per 

 1,000 FFS beneficiaries 72 73 72 68 67 –2.2%

Covered days (in thousands) 1,892 1,977 1,938 1,861 1,835 –1.4

Covered days per admission 26.3 27.0 27.1 27.4 27.6 0.7

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 percent change column was calculated using unrounded data.

Source: Calendar year data from CMS, Office of Information Products and Data Analytics 2013. 

 In 2013, 4.5 percent of beneficiaries used SNF services, down slightly from 2011 (not 

shown). 

 Between 2012 and 2013, admissions per 1,000 FFS beneficiaries decreased 2.2 percent, 

paralleling the decline in inpatient hospital use. An acute hospital stay of three or more days 

is a prerequisite for Medicare coverage of SNF care. 

 Covered days declined at a slower pace (1.4 percent), resulting in a slight increase in 

covered days per admission (0.7 percent). 
A Data Book: Health care spending and the Medicare program, June 2015 117

Chart 8-5. Freestanding SNF Medicare margins remain high 

despite reductions in payments 

2002 2004 2006 2008 2010 2012 2013

All 17.5% 13.8% 12.8% 16.7% 19.4% 14.0% 13.1%

Rural 20.3 16.1 13.5 17.9 19.4 13.0 12.1

Urban 16.9 13.3 12.7 16.4 19.4 14.2 13.3

Nonprofit 9.1 3.8 3.2 7.2 10.8 5.7 5.0

For profit 19.4 16.1 15.1 19.0 21.5 16.2 15.3

Note: SNF (skilled nursing facility). 

Source: MedPAC analysis of freestanding SNF cost reports 2002–2013. 

 Though lower than in recent years, the 2013 Medicare margin for freestanding SNFs

exceeded 10 percent for the 14th consecutive year. The 2013 margin is lower than the 2012 

margin for two reasons: current law requires market basket increases to be offset by a 

productivity adjustment and sequestration began lowering payments in April 2013 by 2 

percent on an annualized basis. 

 In 2013, on average, urban facilities had slightly higher Medicare margins than rural facilities

even though rural facilities have higher base rates than urban facilities. For-profit SNFs had

higher Medicare margins than nonprofit SNFs. 

 In 2013, total margins (the margin across all payers and all lines of business) for 

freestanding facilities remained positive and increased slightly from 2012 (1.9 percent, up 

from 1.8 percent in 2012, not shown).
118 

Post-acute care

Chart 8-6. Cost and payment differences explain variation in 

Medicare margins for freestanding SNFs in 2013

 

Highest margin Lowest margin Ratio of highest

quartile quartile quartile to

Characteristic (n = 3,238) (n = 3,238) lowest quartile

Cost measures 

Standardized cost per day $250 $359 0.7

Standardized cost per discharge $11,116 $13,591 0.8

Average daily census (patients) 88 68 1.3

Average length of stay (days) 46 37 1.3

Revenue measures

Medicare payment per day $474 $424 1.1

Medicare payment per discharge $22,391 $15,790 1.4

Share of days in intensive therapy 82% 73% 1.1

Share of medically complex days 4 6 0.7

Medicare share of facility revenue 26 16 1.6

Patient characteristics

Case-mix index 1.39 1.30 1.1

Share of dual-eligible of beneficiaries 40% 27% 1.5

Share of minority beneficiaries 13 4 3.3

Share of very old beneficiaries 30 36 0.8

Medicaid share of days 66 58 1.1

Facility mix

Percent for profit 90% 60% N/A

Percent urban 76 68 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 costs per day are Medicare costs adjusted for 

differences in area wages and the case mix (using the nursing component’s relative weights) of Medicare beneficiaries. 

“Intensive therapy days” are days classified into ultra-high and very-high rehabilitation 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 2013. 

 Medicare margins varied widely across freestanding SNFs. One-quarter of SNFs had

Medicare margins at or below 3.7 percent, and one-quarter of facilities had Medicare 

margins at or above 21.7 percent (data not shown). 

 High-margin SNFs had lower costs per day (30 percent lower costs than low-margin SNFs),

after adjusting for wage and case-mix differences, and higher revenues per day (1.1 times 

the revenues per day of low-margin SNFs). 

 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 2015 119

Chart 8-7. Financial performance of relatively efficient SNFs 

reflects a combination of lower cost per day and 

higher payments per day

Relatively All

efficient SNFs SNFs

Performance in 2013

Community discharge rate 48% 40%

Rehospitalization rate 9% 11%

Standardized cost per day $272 $293

Medicare revenue per day $487 $458

Medicare margin 20.6% 14.5%

Total margin 3.5% 2.1%

 

Facility case-mix index 1.42 1.37

Medicare average length of stay 33 days 37 days

Occupancy rate 88% 87%

Number of beds 120 117

Share of intensive therapy days 82% 80%

Share of medically complex days 5% 5%

Medicaid share of facility days 58% 61%

Share of urban 81% 74% 

Share of for profit 83% 75%

Note: SNF (skilled nursing facility). The analysis includes 7,928 freestanding facilities. SNFs were defined as efficient by their 

cost per day (2010–2012) and two quality measures (community discharge and rehospitalization rates) for the same 

period. Efficient SNFs were those in the best third of the distribution of one measure and not in the bottom third on any 

measure in each of three years. Seven 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. Quality measures were rates of 

risk-adjusted community discharge and rehospitalization for patients with potentially avoidable conditions within 100 days 

of hospital discharge. Quality measures were calculated for all facilities with at least 25 stays. Intensive therapy days 

include days classified into the ultra-high and very-high case-mix groups. Medically complex days were defined as those 

assigned to clinically complex or special-care case-mix groups.

Source: MedPAC analysis of quality measures for 2010–2013 and Medicare cost report data for 2010–2013. 

 Relatively efficient SNFs were defined as consistently providing relatively low-cost and highquality care compared with other SNFs. 

 Compared with national averages, relatively efficient SNFs furnished considerably higher 

quality (higher discharge to community rates and lower readmission rates) and had costs 

per day that were 7 percent lower. 
120 

Post-acute care

Chart 8-8. Spending on home health care, 2001–2013

Source: CMS Office of the Actuary.

 In October 2000, the prospective payment system (PPS) replaced the previous Medicare 

payment system. At the same time, eligibility for the benefit broadened slightly. 

 Home health care spending has risen rapidly under the PPS. Spending rose by about 10 

percent per year between 2001 and 2009; spending peaked in 2010 and has remained 

relatively flat since 2011.

9.1 9.7 10.3 

11.6 

13.0 

14.1 

15.7 

17.3 

19.0 19.6 

18.6 18.2 

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dollars (in billions)

18.3
A Data Book: Health care spending and the Medicare program, June 2015 121

Chart 8-9. Trends in the provision of home health care

Cumulative

Percent change percent change

2002 2012 2013 2012–2013 2002–2013

Number of users (in millions) 2.5 3.4 3.5 0.9% 37.8%

Percent of beneficiaries 

who used home health care 7.2% 9.2% 9.3% 0.5 28.9

Episodes (in millions) 4.1 6.7 6.7 0.5 63.6

Episodes per home

health patient 1.6 2.0 1.9 1.4 18.7

Visits per home health 

episode 18.4 16.9 16.5 2.4 12.7

Visits per home health 

patient 31.0 33.1 32.1 3.0 3.5

Average payment per 

episode $2,335 $2,677 $2,674 0.1 14.5 

Source: MedPAC analysis of the home health standard analytic file. Yearly figures presented in the table are rounded, but percent 

change columns were calculated using unrounded data.

 Under the prospective payment system, in effect since October 2000, the number of users 

and the number of episodes have risen significantly. In 2013, 3.5 million beneficiaries used 

the home health benefit. 

 The number of home health episodes increased rapidly from 2002 to 2013, though growth 

has slowed in recent years. The number of beneficiaries using home health care has also 

increased since 2002, but at a lower rate than the growth in episodes.

 The number of visits per episode decreased from 2002 to 2013. 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 2013. Beneficiaries received fewer visits in an episode but had more 

60-day episodes of care. As a result, the average number of visits increased from 31 visits 

per home health user in 2002 to over 32 visits per home health user in 2013.
122 

Post-acute care

Chart 8-10. Home health episodes not preceded by a 

hospitalization accounted for the majority of 

services in 2012

Number of episodes (in millions) Cumulative Share of episodes

2001 2012 growth 2001 2012

Episodes not preceded by a hospitalization or PAC stay:

 First 0.8 1.4 76% 20% 21%

 Subsequent 1.3 3.1 141 32 45

 Subtotal 2.1 4.5 116 53 66

Episodes preceded by a hospitalization or PAC stay:

 First 1.6 1.8 17 40 27

 Subsequent 0.3 0.5 63 8 7

 Subtotal 1.9 2.3 23 47 34

Total 3.9 6.8 72 100% 100%

Note: PAC (post-acute care). “First” indicates no home health episode in the 60 days preceding the episode. “Subsequent” 

indicates the episode started within 60 days of the end of a preceding episode. “Episodes not preceded by a 

hospitalization or PAC stay” indicates that there was no hospitalization or PAC stay in the 15 days before the start of the 

episode. “Episodes preceded by a hospitalization or PAC stay” indicates the episode occurred less than 15 days after a 

stay in a hospital (including a long-term care hospital), skilled nursing facility, or inpatient rehabilitation facility. The 

number of episodes presented in the table are rounded, but the cumulative growth column was calculated using 

unrounded data. Numbers may not sum due to rounding. 

Source: CMS Datalink file 2012.

 The rise in the average number of episodes per beneficiary coincides with a relative shift 

away from using home health care as a PAC service. 

 During the 2001 through 2012 period, the number of episodes not preceded by a 

hospitalization or PAC stay increased by 116 percent compared with a 23 percent increase 

in episodes that were preceded by a hospitalization or PAC stay. During that period, the 

share of all episodes preceded by a hospitalization or PAC stay rose from about 53 percent 

to 66 percent. 

 Beneficiaries for whom the majority of home health episodes in 2010 were preceded by a 

hospitalization or other post-acute stay had different characteristics than communityadmitted beneficiaries. Community-admitted home health users were more likely to be dually 

eligible for Medicare and Medicaid, had more home health episodes, and had more 

episodes with a high share of home health aide services compared with post-acute users of 

home health (not shown in table). Community-admitted users generally had fewer chronic 

conditions, tended to be older, and were more likely to have dementia and Alzheimer’s 

disease. 
A Data Book: Health care spending and the Medicare program, June 2015 123

Chart 8-11. Medicare margins for freestanding home health

agencies

Percent of

agencies

2012 2013 2013

All 14.5% 12.7% 100%

Geography

Mostly urban 14.9 13.1 84

Mostly rural 12.8 11.0 16

Type of control

For profit 15.3 13.7 89

Nonprofit 14.5 10.0 11

Volume quintile

First 7.1 6.1 20

Second 8.1 7.8 20

Third 10.1 8.9 20

Fourth 13.2 11.2 20

Fifth 16.8 14.8 20

Note: Agencies are characterized as urban or rural based on the residence of the majority of their patients. Agencies with outlier 

payments that exceeded 10 percent of Medicare revenues are excluded from the reported statistics.

Source: MedPAC analysis of 2012–2013 Medicare Cost Report files from CMS.

 In 2013, freestanding home health agencies (HHAs) (about 85 percent of all HHAs) had an 

aggregate margin of 12.7 percent. HHAs that served mostly urban patients in 2013 had an 

aggregate margin of 13.1 percent; HHAs that served mostly rural patients had an aggregate 

margin of 11.0 percent. The 2013 margin is consistent with the historically high margins the 

home health industry has experienced under the prospective payment system. The margin 

from 2001 to 2012 averaged 17.5 percent (data not shown), indicating that most agencies 

have been paid well in excess of their costs under the prospective payment system.

 For-profit agencies in 2013 had an average margin of 13.7 percent, and nonprofit agencies 

had an average margin of 10.0 percent.

 Agencies that serve more patients have higher margins. The agencies in the lowest volume 

quintile in 2013 have an aggregate margin of 6.1 percent, while those in the highest quintile 

have an aggregate margin of 14.8 percent.
124 

Post-acute care

Chart 8-12. Number of IRF FFS patients was stable in 2013

Average

annual percent Percent

change change

2004 2011 2012 2013 2004–2012 2012–2013

Number of IRF cases 495,000 371,000 373,000 373,000 –3.5% 0.0%

Cases per 10,000 135.6 101.7 100.1 99.7 –3.7 –0.4

FFS beneficiaries

Payment per case $13,290 $17,398 $17,995 $18,258 3.9 1.5

Average length of stay

(in days) 12.7 13.0 12.9 12.9 0.3 –0.4

Note: IRF (inpatient rehabilitation facility), FFS (fee-for-service). Numbers of cases reflect Medicare FFS utilization only. Yearly 

figures presented in the table are rounded, but 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.

 After CMS renewed its enforcement of the compliance threshold in 2004, IRF volume 

declined substantially. Between 2004 and 2008 (data not shown), the number of IRF cases 

fell almost 8 percent per year. After 2008, volume began in increase slowly. Between 2012 

and 2013, volume was stable, remaining at about 373,000 cases.

 In recent years, the number of IRF cases per 10,000 FFS beneficiaries has held steady at 

about 100. Relatively few Medicare beneficiaries use IRF services because, to qualify for 

Medicare coverage, IRF patients must be able both to 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. 

 Medicare payments per IRF case rose almost 4 percent per year between 2004 and 2012. 

Payments per case grew 1.5 percent between 2012 and 2013.
A Data Book: Health care spending and the Medicare program, June 2015 125

Chart 8-13. Most common types of inpatient rehabilitation 

facility cases, 2013

Type of case Share of cases

Stroke 19.4%

Fracture of the lower extremity 12.5

Neurological disorders 12.4

Debility 10.2

Major joint replacement of lower extremity 9.0

Brain injury 8.2

Other orthopedic conditions 7.7

Cardiac conditions 5.4

Spinal cord injury 4.6

All other 10.5

Note: “Fracture of the lower extremity” includes hip, pelvis, and femur fractures. “Neurological disorders” includes multiple 

sclerosis, Parkinson’s disease, and polyneuropathy. 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, major multiple trauma, and pain syndrome. Numbers 

may not sum to 100 percent due to rounding.

Source: MedPAC analysis of Inpatient Rehabilitation Facility–Patient Assessment Instrument data from CMS.

 In 2013, the most frequent diagnosis for Medicare patients in inpatient rehabilitation facilities 

(IRFs) was stroke, representing almost 20 percent of cases. 

 Major joint replacement cases represented 9 percent of IRF admissions in 2013, down from 

24 percent in 2004, when major joint replacement was the most common IRF Medicare case 

type. 

 The share of cases represented by patients with neurological disorders has been steadily 

increasing since 2004, while the share of major joint replacement cases has been steadily 

decreasing. The share of neurological disorders exceeded the share of major joint 

replacement for the first time in 2012 and continued in 2013.
126 

Post-acute care

Chart 8-14. Inpatient rehabilitation facilities’ Medicare margin 

by type of facility, 2004–2013

2004 2006 2008 2010 2011 2012 2013

All IRFs 16.7% 12.3% 9.3% 8.7% 9.9% 11.3% 11.4%

Hospital based 12.2 9.6 3.8 –0.4 –0.2 0.8 0.3

Freestanding 24.7 17.4 18.1 21.3 23.2 24.0 24.1

Urban 17.0 12.6 9.5 9.0 10.3 11.7 11.8

Rural 13.2 10.1 6.9 4.8 5.3 6.5 6.4

Nonprofit 12.8 10.6 5.2 2.2 2.7 2.4 1.5

For profit 24.4 16.3 16.8 19.6 20.8 23.0 23.4

Note: IRF (inpatient rehabilitation facility).

Source: MedPAC analysis of cost report data from CMS. 

 Between 2012 and 2013, the aggregate IRF Medicare margin remained almost static, rising 

from 11.3 percent to 11.4 percent, including the effects of the sequester. The aggregate 

margin has risen steadily since 2009, after a period of declining, though healthy, margins.

 Medicare margins in freestanding IRFs far exceeded those of hospital-based facilities. 

However, a quarter of hospital-based IRFs had Medicare margins greater than 10 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. In 

2013, the aggregate Medicare margin for acute care hospitals with IRF units was a 

percentage point higher than the margin of hospitals without IRF units (data not shown).

 Margins also varied by ownership, with for-profit IRFs having substantially higher margins.

 Higher unit costs were the primary driver of lower margins in both hospital-based and 

nonprofit IRFs (data not shown).
A Data Book: Health care spending and the Medicare program, June 2015 127

Chart 8-15. Low standardized costs lead to high margins for 

both hospital-based and freestanding IRFs, 2013

Characteristic Lowest cost quartile Highest cost quartile

Median cost per discharge

 All $11,227 $21,934

 Hospital based 12,127 21,848

 Freestanding 10,632 22,514

Median Medicare margin

 All 26.2% 26.0%

 Hospital based 21.6 26.0

 Freestanding 29.5 23.1

Median

 Number of beds 44 17

 Occupancy rate 70% 47%

 Case-mix index 1.27 1.22

Share of facilities in the quartile that are:

 Hospital based 41% 5%

 Freestanding 59 5

 Nonprofit 31 63

 For profit 65 21

 Government 4 16

 Urban 93 71

 Rural 7 29

Note: IRF (inpatient rehabilitation facility). Cost per discharge is standardized for differences in wages across geographic areas 

and differences in case mix across providers.

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 almost half that of the IRFs with the highest 

standardized costs (those in the highest cost quartile).

 IRFs in the lowest cost quartile had a median Medicare margin of 26.2 percent compared 

with –26.0 percent for IRFs in the highest cost quartile.

 IRFs with the lowest costs tended to be larger: The median number of beds was 44 

compared with 17 in the highest cost quartile. In addition, IRFs with the lowest costs had a 

higher median occupancy rate (70 percent vs. 47 percent). These results suggest that lowcost IRFs benefit from economies of scale.

 Low-cost IRFs were disproportionately freestanding and for profit. Still, 41 percent of IRFs in 

the lowest cost quartile were hospital based and 31 percent were nonprofit. By contrast, in 

the highest cost quartile, 95 percent were hospital based and almost two-thirds were 

nonprofit.
128 

Post-acute care

Chart 8-16. The top 25 MS–LTC–DRGs made up two-thirds of

LTCH discharges in 2013

MS–LTC

–DRG Description Discharges Percentage

207 Respiratory system diagnosis with ventilator support 96+ hours 16,221 11.8%

189 Pulmonary edema and respiratory failure 15,179 11.0

871 Septicemia without ventilator support 96+ hours with MCC 8,458 6.1

177 Respiratory infections and inflammations with MCC 4,324 3.1

592 Skin ulcers with MCC 3,650 2.6

208 Respiratory system diagnosis with ventilator support <96 hours 3,135 2.3

949 Aftercare with CC/MCC 3,003 2.2

539 Osteomyelitis with MCC 2,877 2.1

190 Chronic obstructive pulmonary disease with MCC 2,439 1.8

682 Renal failure with MCC 2,292 1.7

919 Complications of treatment with MCC 2,235 1.6

559 Aftercare, musculoskeletal system and connective tissue with MCC 2,123 1.5

314 Other circulatory system diagnoses with MCC 2,038 1.5

862 Postoperative and post-traumatic infections with MCC 2,026 1.5

193 Simple pneumonia and pleurisy with MCC 1,979 1.4

 4 Tracheostomy with ventilator support 96+ hours or primary diagnosis 

except face, mouth, and neck without major OR 1,925 1.4

166 Other respiratory system OR procedures with MCC 1,917 1.4

870 Septicemia with ventilator support 96+ hours 1,817 1.3

570 Skin debridement with MCC 1,711 1.2

291 Heart failure and shock with MCC 1,664 1.2

853 Infectious and parasitic diseases with OR procedure with MCC 1,556 1.1

981 Extensive OR procedure unrelated to principal diagnosis with MCC 1,541 1.1

638 Diabetes with CC 1,447 1.0

560 Aftercare, musculoskeletal system and connective tissue with CC 1,414 1.0

602 Cellulitis with MCC 1,398 1.0

Top 25 MS–LTC–DRGs 88,369 64.1

Total 137,846 100.0

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. Columns may not sum to totals due to rounding.

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 2013, 

the top 25 MS–LTC–DRGs accounted for almost 65 percent of all cases.

 The most frequent diagnosis in LTCHs in 2013 was respiratory system diagnosis with 

ventilator support for more than 96 hours. Nine of the top 25 diagnoses, representing 42

percent of all cases, were respiratory conditions or involved prolonged mechanical 

ventilation. 
A Data Book: Health care spending and the Medicare program, June 2015 129

Chart 8-17. The number of Medicare LTCH cases and users 

decreased between 2012 and 2013

Average annual change

2004– 2005– 2007– 2012–

2004 2005 2007 2012 2013 2005 2007 2012 2013

Cases 121,955 134,003 129,202 140,463 137,827 9.9% –1.8% 1.7% 1.9%

Cases per 10,000

FFS beneficiaries 33.4 36.4 36.3 37.7 36.8 9.0 –0.1 0.7 –2.2

Spending per

FFS beneficiary $101.3 $122.2 $126.5 $148.8 $147.6 20.7 1.7 3.3 0.8

Payment per case $30,059 $33,658 $34,769 $39,493 $40,070 12.0 1.6 2.6 1.5

Length of stay (in days) 28.5 28.2 26.9 26.2 26.5 –1.1 –2.3 –0.5 1.0

Users 108,814 119,282 114,299 123,652 121,532 9.6 –2.1 1.6 1.7

Note: LTCH (long-term care hospitals), FFS (fee-for-service). Yearly figures presented in the table are rounded, but the average 

annual change column was calculated using unrounded data.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 Controlling for the number of FFS beneficiaries, the number of LTCH cases declined 2.2

percent between 2012 and 2013. The decline is due at least in part to a congressional 

moratorium that limited growth in the number of LTCHs.

 Between 2012 and 2013, the number of beneficiaries who had LTCH stays (users) 

decreased by 1.7 percent.
130 

Post-acute care

Chart 8-18. LTCHs’ per case costs increased at a rate faster than 

payments in 2013

Note: LTCH (long-term care hospital), TEFRA (Tax Equity and Fiscal Responsibility Act of 1982), PPS (prospective payment 

system). Percent changes are calculated based on consistent two-year cohorts of LTCHs.

Source: MedPAC analysis of Medicare cost report data from CMS.

 In the first years of the PPS, costs per case increased rapidly, following a surge in payments 

per case.

 Between 2005 and 2008, growth in cost per case slowed considerably, as regulatory 

changes to Medicare’s payment policies for LTCHs slowed growth in payment per case.

 Spending growth between 2010 and 2013 slowed to 2.1 percent, in part because of 

mandated reductions in Medicare’s LTCH payment rate beginning in 2011.

1.5

4.4

7.5

13.4

26.5

36.0

40.0 38.7 40.1

45.6 47.5 48.0

50.3 51.0

1.8

3.6 4.9 5.6

14.3

20.3

26.3

30.4 32.2

34.7 35.4 35.9 37.4 39.2

-10

0

10

20

30

40

50

60

1999-2000 2001-2002 2003-2004 2005-2006 2007-2008 2009-2010 2011-2012

Cumulative percent change

TEFRA PPS

Payment per case

Cost per case
A Data Book: Health care spending and the Medicare program, June 2015 131

Chart 8-19. The aggregate average LTCH Medicare margin fell in 

2013

Type of LTCH

Share of 

Discharges 2008 2009 2010 2011 2012 2013

All 100% 3.7% 5.7% 6.8% 6.9% 7.4% 6.6%

Urban 95 3.9 6.0 7.1 7.0 7.5 6.8

Rural 5 3.2 3.0 0.2 2.9 3.5 2.4

Nonprofit 14 2.5 0.7 0.2 0.4 0.6 1.7

For profit 85 5.3 7.4 8.3 8.4 9.0 8.4

Government 1 N/A N/A N/A N/A N/A N/A

Note: LTCH (long-term care hospital), N/A (not available). Margins for government-owned providers are not shown. They 

operate in a different context from other providers, so their margins are not necessarily comparable.

Source: MedPAC analysis of cost report data from CMS.

 After implementation of the prospective payment system, LTCHs’ Medicare margins 

increased rapidly for all LTCH provider types, climbing to 11.9 percent in 2005 (data not 

shown). Margins then fell as growth in payments per case leveled off.

 From 2009 through 2012, LTCH margins climbed as providers consistently held cost growth 

below that of payment growth.

 In 2013, the aggregate LTCH margin fell from 7.4 percent (in 2012) to 6.6 percent, primarily 

because of the first year of a three-year phase-in of the downward adjustment for budget 

neutrality and the effect of sequestration beginning on April 1, 2013.

 Financial performance in 2013 varied across LTCHs. The aggregate Medicare margin for 

for-profit LTCHs (which accounted for 85 percent of all Medicare discharges from LTCHs) 

was 8.4 percent. The aggregate margin for nonprofit LTCHs fell from 0.4 percent in 2011 to 

–0.6 percent in 2012 and then –1.7 percent in 2013. This decline was due to cost growth 

that exceeded growth in payments. Between 2012 and 2013, per case costs for nonprofit 

LTCHs grew almost twice as fast as costs for for-profit LTCHs (data not shown).

9

A Data Book: Health care spending and the Medicare program, June 2015 135

Chart 9-1. MA plans available to almost all Medicare 

beneficiaries

CCPs

HMO Any Average plan

or local Regional Any MA offerings per

PPO PPO CCP PFFS plan county

2009 88% 91% 99% 100% 100% 34

2010 91 86 99 100 100 21

2011 92 86 99 63 100 12

2012 93 76 99 60 100 12

2013 95 71 99 59 100 12

2014 95 71 99 53 100 10

2015 95 70 98 47 99 9

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 plans, three of which are CCPs. Local CCPs include local PPOs and 

HMOs, which have comprehensive provider networks and limit or discourage use of out-ofnetwork 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 (not CCPs) 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 95 percent of Medicare beneficiaries in 2015, and regional 

PPOs are available to 70 percent of beneficiaries; the availability of both plan types is 

virtually unchanged from 2013. However, the availability of MA PFFS plans has declined 

from 59 percent of beneficiaries in 2013 to 47 percent of beneficiaries in 2015. For the past 

10 years, almost all Medicare beneficiaries have had MA plans available: 99 percent in 

2015, up from 84 percent in 2005 (not shown in table).

 The number of plans from which beneficiaries may choose in 2015 is down from last year. In 

2015, beneficiaries can choose from an average of nine plans operating in their counties 

(this figure is the simple average of plans per county; if counties were enrollee-weighted, the 

average would be substantially higher). This availability has decreased after peaking in 2008 

and 2009, reflecting network requirements for PFFS plans and CMS’s 2010 effort to reduce 

the number of duplicative plans and plans with low enrollment. The decrease in plan choices 

from 2010 to 2015 was due to the reduction in the number of PFFS and regional PPO plans.
136 Medicare Advantage

Chart 9-2. Average monthly rebate dollars, by plan type, 

2010–2015

Note: HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private fee-for-service), MA 

(Medicare Advantage).

Source: MedPAC analysis of bid and plan finder data from CMS.

 Perhaps the best summary measure of plan generosity 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.

 HMOs have had, by far, the highest rebates because they tend to bid lower than other types 

of plans. Average rebates for HMOs have remained relatively stable over this period.

 For the three non-HMO categories, the rebates rose from 2010 to 2011 and declined 

thereafter.

97

40

25 27

74

101

44

31

51

83

103

44

29

43

85

102

35

21

36

81

92

35

18

28

75

95

29

18

24

76

0

20

40

60

80

100

120

HMO PPO PFFS Regional PPO Any MA plan

Average monthly rebate dollars

2010 2011 2012 2013 2014 2015
A Data Book: Health care spending and the Medicare program, June 2015 137

Chart 9-3. Enrollment in MA plans, 1995–2015

Note: MA (Medicare Advantage).

Source: Medicare managed care contract reports and monthly summary reports, CMS.

 Medicare enrollment in MA plans that are paid on an at-risk capitated basis is at an all-time 

high, at 16.4 million enrollees (30 percent of all Medicare beneficiaries). Enrollment rose 

rapidly throughout the 1990s, peaking at 6.4 million enrollees in 1999, but then declined to a 

low of 4.6 million enrollees in 2003. MA enrollment has increased steadily since 2003.

3.1

5.2

6.4

5.5

4.6 4.9

8.1

10.5

11.7

14.1

16.4

0

2

4

6

8

10

12

14

16

18

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Beneficiaries (in millions) 
138 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 2011 2012 2013 2014 2015 2014–2015

Local CCPs 9,993 11,382 12,580 13,809 14,824 7% 

Regional PPOs 1,132 930 1,060 1,221 1,237 1

PFFS 588 518 417 309 260 –16

Note: CCP (coordinated care plan), PPO (preferred provider organization), PFFS (private fee-for-service). Local CCPs include 

health maintenance organizations and local PPOs.

Source: CMS health plan monthly summary reports.

 Enrollment in local CCPs grew by 7 percent over the past year. Enrollment in regional PPOs 

grew by 1 percent, while enrollment in PFFS plans continued to decline. Combined 

enrollment in the three types of plans grew by 6 percent from February 2014 to February 

2015. 
A Data Book: Health care spending and the Medicare program, June 2015 139

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

plan, 2015

Medicare eligibles Distribution (in percent) of enrollees by plan type

State (in thousands) HMO Local PPO Regional PPO PFFS Cost Total

U.S. total 54,156 20% 8% 2% 0% 1% 31%

Alabama 956 16 8 2 0 0 25

Alaska 79 0 0 0 0 0 0

Arizona 1,103 35 3 1 0 0 39

Arkansas 590 8 3 5 4 0 20

California 5,545 38 1 0 0 0 38

Colorado 766 30 3 0 1 3 37

Connecticut 624 22 3 1 0 0 25

Delaware 177 5 3 0 0 0 8

Florida 3,921 28 3 9 0 0 40

Georgia 1,492 9 14 7 1 0 31

Hawaii 240 19 25 1 0 0 46

Idaho 275 17 15 0 0 0 33

Illinois 2,046 8 10 0 0 0 19

Indiana 1,135 3 15 5 0 0 24

Iowa 566 5 8 0 0 2 15

Kansas 482 6 6 0 1 0 14

Kentucky 854 5 14 6 0 0 26

Louisiana 781 26 2 3 0 0 30

Maine 303 14 7 0 1 0 22

Maryland 917 3 2 0 0 4 8

Massachusetts 1,201 15 3 1 0 0 19

Michigan 1,874 13 17 1 0 0 32

Minnesota 898 14 4 0 0 36 54

Mississippi 555 7 3 4 0 0 14

Missouri 1,122 19 6 3 1 0 28

Montana 197 0 16 0 2 0 18

Nebraska 309 6 3 0 2 1 12

Nevada 438 30 4 0 0 0 34

New Hampshire 260 3 2 0 2 0 7

New Jersey 1,478 12 3 0 0 0 15

New Mexico 365 20 11 0 0 0 32

New York 3,308 26 7 3 1 0 37

North Carolina 1,738 13 14 2 1 0 30

North Dakota 117 0 2 0 0 14 16

Ohio 2,126 17 18 3 0 1 38

Oklahoma 670 11 5 1 1 0 17

Oregon 735 26 18 0 0 0 44

Pennsylvania 2,507 25 14 0 0 0 40

Puerto Rico 745 71 4 0 0 0 75

Rhode Island 201 33 1 1 0 0 35

South Carolina 921 7 5 10 1 0 23

South Dakota 154 0 5 0 0 12 18

Tennessee 1,216 24 10 1 0 0 34

Texas 3,565 18 7 4 1 1 31

Utah 337 27 6 0 0 0 34

Vermont 130 0 2 3 2 0 7

Virgin Islands 19 0 0 0 0 0 0

Virginia 1,329 6 4 2 2 2 16

Washington 1,161 25 5 0 0 0 30

Washington, D.C. 87 2 4 0 0 7 13

West Virginia 413 2 20 1 2 2 27

Wisconsin 1,034 18 13 2 1 4 38

Wyoming 94 0 1 0 2 1 3

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 2015.
140 Medicare Advantage

Chart 9-6. MA plan benchmarks, bids, and Medicare program

payments relative to FFS spending, 2015

All plans HMOs Local PPOs Regional PPOs PFFS

Benchmarks/FFS 107% 106% 109% 102% 111%

Bids/FFS 94 90 107 97 108

Payments/FFS 102 101 107 100 111

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 2014.

 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. Legislation established the 

formula, being phased in by 2017, for calculating benchmarks in each county, based on 

percentages (ranging from 95 percent to 115 percent) of each county’s per capita Medicare 

spending.

 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 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 areas.

 Plans’ enrollment-weighted bids average 94 percent of FFS spending. We estimate that HMOs 

bid an average of 90 percent of FFS spending, while bids from other plan types average at least 

97 percent of FFS spending. These numbers suggest that HMOs can provide the same services 

for less than FFS in the areas where they bid, while most other plan types tend to charge more.

 We project that 2015 MA payments will be 102 percent of FFS spending. It is likely this number 

will decline further over the next two years as benchmarks are reduced relative to FFS levels to 

complete the transition to the requirements under the Patient Protection and Affordable Care Act 

of 2010.

 The ratio of payments relative to FFS spending varies by the type of MA plan. HMO and regional 

PPO payments are estimated to be 101 percent and 100 percent of FFS, respectively, while 

payments to PFFS and local PPOs average 111 percent and 107 percent of FFS, respectively. 
A Data Book: Health care spending and the Medicare program, June 2015 141

Chart 9-7. Enrollment in employer group MA plans, 2006–2015

Note: MA (Medicare Advantage).

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 2015, about 3 million enrollees were in employer group plans, or about 19

percent of all MA enrollees.

 Our analysis of MA bid data shows that employer group plans on average have bids that are 

higher relative to FFS spending than individual plans, meaning that group plans appear to 

be less efficient than individual market MA plans. Employer group plans bid an average of 

105 percent of FFS, compared with 92 percent of FFS for individual plans (not shown in

chart).

0.96

1.30

1.56

1.83 1.92 2.08

2.32 2.53

2.96 3.14

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

May-06 Nov-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15

Enrollment (in millions)
142 Medicare Advantage

Chart 9-8. Number of special needs plan enrollees, 2007–2015

Source: CMS special needs plans comprehensive reports, May 2007, April 2008–2015.

 The Congress created special needs plans (SNPs) as a new Medicare Advantage (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. SNP authority was extended several times, 

often subject to new requirements, most recently in the Medicare Access and CHIP 

Reauthorization Act of 2015. Absent further congressional action, SNP authority will expire 

at the end of 2018.

 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 is about 1.7 million in 2015.

 Enrollment in chronic condition SNPs has fluctuated as plan requirements have changed.

 Enrollment in institutional SNPs declined steadily through 2012 but has held steady over the 

last couple of years.

670

829

918 967

1,069

1,188

1,380

1,576

1,678

93

180

265 214 170 201

266 288 313

143 136 119 98 80 47 49 50 50

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2007 2008 2009 2010 2011 2012 2013 2014 2015

Number of special needs plan enrollees

(in thousands)

Dual Chronic Institutional
A Data Book: Health care spending and the Medicare program, June 2015 143

Chart 9-9. Number of SNPs declined and SNP enrollment rose

from 2014 to 2015

Note: SNP (special needs plan).

Source: CMS special needs plans comprehensive reports, April 2014 and 2015.

 The number of SNPs decreased by 4 percent from April 2014 to April 2015, and the number 

of SNP enrollees increased by 7 percent. 

 In 2015, most SNPs (62 percent) are for dual-eligible beneficiaries, while 27 percent are for 

beneficiaries with chronic conditions, and 11 percent are for beneficiaries who reside in 

institutions (or reside in the community but have a similar level of need).

 Enrollment in SNPs has grown from 0.9 million in May 2007 (not shown) to 2 million in April 

2015.

 The availability of SNPs varies by type of special needs population served (data not shown).

In 2015, 82 percent of beneficiaries reside in areas where SNPs serve dual-eligible 

beneficiaries (unchanged from 2014), 47 percent live where SNPs serve institutionalized

beneficiaries (also unchanged from 2014), and 55 percent live where SNPs serve 

beneficiaries with chronic conditions (up from 51 percent).

353 336

61 57

152 148

0

100

200

300

400

500

600

April 2014 April 2015

Number of SNPs

Chronic or disabling condition

Institutional

Dual eligible

1,576 1,678

5050 288

313

0

500

1,000

1,500

2,000

2,500

April 2014 April 2015

SNP enrollment (in thousands)

Chronic or disabling condition

Institutional

Dual eligible
144 Medicare Advantage

Chart 9-10. Twenty most common condition categories among 

MA beneficiaries, defined in the CMS–HCC model, 

2013

Percent of

Percent of beneficiaries

beneficiaries with listed condition

Conditions (defined by HCC) with listed condition and no others

Vascular disease 15.0% 1.6%

Renal failure 14.3 1.5

Diabetes without complications 14.0 5.0

COPD 13.5 1.9

Specified heart arrhythmias 10.9 1.3

CHF 10.8 0.4

Polyneuropathy 10.3 0.6

Major depressive, bipolar, and paranoid disorders 7.6 1.4

Angina pectoris/old myocardial infarction 7.5 0.7

Diabetes with renal or peripheral circulatory manifestation 6.9 0.3

Breast, prostate, colorectal, and other cancers and tumors 6.6 1.8

Rheumatoid arthritis and inflammatory connective tissue disease 5.1 1.0

Diabetes with neurologic or other specified manifestation 4.4 0.5

Cardio-respiratory failure and shock 3.3 0.1

Ischemic or unspecified stroke 2.6 0.2

Seizure disorders and convulsions 2.4 0.3

Major complications of medical care and trauma 2.3 0.2

Drug/alcohol dependence 1.8 0.1

Unstable angina and other acute ischemic heart disease 1.7 0.1

Diabetes with ophthalmologic or unspecified manifestation 1.7 0.5

Vascular disease with complications 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.

 CMS is transitioning to a version of the CMS–HCC model that has 79 HCCs, but the year of this 

analysis is 2013, when the CMS–HCC model included 70 HCCs. The 2013 version had 5 diabetes 

HCCs, and 4 are among the 20 most common HCCs, including the most common one. Two 

categories for vascular disease are also among the 20 most common HCCs.
A Data Book: Health care spending and the Medicare program, June 2015 145

Chart 9-11. Medicare private plan enrollment patterns by age and 

Medicare–Medicaid dual-eligible status, December 

2013

As percent of

Medicare population

Percent of 

category in FFS

Percent of 

category in plans

All beneficiaries 100% 72% 28%

Aged (65 or older) 83 71 29

Under 65 17 78 22

Not dual eligible 82 72 28

Aged (65 or older) 73 71 29

Under 65 9 77 23

Dual eligible 18 74 26

Aged (65 or older) 10 70 30

Under 65 8 80 20

Dual-eligible beneficiaries by category (all ages)

Full dual eligibility 13 81 19

Beneficiaries with partial dual eligibility

QMB only 2 68 32

SLMB only 2 60 40

QI 1 56 44

Note: FFS (fee-for-service), QMB (qualified Medicare beneficiary), SLMB (specified low-income beneficiary), QI (qualifying

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 and cost-reimbursed plans. Data 

exclude Puerto Rico because of the inability to determine specific dual-eligible categories. As of December 2013, Puerto 

Rico had 532,000 Medicare Advantage enrollees, which is nearly three-quarters of the Medicare-eligible population. Dualeligible special needs plans in Puerto Rico had 258,000 enrollees in December 2013.

Source: MedPAC analysis of 2013 denominator file.

 Recent levels of Medicare plan enrollment among the dually eligible represent a significant increase 

over earlier years. In 2004, only 1 percent of dual-eligible beneficiaries were enrolled in plans,

compared with 16 percent of non-dual-eligible beneficiaries.

 A substantial share of dual-eligible beneficiaries (43 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. Beneficiaries 

under age 65 were less likely than aged beneficiaries to enroll in Medicare plans in 2013 (22 percent 

vs. 29 percent). 

 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 Medicare plans than beneficiaries 

with “partial” dual eligibility. Full dual-eligibility categories consist of beneficiaries with coverage 

through state Medicaid programs that include drug coverage, 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 Medicare cost sharing in addition to premiums, in the 

case of the QMB program. SLMB-only and QI beneficiaries have higher rates of plan enrollment (40

percent and 44 percent, respectively) than any other category shown in this chart, and the rates are

higher than the average rate (28 percent) across all Medicare beneficiaries in 2013.
146 Medicare Advantage

Chart 9-12. Distribution of MA plans and enrollment by CMS 

overall star ratings, March 2015

Year 2015 star ratings: Number of stars

Plans and 

enrollment 5 4.5 4 3.5 3 2.5 2

Any star 

rating

All plan types

Number of plans 11 61 86 136 73 26 1 394

As share of

rated plans 10% 21% 35% 23% 10% 2% <1% 100%

HMOs

Number of plans 11 44 60 84 58 17 1 275

As share of 

HMO enrollees 14% 20% 29% 24% 11% 1% <1% 100%

Local PPOs

Number of plans 0 17 23 44 10 8 0 102

As share of 

local PPO 

enrollees N/A 32% 47% 17% 1% 3% N/A 100%

Regional PPOs

Number of plans 0 0 1 5 3 1 0 10

As share of 

regional PPO 

enrollees N/A N/A 40% 28% 26% 6% N/A 100%

PFFS

Number of plans 0 0 2 3 2 0 0 7

As share of 

PFFS enrollees N/A N/A 66% 26% 8% N/A N/A 100%

Note: MA (Medicare Advantage), HMO (health maintenance organization), PPO (preferred provider organization), N/A (not 

applicable), PFFS (private fee-for-service). For purposes of this table, a “plan” is an MA contract, which can consist of 

several options with different benefit packages that are also referred to as plans. Cost-reimbursed HMO plans are 

included in the data. Numbers may not sum to 100 percent due to rounding; enrollment totals are rounded results of the 

sum of unrounded numbers. In 2015, star ratings ranged from 2.0 to the maximum 5.0 (the highest possible star rating).

Source: MedPAC analysis of CMS star ratings and enrollment data 2015.

 The star rating system is a composite measure of clinical processes and outcomes, patient 

experience measures, and measures of a plan's administrative performance. The overall 

star rating includes performance on Part C measures and Part D measures.

 The average overall star rating across all plans is 3.64, or 3.96 on an enrollment-weighted 

basis. There are 151 plans, with nearly 500,000 enrollees, that do not have a star rating 

because they are too new to be rated or there is insufficient information on which to base a 

rating.

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2015 147

Chart 9-12. Distribution of MA plans and enrollment by CMS 

overall star ratings, March 2015 (continued)

 Under the statutory provisions that introduced quality bonus payments in 2012, plans with 

ratings of 4 stars or more receive bonus payments in the form of an increase in their 

benchmarks. Plan star ratings also determine the level of rebate dollars, with higher rated 

plans able to use a higher proportion of the difference between the plan bid and benchmark 

amounts to provide extra benefits to enrollees. 

 Plans with a 5-star rating are able to enroll beneficiaries outside of the annual election

period, on a year-round basis. The 5-star status of such plans is highlighted in the 

Medicare.gov website’s Medicare Plan Finder. 

 HMOs are the only plan type for which there are 5-star plans. Nine MA HMO plans and two

cost-reimbursed HMO plans have 5-star ratings. The highest star rating attained by any local 

PPO is 4.5, whereas the highest rating for a regional PPO or PFFS plan is 4. The majority of 

enrollees in regional PPO plans are in plans with a star rating below 4 stars. 

 Plans with ratings below 3 stars have an indicator of their status in the Medicare Plan 

Finder. CMS has the authority to terminate plans that have had three consecutive years of 

poor performance (a star rating below 3 stars) in either their MA or Part D performance.

 The criteria for determining plan star ratings change from year to year. Therefore, plan 

ratings across years are not entirely comparable. Beginning in 2012, a weighting approach 

was used that assigns greater weight to outcome measures and patient experience 

measures, with less weight assigned to process and administrative measures. In 2015, a 

little over two-thirds of the weight of measures reflects Part C and Part D clinical quality 

measures, compared with 62 percent in 2012 and 49 percent in 2011.

10

00

A Data Book: Health care spending and the Medicare program, June 2015 151

Chart 10-1. Medicare spending for Part B drugs furnished in 

physicians’ offices or by suppliers

Note: Data include Part B–covered drugs administered in physicians’ offices or furnished by suppliers (e.g., certain oral drugs 

and drugs used with durable medical equipment). Data do not include Part B–covered drugs furnished in hospital 

outpatient departments or dialysis facilities. “Medicare spending” includes program payments and beneficiary cost

sharing. Data for 2013 include the effect of the sequester, which reduced Medicare program payments by 2 percent 

beginning April 1, 2013. Data reflect all Part B drugs regardless of whether they are paid based on the average sales price 

plus 6 percent or another payment formula.

Source: MedPAC analysis of Medicare claims data.

 Medicare spending for Part B drugs furnished in physicians’ offices or by suppliers totaled 

about $14.1 billion in 2013, an increase of about 6.5 percent from the 2012 level. 

 Medicare spending on Part B drugs furnished in physician offices or by suppliers increased 

at an average rate of 25 percent per year from 1997 to 2003. In 2005, the Medicare 

payment rate changed from one based on the average wholesale price to 106 percent of the 

average sales price. With the move to the new payment system, spending declined 8 

percent in 2005. Since 2005, spending has increased at an average annual rate of just over

4 percent.

 Reduced use of darbepoetin alfa and epoetin alfa (annual spending has declined by more 

than $1.3 billion since 2005) has contributed to slower growth in physician and supplier Part 

B drug spending.

 Total spending displayed in the chart does not include drugs provided through hospital 

outpatient departments (HOPDs). Separately paid HOPD drugs have grown rapidly in recent 

years—from about $3.5 billion in 2009 to about $6.7 billion in 2013.

2.8

8.5

10.3

10.9

10.1

10.6 11.0 10.7

11.3

11.8

12.8 13.2

14.1

0.0

3.0

6.0

9.0

12.0

15.0

1997 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Medicare spending (dollars in billions)
152 

Prescription drugs

Chart 10-2. Top 10 Part B drugs furnished in physicians’ offices, 

by suppliers, and in hospital outpatient departments 

(in millions), 2012 and 2013

Total Physician and supplier Hospital outpatient

Part B drug spending Part B drug spending Part B drug spending

Part B drug 2012 2013 2012 2013 2012 2013

Rituximab $1,429 $1,528 $876 $880 $553 $648

Ranibizumab 1,278 1,376 1,220 1,325 57 51

Infliximab 1,002 1,127 704 757 297 370

Pegfilgrastim 1,063 1,113 643 629 420 484

Aflibercept 27* 1,094 N/A 1,028 27 66

Bevacizumab 1,022 1,050 625 606 397 444

Immune globulin 880 960 407 431 473 529

Denosumab 493 640 347 429 146 211

Pemetrexed 517 555 292 296 225 259

Trastuzumab 468 509 273 270 196 239

Total spending, 

top 10 Part B drugs 8,179 9,952 5,387 6,652 2,792 3,300

Total spending, 

all Part B drugs 19,230 20,737 13,191 14,054 6,039 6,683

Note: N/A (not available). The 10 Part B drugs with the highest total Medicare expenditures in 2013 are displayed in the table. 

Data for hospital outpatient departments include only separately paid drugs. Data do not include Part B drugs furnished in 

dialysis facilities. Medicare spending includes Medicare program payments and beneficiary cost sharing. Data for 2013 

include the effect of the sequester, which reduced Medicare program payments by 2 percent beginning April 1, 2013. Data 

may not sum to total due to rounding. Data reflect all Part B drugs regardless of whether they are paid based on the 

average sales price plus 6 percent or another payment formula.

*Data for aflibercept are not available for the physician office setting in 2012 because the product was billed under a “nototherwise-classified” billing code.

Source: MedPAC analysis of Medicare claims data from CMS.

 Medicare covers roughly 600 outpatient drugs under Part B, but spending is very 

concentrated. Medicare spending (including cost sharing) on the top 10 drugs, 9 of which 

were biologics, totaled nearly $10 billion in 2013, about 48 percent of all Part B drug 

spending that year. 

 Total spending on Part B drugs increased by about 7.8 percent from 2012 to 2013. During 

this period, Medicare spending on Part B drugs grew by about 10.7 percent in hospital 

outpatient departments and by 6.5 percent for Part B drugs furnished by physicians or 

suppliers. 

 Many of the top 10 drugs are used to treat cancer or its side effects (rituximab, pegfilgrastim, 

bevacizumab, pemetrexed, denosumab, trastuzumab). Drugs used to treat age-related 

macular degeneration (ranibizumab, aflibercept, and bevacizumab), rheumatoid arthritis 

(rituximab and infliximab), and immune disorders (immune globulin) are also included in the 

top 10. 
A Data Book: Health care spending and the Medicare program, June 2015 153

Chart 10-3. In 2012, almost 90 percent of Medicare beneficiaries 

were enrolled in Part D plans or had other sources of 

creditable drug coverage

Note: LIS (low-income subsidy), PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), RDS 

(retiree drug subsidy). Percentages may not sum to 100 due to rounding.

* “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 Current Beneficiary Survey Access to Care file 2012.

 Over three-quarters of Medicare beneficiaries were either signed up for Part D plans or had 

prescription drug coverage through employer-sponsored plans under Medicare’s RDS in 

2012. (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.)

 About 21 percent of Medicare beneficiaries received Part D’s LIS in 2012. Among all LIS 

beneficiaries, about three-quarters (16 percent of all Medicare beneficiaries) were enrolled 

in stand-alone PDPs and the remainder (5 percent of all Medicare beneficiaries) were in 

MA–PD plans.

 Other enrollees in stand-alone PDPs accounted for 23 percent of all Medicare beneficiaries. 

Another 20 percent were in MA–PD plans or other private Medicare health plans. Individuals

whose employers received Medicare’s RDS accounted for 12 percent.

(Chart continued next page)

Non-LIS enrollees in 

PDPs

23%

LIS enrollees in PDPs

16%

Non-LIS enrollees in 

MA-PDs

LIS enrollees in 20%

MA-PDs

5%

Primary coverage 

through employers that 

receive RDS

12%

Other sources of 

creditable coverage*

11%

No creditable 

coverage

12%

PDPs

39%

MA-PDs 25%
154 

Prescription drugs

Chart 10-3. In 2012, almost 90 percent of Medicare beneficiaries 

were enrolled in Part D plans or had other sources of 

creditable drug coverage (continued)

 Other Medicare beneficiaries had creditable drug coverage, but that coverage did not affect 

Medicare program spending. Examples of other sources of creditable coverage include the 

Federal Employees Health Benefits program, TRICARE, Department of Veterans Affairs, 

and employers not receiving the RDS.

 About 12 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 2015 155

Chart 10-4. Changes in parameters of the Part D defined 

standard benefit over time

Cumulative

change

2006 2013 2014 2015 2006–2015

Deductible $250.00 $325.00 $310.00 $320.00 28%

Initial coverage limit 2,250.00 2,970.00 2,850.00 2,960.00 32%

Annual out-of-pocket threshold 3,600.00 4,750.00 4,550.00 4,700.00 31%

Total covered drug spending at annual

out-of-pocket threshold 5,100.00 6,954.52 6,690.77 7,061.76 38%

Minimum cost sharing above the annual

out-of-pocket threshold

Copay for generic/preferred 

multisource drugs 2.00 2.65 2.55 2.65 33%

Copay for other prescription drugs 5.00 6.60 6.35 6.60 32%

Note: Under Part D’s defined standard benefit, the enrollee pays the deductible and then 25 percent of covered drug spending 

(75 percent 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 

threshold. Beginning in 2011, enrollees face reduced cost sharing in the coverage gap. For 2011 and later years, the 

amount of total covered drug spending at the annual out-of-pocket threshold depends on the mix of brand 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 other source of supplemental coverage. Cost sharing paid by most sources of supplemental coverage does 

not count toward this threshold. The enrollee pays nominal cost sharing above the limit.

Source: CMS, Office of the Actuary.

 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 specified a 

defined standard benefit structure. In 2015, it has a $320 deductible, 25 percent coinsurance on 

covered drugs until the enrollee reaches $2,960 in total covered drug spending, and then a 

coverage gap until out-of-pocket spending reaches the annual threshold. Before 2011, enrollees

were responsible for paying the full discounted price of covered drugs filled during the coverage 

gap. Because of changes made by the Patient Protection and Affordable Care Act of 2010, 

enrollees face reduced cost sharing for drugs filled in the coverage gap. In 2015, the cost 

sharing for drugs filled during the gap phase is 45 percent for brand-name drugs and 65 percent 

for generic drugs. Enrollees with drug spending that exceeds the annual threshold pay the 

greater of $2.65 to $6.60 per prescription or 5 percent coinsurance.

 The 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. The benefit 

parameters have generally increased over time, with the exception of 2014. (The reduction in 

2014 reflects a decrease in average drug expenses CMS estimated for the period between 

August 2012 and July 2013.) The parameters have grown cumulatively by 28 percent to 38

percent between 2006, the year Part D began, and 2015. (Although the benefit parameters are 

all indexed to the same factor—the annual change in average total drug expenses—the actual 

changes differ across the parameters because of different rounding rules that are applied. In the 

case of total covered drug spending at the annual out-of-pocket threshold, the growth rate 

calculated is also affected by the mix of brand and generic drugs filled during the coverage gap.)

(Chart continued next page)
156 

Prescription drugs

Chart 10-4. Changes in parameters of the Part D defined 

standard benefit over time (continued)

 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. Both defined standard 

benefit plans and plans that are actuarially equivalent to the defined standard benefit are 

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.
A Data Book: Health care spending and the Medicare program, June 2015 157

Chart 10-5. Characteristics of Medicare PDPs

2014 2015

Enrollees as of Enrollees as of

Plans February 2014 Plans February 2015

Number Number

Number Percent (in millions) Percent Number Percent (in millions) Percent

Total 1,169 100% 18.6 100% 1,001 100% 19.2 100%

Type of organization

Nationala725 62 16.0 86 707 71 16.4 86

Other 444 38 2.5 14 294 29 2.8 14

Type of benefit

Defined standard 36 3 0.4 2 0 0 0.0 0

Actuarially equivalentb549 47 10.2 55 454 45 10.6 55

Enhanced 584 50 7.9 43 547 55 8.6 45

Type of deductible

Zero 553 47 8.0 43 420 42 9.3 49

Reduced 42 4 0.7 4 139 14 1.4 7

Defined standardc574 49 9.8 53 442 44 8.5 44

Drugs covered in the gap

Some coverage 244 21 2.2 12 261 26 2.0 10

None 925 79 16.4 88 740 74 17.2 90

Note: PDP (prescription drug plan). The PDPs and enrollment described here exclude employer-only plans and plans offered in 

U.S. territories. Figures may not sum to totals due to rounding. 

a Reflects total number of plans for organizations with at least 1 PDP in each of the 34 PDP regions. 

b

Includes “actuarially equivalent standard” and “basic alternative” benefits. 

c

$310 in 2014 and $320 in 2015.

Source: MedPAC analysis of CMS landscape, premium, and enrollment data.

 Between 2014 and 2015, the number of stand-alone PDPs decreased by 14 percent. Plan

sponsors are offering 1,001 PDPs in 2015 compared with 1,169 in 2014.

 In 2015, 71 percent of all PDPs are offered by sponsoring organizations that have at least 1 

PDP in each of the 34 PDP regions. Plans offered by those national sponsors account for 86

percent of all PDP enrollment.

 For 2015, a larger share of PDP offerings include enhanced benefits (basic plus supplemental 

coverage) than in 2014. The share of PDPs with actuarially equivalent benefits (having the 

same average value as the defined standard benefit but with alternative benefit designs)

declined slightly and sponsors are offering no PDPs with the defined standard benefit in 2015. 

Although actuarially equivalent plans continue to attract the largest share of PDP enrollees (55 

percent), the share of enrollees choosing to enroll in enhanced benefit plans increased slightly 

from 43 percent to 45 percent between 2014 and 2015.

 Although a larger share of PDPs includes gap coverage for generic drugs in 2015 than in 

2014, the majority of PDP enrollees (90 percent) continue to enroll in plans that offer no 

additional benefits in the coverage gap. However, because of the changes made by the 

Patient Protection and Affordable Care Act of 2010, the Part D benefit now includes some 

coverage for medications filled during the gap phase. In addition, many PDP enrollees receive 

Part D’s low-income subsidy, which effectively eliminates the coverage gap.
158 

Prescription drugs

Chart 10-6. Characteristics of MA–PDs

2014 2015

Enrollees as of Enrollees as of

Plans February 2014 Plans February 2015

Number Number

Number Percent (in millions) Percent Number Percent (in millions) Percent

Totals 1,615 100% 9.9 100% 1,608 100% 10.6 100%

Type of organization

Local HMO 1,066 66 7.0 71 1,123 70 7.6 72

Local PPO 436 27 1.8 18 409 25 1.9 18

PFFS 83 5 0.2 2 50 3 0.2 2

Regional PPO 30 2 0.9 9 26 2 0.9 8

Type of benefit

Defined standard 40 2 0.1 1 39 2 0.1 1

Actuarially equivalent* 153 9 1.0 10 268 17 2.9 27

Enhanced 1,422 88 8.8 89 1,301 81 7.6 72

Type of deductible

Zero 1,326 82 8.5 86 1,014 63 6.0 57

Reduced 188 12 1.1 11 337 21 3.4 32

Defined standard** 101 5 0.3 3 257 16 1.2 11

Drugs covered in the gap

Some coverage 809 50 5.1 51 703 44 4.8 45

None 806 50 4.8 49 905 56 5.8 55

Note: MA–PD (Medicare Advantage–Prescription Drug [plan]), HMO (health maintenance organization), PPO (preferred 

provider organization), PFFS (private fee-for-service). The MA–PD plans 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. Numbers may not sum to totals due to rounding.

*Includes “actuarially equivalent standard” and “basic alternative” benefits. 

** $310 in 2014 and $320 in 2015.

Source: MedPAC analysis of CMS landscape, premium, and enrollment data.

 There are slightly fewer MA–PD plans in 2015 than in 2014. Sponsors are offering 1,608

MA–PD plans compared with 1,615 the year before. HMOs remain the dominant kind of 

MA–PD plan, making up 70 percent of all (unweighted) offerings in 2015. The number of

PFFS plans continues to decline, from 83 in 2014 to 50 in 2015. The number of drug plans 

offered by local PPOs decreased by about 6 percent (27 plans), and the number of drug 

plans offered by regional PPOs decreased by 13 percent (4 plans) between 2014 and 2015. 

 A larger share of MA–PD plans than stand-alone prescription drug plans (PDPs) offer 

enhanced benefits (compare Chart 10-6 with Chart 10-5). In 2015, 55 percent of all PDPs 

have enhanced benefits compared with 81 percent of MA–PD plans. In 2015, enhanced 

MA–PD plans attracted 72 percent of total MA–PD enrollment.

 Sixty-three percent of MA–PD plans have no deductible in 2015. These plans attracted 57

percent of total MA–PD enrollees in 2015.

 MA–PD plans are somewhat less likely than PDPs to provide some additional benefits in the 

coverage gap. In 2015, about 44 percent of MA–PD plans include some gap coverage—a 

decline from 50 percent the year before. Those plans account for about 45 percent of MA–

PD enrollment.
A Data Book: Health care spending and the Medicare program, June 2015 159

Chart 10-7. Change in average Part D premiums, 2011–2015

Average monthly premium weighted by enrollment

Cumulative change 

in weighted 

average

premium,

2011–2015

2011 2012 2013 2014 2015

All plans

Basic coverage $33 $33 $32 $29 $26 –20%

Enhanced coverage 26 26 28 30 33 24

Any coverage 30 30 30 29 30 –1

PDPs

Basic coverage 33 33 32 30 28 –14

Enhanced coverage 63 58 49 49 48 –23

Any coverage 38 38 39 38 37 –3

MA–PDs, including SNPs*

Basic coverage 27 27 29 25 21 –23

Enhanced coverage 12 12 13 13 16 39

Any coverage 14 14 15 16 18 31

Base beneficiary premium 32.34 31.08 31.17 32.42 33.13 2

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), SNPs (special needs plans). All 

calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PD plans exclude Part B–

only plans, demonstrations, special needs plans, and 1876 cost plans.

*Reflects the portion of Medicare Advantage plans’ total monthly premium attributable to Part D benefits for plans that 

offer Part D coverage. MA–PD premiums reflect rebate dollars that were used to offset Part D premium costs. The fact 

that average premiums for enhanced MA–PD plans are lower than for basic MA–PD plans could reflect several factors 

such as different plan sponsors, different counties of operation, and differences in the average health status of plan 

enrollees. 

Source: MedPAC analysis of CMS landscape, plan report, and enrollment data.

 Between 2011 and 2015, the overall average premium paid by Part D enrollees has 

remained very stable at about $30 per month. However, year-to-year changes have differed

by the type of benefit (basic vs. enhanced coverage) and type of plan (PDP vs. MA−PD),

and they generally have not corresponded to changes observed in the base beneficiary 

premium.

 Over the five-year period, the average enrollee premium for basic coverage in PDPs ranged 

from $28 to $33 and decreased by a cumulative 14 percent. The average enrollee premium 

for PDPs offering enhanced coverage has decreased from $63 in 2011 to $48 in 2015, a 

cumulative 23 percent.

 Between 2011 and 2015, the average premium paid by beneficiaries enrolled in MA−PD 

plans with basic coverage ranged between $21 and $29 and decreased by a cumulative 23 

percent. The average premium paid by beneficiaries enrolled in MA−PD plans offering 

enhanced coverage has increased from $12 to $16, a cumulative 39 percent.
160 

Prescription drugs

Chart 10-8. More premium-free (for LIS enrollees) PDPs in 2015, 

but some are unavailable to new enrollees

Number of PDPs

Number of PDPs that have zero 

premium for LIS enrollees

PDP region State(s) 2014* 2015 Difference 2014* 2015 Difference

1 ME, NH 32 28 –4 7 9 2

2 CT, MA, RI, VT 33 27 –6 8 5 –3

3 NY 31 25 –6 8 8 0

4 NJ 34 29 –5 12 10 –2

5 DC, DE, MD 36 27 –9 13 10 –3

6 PA, WV 39 29 –10 13 9 –4

7 VA 35 31 –4 13 9 –4

8 NC 34 29 –5 10 8 –2

9 SC 35 31 –4 8 7 –1

10 GA 34 30 –4 9 8 –1

11 FL 35 27 –8 5 4 –1

12 AL, TN 35 30 –5 11 12 1

13 MI 36 31 –5 13 10 –3

14 OH 37 31 –6 12 8 –4

15 IN, KY 35 31 –4 15 10 –5

16 WI 33 29 –4 12 8 –4

17 IL 38 33 –5 14 10 –4

18 MO 35 31 –4 8 6 –2

19 AR 34 29 –5 12 6 –6

20 MS 33 28 –5 13 9 –4

21 LA 33 28 –5 14 11 –3

22 TX 36 32 –4 11 10 –1

23 OK 36 31 –5 12 10 –2

24 KS 33 29 –4 13 7 –6

25 IA, MN, MT, ND, 

NE, SD, WY 34 30 –4 10 5 –5

26 NM 36 31 –5 7 7 0

27 CO 34 30 –4 5 7 2

28 AZ 34 30 –4 11 12 1

29 NV 34 32 –2 4 4 0

30 OR, WA 35 30 –5 12 10 –2

31 ID, UT 37 31 –6 13 12 –1

32 CA 36 32 –4 9 6 –3

33 HI 29 25 –4 4 9 5

34 AK 28 24 –4 11 7 –4

Total 1,169 1,001 –168 352 283 –69

Note: LIS (low-income subsidy), PDP (prescription drug plan). 

*Includes 27 plans in 2014 and 2015 that did/may not accept new enrollees because of CMS sanctions.

Source: MedPAC based on 2014 and 2015 PDP landscape file provided by CMS. 

 The total number of stand-alone PDPs decreased by 14 percent, from 1,169 in 2014 to 1,001 in 2015. The 

median number of plans offered in PDP regions decreased to 30 plans from 35 in 2014 (not shown in 

chart). AK had the fewest stand-alone PDPs, with 24; IL had the most, with 33.

 In 2015, 283 PDPs qualified to be premium free to LIS enrollees, with at least 4 PDPs available in any 

given region. However, 27 plans were not accepting new enrollees because of CMS sanctions, reducing 

the number of premium-free options available to 256 plans. 
A Data Book: Health care spending and the Medicare program, June 2015 161

Chart 10-9. In 2015, 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–PD plans 

exclude demonstration programs, special needs plans, and 1876 cost plans. Components may not sum to totals due to 

rounding. Over 95 percent of PDPs and MA−PDs have a specialty tier in addition to the tiers listed above.

Source: MedPAC-sponsored analysis by NORC/Georgetown University/Social and Scientific Systems analysis of formularies 

submitted to CMS.

 Most Part D enrollees continue to choose plans that distinguish between preferred and nonpreferred 

brand-name drugs, with an increasing number choosing a formulary that also distinguishes between 

preferred and nonpreferred generic drugs. In 2015, 80 percent of PDP enrollees are in plans that 

have two generic and two brand-name tiers, an increase from 73 percent in 2014. About 76 percent 

of MA–PD enrollees are in such plans in 2015, up from 72 percent in 2014.

 For enrollees in PDPs with two generic and two brand-name tiers, the median copay in 2015 is $38

for a preferred brand and $80 for a nonpreferred brand. The median copay for generic drugs is $1 for 

preferred-tier drugs and $4 for nonpreferred-tier drugs. For MA–PD enrollees, in 2015, the median 

copay is $45 for a preferred brand, $95 for a nonpreferred brand, and $3 and $10 for a generic drug

on preferred and nonpreferred tiers, respectively. In 2015, some plans are offering a “value” tier with 

low or no copays.

 Most plans also use a specialty tier for drugs that have a negotiated price of $600 per month or more. 

In 2015, median cost sharing for a specialty tier drug is 29 percent among PDPs and 33 percent 

among MA–PD plans. 

<1% 17%

80%

76%

20%

6% 1%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2008 2013 2014 2015 2006 2008 2013 2014 2015

PDP enrollees MA-PD enrollees

25% coinsurance

Generic and brand-name tiers

Generic, preferred brand, and nonpreferred brand-name tiers

Two generic and two brand-name tiers

Other tier structure
162 

Prescription drugs

Chart 10-10. In 2015, use of prior authorization continues to 

increase for both PDPs and MA–PDs

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–PD plans 

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. 

Source: MedPAC-sponsored analysis by NORC/Georgetown University/Social and Scientific Systems of formularies submitted to 

CMS.

 The number of drugs listed on a plan’s formulary does not necessarily represent beneficiary 

access to medications. Plans’ processes for nonformulary exceptions, prior authorization 

(preapproval from plans before coverage), quantity limits (plan 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 2015, the average enrollee in a stand-alone PDP faces some form of utilization management 

for about 39 percent of drugs listed on a plan’s formulary, a slight increase from 38 percent in 

2014. Likewise, the average MA–PD enrollee faces some form of utilization management for 39

percent of drugs listed on a plan’s formulary, a sizable increase from 32 percent in 2014. Part D 

plans typically use quantity limits or prior authorization to manage enrollees’ prescription drug 

use.

 In 2015, the share of drugs listed on plan formularies that require quantity limits remained the 

same as in 2014, at 18 percent among stand-alone PDPs. Among MA–PDs, the use of quantity 

limits increased from about 14 percent of listed drugs to 18 percent. The share of drugs listed on 

plan formularies that require 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

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

Percent

2007 2009 2013 2014 2015

PDPs

0

5

10

15

20

25

30

35

40

45

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

2007 2009 2013 2014 2015

MA–PDs
A Data Book: Health care spending and the Medicare program, June 2015 163

Chart 10-11. Characteristics of Part D enrollees, 2013

All 

Medicare Part D

Plan type Subsidy status

PDP MA–PD LIS Non-LIS

Beneficiariesa(in millions) 55.1 37.8 24.2 13.7 12.4 25.4

Percent of all Medicare 100% 69% 44% 25% 22% 46%

Gender

Male 45% 42% 42% 43% 40% 44%

Female 55 58 58 57 60 56

Race/ethnicity

White, non-Hispanic 76 74 77 69 56 83

African American, 

non-Hispanic 10 11 11 11 20 7

Hispanic 9 10 7 14 16 7

Asian 3 3 3 3 5 2

Other 2 2 2 2 2 2

Age (years) b

<65 19 20 22 16 42 9

65–69 26 23 22 26 15 27

70–74 19 20 19 22 12 23

75–79 14 14 14 15 10 16

80+ 22 23 23 21 19 24

Urbanicityc

Metropolitan 81 82 78 89 80 83

Micropolitan 10 10 12 7 11 10

Rural 8 8 10 4 9 7

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income subsidy). 

Percentages may not sum to 100 due to rounding. 

a

Figures for Medicare and Part D include all beneficiaries with at least one month of enrollment in the respective program. 

A beneficiary is classified as LIS if that individual received Part D’s LIS at some point during the year. For individuals who 

switch plan types during the year, classification into plan types is based on the greater number of months of enrollment.

b

Age as of July 2013.

c Urbanicity is based on the Office of Management and Budget’s core-based statistical areas as of February 2013. 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 and Risk Adjustment System files from CMS. 

 In 2013, 37.8 million Medicare beneficiaries (69 percent) enrolled in Part D at some point in 

the year. Most of them (24.2 million) were in stand-alone PDPs, with 13.7 million in MA–PD

plans. Over 12 million enrollees received Part D’s LIS.

 Compared with the overall Medicare population, Part D enrollees are more likely to be 

female and non-White. MA–PD enrollees are less likely to be disabled beneficiaries under 

age 65 and more likely to be Hispanic compared with PDP enrollees; LIS enrollees are more 

likely to be female, non-White, and disabled beneficiaries under age 65 compared with nonLIS enrollees.

 Patterns of enrollment by urbanicity for Part D enrollees were similar to the overall Medicare 

population, with 82 percent in metropolitan areas, 10 percent in micropolitan areas, and the 

remaining 8 percent in rural areas. 
164 

Prescription drugs

Chart 10-12. Part D enrollment trends, 2007–2013

Average annual growth rate

2007 2010 2013 20072010 20102013 20072013

Part D enrollment (in millions)*

Total 26.1 29.7 37.8 4.4% 8.4% 6.4%

By plan type

PDP 18.3 18.9 24.2 1.1 8.5 4.7

MA–PD 7.8 10.6 13.7 10.9 8.8 9.9

By subsidy status

LIS 10.4 11.3 12.4 2.7 3.1 2.9

Non-LIS 15.7 18.4 25.4 5.5 11.4 8.4

By race/ethnicity

White, non-Hispanic 19.4 22.0 28.1 4.3 8.5 6.4

African American, non-Hispanic 2.9 3.3 4.2 4.1 8.0 6.0

Hispanic 2.5 3.0 3.6 5.8 7.0 6.4

Other 1.3 1.4 1.9 3.9 10.6 7.2

By age (years)**

<65 5.5 6.3 7.5 4.7 6.2 5.5

65–69 5.4 6.6 8.8 6.5 10.5 8.5

70–79 8.8 9.9 13.0 3.8 9.5 6.6

80+ 6.4 7.1 8.5 3.2 6.5 4.8

Part D enrollment (in percent)

Total 100% 100% 100%

By plan type

PDP 70 64 64

MA–PD 30 36 36

By subsidy status

LIS 40 38 33

Non-LIS 60 62 67

By race/ethnicity

White, non-Hispanic 74 74 74

African American, non-Hispanic 11 11 11

Hispanic 10 10 10

Other 5 5 5

By age (years)**

<65 21 21 20

65–69 21 22 23

70–79 34 33 34

80+ 25 24 23

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). A 

beneficiary is 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–PD plan during the year, that individual was classified into the type of plan with the greater 

number of months of enrollment. Numbers 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 file from CMS. 

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2015 165

Chart 10-12. Part D enrollment trends, 2007–2013 (continued)

 Part D enrollment grew faster between 2010 and 2013 (average annual growth rate (AAGR) 

of 8.4 percent) than between 2007 and 2010 (AAGR of 4.4 percent). Between 2010 and 

2013, the largest growth in enrollment was observed for beneficiaries ages 65 to 69 (10.5 

percent annually, on average), followed by beneficiaries ages 70 to 79 (9.5 percent 

annually, on average).

 While MA–PD plan enrollment grew faster between 2007 and 2010 (nearly 11 percent 

annually compared with about 1 percent annually, on average, for PDP plan enrollment), the 

growth rates were comparable between MA–PDs and PDPs between 2010 and 2013 

(AAGR of 8.5 percent and 8.8 percent, respectively).

 The number of enrollees receiving the LIS grew modestly between 2007 and 2010 at 2.7

percent per year. Higher growth rates (3.1 percent) were observed between 2010 and 2013. 

The growth in the number of non-LIS enrollees declined between 2007 and 2010, but 

increased between 2010 and 2013. Faster enrollment growth among non-LIS enrollees is 

partly attributable to the recent growth in employer group waiver plans that shifted 

beneficiaries into Part D plans from employer plans that had previously received Medicare’s 

retiree drug subsidy (RDS) (see Chart 10-3 for information on the RDS).
166 

Prescription drugs

Chart 10-13. Part D enrollment by region, 2013

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 63% 7% 82% 18% 42% 58%

2 CT, MA, RI, VT 67 11 71 29 39 61

3 NY 74 7 57 43 38 62

4 NJ 69 7 80 20 27 73

5 DE, DC, MD 55 10 86 14 36 64

6 PA, WV 72 6 57 43 30 70

7 VA 59 5 77 23 32 68

8 NC 71 5 74 26 34 66

9 SC 61 11 69 31 38 62

10 GA 68 5 63 37 38 62

11 FL 71 6 51 49 32 68

12 AL, TN 71 4 64 36 39 61

13 MI 74 7 78 22 27 73

14 OH 75 5 67 33 27 73

15 IN, KY 71 5 75 25 33 67

16 WI 67 6 62 38 27 73

17 IL 63 13 86 14 34 66

18 MO 70 5 67 33 30 70

19 AR 66 5 75 25 41 59

20 MS 69 2 83 17 49 51

21 LA 70 6 64 36 42 58

22 TX 67 6 68 32 38 62

23 OK 65 3 78 22 34 66

24 KS 68 3 83 17 26 74

25 IA, MN, MT, NE, 

ND, SD, WY 70 4 74 26 25 75

26 NM 67 4 58 42 36 64

27 CO 64 9 50 50 27 73

28 AZ 68 6 48 52 28 72

29 NV 64 6 52 48 26 74

30 OR, WA 64 7 54 46 29 71

31 ID, UT 63 6 54 46 25 75

32 CA 75 5 51 49 36 64

33 HI 70 2 37 63 27 73

34 AK 41 24 98 2 57 43

Mean 69 6 64 36 33 67

Minimum 41 2 37 2 25 43

Maximum 75 24 98 63 57 75

Note: PDP (prescription drug plan), RDS (retiree drug subsidy), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS 

(low-income subsidy). Definition of regions is based on PDP regions used in Part D.

Source: MedPAC analysis of Part D enrollment data from CMS. 

 Among Part D regions, in 2013, all but three regions (Region 5 (DE, DC, MD), Region 7 (VA), 

and 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 continues 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 24 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)
A Data Book: Health care spending and the Medicare program, June 2015 167

Chart 10-13. Part D enrollment by region, 2013 (continued)

 In 2013, all regions, with the exception of Region 34, experienced a decrease in the number 

of beneficiaries who received the RDS. The shift was likely motivated by changes made by 

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 enrollees who enrolled in PDPs and MA–PD 

plans across PDP regions. The pattern of MA–PD enrollment is generally consistent with 

enrollment in Medicare Advantage plans.

 The share of Part D enrollees receiving the LIS ranged from 25 percent in Region 25 (IA, MN, 

MT, NE, ND, SD, and WY) and in Region 31 (ID and UT) to 57 percent in Region 34 (AK). In 20

of the 34 PDP regions, LIS enrollees accounted for 30 percent to 50 percent of enrollment. In 

one region (Region 34 (AK)), LIS enrollees accounted for more than half of Part D enrollment.
168 

Prescription drugs

Chart 10-14. The majority of Part D spending is incurred by only 

one-quarter of all Part D enrollees, 2012

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. Annual spending 

cuts used for this analysis generally correspond to the parameters of the defined standard benefit. In 2012, an individual 

not receiving Part D’s low-income subsidy and without other sources of supplemental coverage would have reached the 

catastrophic phase of the benefit at $6,730.39 in total drug spending, assuming that expenses for brand-name drugs 

accounted for 86.3 percent of total drug spending in the coverage gap. 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 2012, 26 percent 

of Part D enrollees had annual spending of $2,930 or more, at which point enrollees were 

responsible for a higher proportion of the cost of the drug until their spending reached 

$6,730.39 under the defined standard benefit. These beneficiaries accounted for 76 percent 

of total Part D spending.

 The costliest 9 percent of beneficiaries, those with drug spending above the catastrophic 

threshold under the defined standard benefit, accounted for 47 percent of total Part D 

spending. Over 70 percent of beneficiaries with the highest spending received Part D’s lowincome subsidy (see Chart 10-15). Spending on prescription drugs is less concentrated than 

Medicare Part A and Part B spending. In 2010, the costliest 5 percent of beneficiaries 

accounted for 39 percent of annual Medicare fee-for-service (FFS) spending, and the 

costliest quartile accounted for 82 percent of Medicare FFS spending.

 In 2012, the share of spending accounted for by the costliest 5 percent of beneficiaries 

increased to 35 percent from 33 percent in 2011.

27

1

47

23

17

28

4

12

5

35

0

10

20

30

40

50

60

70

80

90

100

Percent of enrollees Percent of spending

Percent

≥ $10,000

$6,730–$9,999

$2,930–$6,729

$320–$2,929

$0–$319

76

Annual spending on 

prescription drugs
A Data Book: Health care spending and the Medicare program, June 2015 169

Chart 10-15. Characteristics of Part D enrollees, by spending 

levels, 2012

Annual drug spending

<$2,930 $2,930–$6,729 ≥$6,730

Sex

Male 43% 39% 41%

Female 57 61 59

Race/ethnicity

White, non-Hispanic 74 75 70

African American, non-Hispanic 11 11 14

Hispanic 10 10 10

Other 5 5 6

Age (years)

<65 18 21 43

65–69 25 19 16

70–74 20 19 14

75–80 14 15 11

80+ 23 26 17

LIS status*

LIS 30 45 72

Non-LIS 70 55 28

Plan type**

PDP 60 69 78

MA–PD 40 31 22

Note: LIS (low-income 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. A small number of 

beneficiaries were excluded from the analysis because of missing data. Percentages 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 plan 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 2012, Part D enrollees with annual drug spending between $2,930 and $6,729 and those 

with spending at or above $6,730 were more likely to be female than enrollees with annual 

spending below $2,930 (61 percent and 59 percent, respectively, compared with 57 percent).

 Part D enrollees with annual spending at or above $6,730 were more likely to be non-White,

disabled enrollees under age 65 receiving the LIS compared with those with annual 

spending below $2,930.

 Most Part D enrollees with spending at or above $6,730 were enrolled in stand-alone PDPs 

(78 percent) compared with MA–PD plans (22 percent). In contrast, beneficiaries with 

annual spending below $2,930 were more likely to be in MA–PDs compared with those with 

higher annual spending (40 percent compared with 22 percent). This finding reflects the fact 

that most LIS enrollees are more costly on average and are in PDPs.
170 

Prescription drugs

Chart 10-16. Part D spending and use per enrollee, 2012

Part D

Plan type LIS status

PDP MA–PD LIS Non-LIS

Total gross spending (billions) a$89.8 $64.4 $25.4 $48.4 $41.4

Total number of prescriptions

b

(millions) 1,640 1,073 567 691 949

Average spending per prescription $55 $60 $45 $70 $44

Per enrollee per month

Total spendinga$235 $270 $178 $362 $167

Out-of-pocket spendingc33 34 31 7 47

Plan liabilityd143 160 115 213 106

Low-income cost-sharing subsidy 50 65 25 143 N/A

Number of prescriptionsb4.3 4.5 4.0 5.2 3.8

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income subsidy), N/A (not 

applicable). “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. Numbers 

may not sum to totals due to rounding.

a “Total gross spending” includes slightly over $2.7 million in manufacturer discounts for brand-name drugs filled by nonLIS enrollees during the coverage gap. 

b Number of prescriptions is standardized to a 30-day supply. 

c

“Out-of-pocket (OOP) spending” includes all payments that count toward the annual OOP spending threshold. 

d

“Plan liability” includes plan payments for drugs covered by both basic and supplemental (enhanced) benefits.

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

 In 2012, gross spending on drugs for the Part D program totaled $89.8 billion, with about 72 percent

($64.4 billion) accounted for by Medicare beneficiaries enrolled in PDPs. Part D enrollees receiving the 

LIS accounted for about 54 percent ($48.4 billion) of the total. Manufacturer discounts for brand-name 

drugs filled by non-LIS enrollees while they were in the coverage gap accounted for about 3 percent of 

the total (or about 6 percent of the gross spending by non-LIS enrollees).

 The number of prescriptions filled by Part D enrollees totaled 1.64 billion, with about two-thirds (1,073

million) accounted for by PDP enrollees. The 36 percent of enrollees who received the LIS accounted 

for about 42 percent (691 million) of the total number of prescriptions filled.

 Part D enrollees filled 4.3 prescriptions at $235 per month on average, a decrease from $239 per month 

in 2011 for roughly the same number of prescriptions filled, on average. PDP enrollees had higher 

average monthly spending and more prescriptions filled compared with MA–PD plan enrollees. The 

average monthly plan liability for MA–PD enrollees ($115) was considerably lower than that of PDP 

enrollees ($160), while average monthly OOP spending was similar for enrollees in both types of plans 

($31 vs. $34, respectively). The average monthly low-income cost-sharing subsidy was much lower for 

MA–PD enrollees ($25) compared with PDP enrollees ($65).

 Average monthly spending per enrollee for an LIS enrollee ($362) was more than double that of a nonLIS enrollee ($167), while the average number of prescriptions filled per month by an LIS enrollee was 

5.2 compared with 3.8 for a non-LIS enrollee. LIS enrollees had much lower OOP spending, on 

average, than non-LIS enrollees ($7 vs. $47). Part D’s LIS pays for most of the cost sharing for LIS 

enrollees, averaging $143 per month in 2012.
A Data Book: Health care spending and the Medicare program, June 2015 171

Chart 10-17. Trends in Part D spending and use per enrollee, 

2007–2012 

Average spending / use

Average annual growth 

rate, 2007–2012

2007 2008 2009 2010 2011 2012 Number Percent

Average spending

 All Part D $212 221 228 231 239 235 $5 2.1%

 By LIS status

 LIS $301 324 339 348 364 362 $12 3.8

 Non-LIS $156 159 163 163 167 167 $2 1.4

 By plan type

 PDP $239 250 260 265 274 270 $6 2.5

 MA−PD $151 162 169 172 178 178 $5 3.3

Average number of prescriptions*

 All Part D 3.9 4.1 4.1 4.2 4.3 4.3 0.1 1.9%

 By LIS status

 LIS 4.6 4.9 5.0 5.1 5.1 5.2 0.1 2.4

 Non-LIS 3.4 3.6 3.6 3.7 3.8 3.8 0.1 2.4

 By plan type

 PDP 4.1 4.3 4.4 4.4 4.5 4.5 0.1 1.7

 MA−PD 3.4 3.6 3.7 3.8 3.9 4.0 0.1 2.9

Note: LIS (low-income 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. 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. Numbers may not 

sum to totals due to rounding. 

* Number of prescriptions is standardized to a 30-day supply. 

 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

 Between 2007 and 2012, the average per capita spending for Part D–covered drugs grew at an average 

annual rate of 2.1 percent, or by about 11 percent cumulatively. Growth in average per capita spending 

has fluctuated over the years, ranging from a negative 1.5 percent growth between 2011 and 2012, to a 

growth of over 4 percent during the first few years of the program. 

 Spending for non-LIS enrollees remained relatively flat compared with LIS enrollees (average annual 

growth rate of 1.4 percent compared with 3.8 percent) during the 2007 to 2012 period, resulting in a 

larger difference in per capita spending between the two groups—from $145 in 2007 to nearly $200 per 

member per month in 2012. The growth in the number of prescriptions filled by LIS and non-LIS 

enrollees was comparable during this period. 

 The growth in per capita drug spending among MA−PD enrollees exceeded that of PDP enrollees 

during the 2007 to 2012 period (3.3 percent compared with 2.5 percent), but the average growth was 

lower for MA−PD enrollees in terms of the dollar increase ($5 compared with $6), and the average per 

capita spending for MA−PD enrollees continued to be below that of PDP enrollees by about $90. 
172 

Prescription drugs

Chart 10-18. Top 15 therapeutic classes of drugs covered under 

Part D, by spending and volume, 2012

Top 15 therapeutic classes by spending Top 15 therapeutic classes by volume

Dollars Prescriptions

Billions Percent Millions Percent

Diabetic therapy $8.7 9.7% Antihypertensive therapy

agents

171.4 10.5%

Antihyperlipidemics 7.5 8.4

Asthma/COPD therapy agents 6.8 7.5 Antihyperlipidemics 163.8 10.0

Antipsychotics 6.3 7.0 Beta adrenergic blockers 104.4 6.4

Antihypertensive therapy 

agents

5.3 5.9 Diabetic therapy 102.6 6.3

Antidepressants 93.1 5.7

Antivirals 4.0 4.4 Diuretics 85.8 5.2

Peptic ulcer therapy 3.7 4.1 Peptic ulcer therapy 83.9 5.1

Antidepressants 3.4 3.8 Analgesics (narcotic) 76.1 4.6

Analgesics (narcotic) 3.2 3.5 Calcium channel blockers 71.4 4.4

Platelet aggregation inhibitors 2.6 2.9 Thyroid therapy 60.2 3.7

Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic)

2.6 2.9 Anticonvulsant 48.2 2.9

Anticonvulsant 2.5 2.8 Antibacterial agents 45.0 2.7

Cognitive disorder therapy 

(antidementia)

2.2 2.5 Asthma/COPD therapy agents 44.6 2.7

Calcium and bone metabolism 

 regulators

1.7 1.9 Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic)

30.8 1.9

Antineoplastic enzyme 

 inhibitors

1.7 1.9 Anticoagulants 27.1 1.6

Subtotal, top 15 classes 62.2 69.2 Subtotal, top 15 classes 1,208.3 73.7

Total, all classes 89.8 100.0 Total, all classes 1,639.9 100.0

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. Numbers may 

not sum to totals due to rounding.

Source: MedPAC analysis of Medicare Part D prescription drug event data from CMS. 

 The list of the top 15 therapeutic classes has been stable since 2007, with the majority of therapeutic 

classes appearing on the list in every year. In 2012, spending on prescription drugs covered by Part D 

plans totaled $89.8 billion. The top 15 therapeutic classes by spending accounted for about 69 percent of 

the total. Over 1.6 billion prescriptions were dispensed in 2012, with the top 15 therapeutic classes by 

volume accounting for nearly 74 percent of the total.

 In 2012, spending on drugs to treat diabetes totaled $8.7 billion, exceeding spending on drugs to treat high 

cholesterol (antihyperlipidemics) and psychiatric conditions (antipsychotics) for the first time since 2007.

Spending on antipsychotics declined by $1.3 billion between 2011 and 2012.

 Nine therapeutic classes are among the top 15, based on both spending and volume. Central nervous 

system agents (antipsychotics, anticonvulsants, and antidepressants) and cardiovascular agents 

(antihyperlipidemics and antihypertensive therapy agents) dominate the list by spending, each accounting 

for about one-fifth of spending, while 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.
A Data Book: Health care spending and the Medicare program, June 2015 173

Chart 10-19. Generic dispensing rate for selected therapeutic 

classes, by plan type, 2007–2012

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). Prescriptions are standardized to a 

30-day supply. Therapeutic classification is based on the First DataBank Enhanced Therapeutic Classification System 

1.0. “Generic dispensing rate” is defined as the proportion of generic prescriptions dispensed within a therapeutic class. 

Part D prescription drug event records are classified as PDP or MA–PD records based on the contract identification on 

each record.

Source: MedPAC analysis of Medicare Part D prescription drug event data from CMS. 

 The share of prescriptions that are for generic drugs (generic dispensing rate, or GDR) has increased 

steadily over the years, from 61 percent in 2007 to 81 percent in 2012 across all therapeutic classes 

(data not shown). 

 The GDR in a given class depends, in large part, on the availability of generic drugs in the class. For 

example, the GDR for antipsychotics was among the lowest within the top 15 therapeutic classes until 

some of the key drugs came off patent and generic versions became available in 2011 and 2012.

Other factors, such as prescribing behavior and patients’ medication needs and/or preferences can 

also affect the GDR.

 Between 2007 and 2012, GDRs for PDP enrollees were generally lower than those of MA–PD 

enrollees for most of the top 15 therapeutic classes. For example, GDRs for diabetic therapy among 

the MA–PD enrollees exceeded that of PDP enrollees by between 8 percentage points and 10 

percentage points during this period. The difference in GDRs for antihyperlipidemics between MA–PD 

enrollees and PDP enrollees decreased during this period (from 17 percentage points in 2007 to 

about 10 percentage points in 2012), but antihyperlipidemics are still one of the classes with the 

largest difference in GDRs between PDPs and MA–PDs. Some of the difference in GDRs reflects the 

fact that, relative to MA−PDs, PDPs have a higher proportion of LIS enrollees, who are less likely to 

take a generic medication in a given therapeutic class (see Chart 10-20).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2007 2008 2009 2010 2011 2012

Generic dispensing rate

PDP

2007 2008 2009 2010 2011 2012

MA-PD

Antihyperlipidemics

Diabetic Therapy

Antipsychotics
174 

Prescription drugs

Chart 10-20. Generic dispensing rate for selected therapeutic 

classes, by LIS status, 2012

Note: LIS (low-income subsidy). Prescriptions are standardized to a 30-day supply. Therapeutic classification is based on the 

First DataBank Enhanced Therapeutic Classification System 1.0. “Generic dispensing rate” is defined as the proportion of 

generic prescriptions dispensed within a therapeutic class. Part D prescription drug event (PDE) records are classified as 

LIS or non-LIS records based on monthly LIS eligibility information in Part D’s denominator file. Estimates are sensitive to 

the method used to classify PDE records as LIS or non-LIS.

Source: MedPAC analysis of Medicare Part D prescription drug event data and Part D denominator file from CMS. 

 Between 2007 and 2012, the share of prescriptions that are for generic drugs (generic 

dispensing rate, or GDR) have increased for both LIS and non-LIS enrollees. However, LIS 

enrollees have had a consistently lower GDR than non-LIS enrollees, and the difference has 

grown from 2 percentage points in 2007 to 5 percentage points in 2012 (data not shown).

 The difference in GDRs for antihyperlipidemics between LIS and non-LIS enrollees remained 

stable at around 7 percentage points to 8 percentage points for most of the years between 2007 

to 2012, which is in contrast to the large differences observed between PDP and MA−PD 

enrollees, which ranged from 10 percentage points to 17 percentage points during this period 

(see Chart 10-19). These trends suggest that the narrowing of the gap in GDRs between PDPs 

and MA−PDs is likely attributable to the increase in the use of generic antihyperlipidemics by 

non-LIS enrollees in PDPs.

 Other notable differences in GDRs between LIS and non-LIS enrollees include a large and 

persistent difference of around 14 percentage points to 15 percentage points for diabetic therapy

and a 9 percentage point difference in GDRs observed in 2012 for antipsychotics (compared 

with a difference of less than 4 percentage points before 2012) after generic versions became 

available for some of the key drugs in the class. Multiple factors likely contribute to the difference 

in GDRs. 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2007 2008 2009 2010 2011 2012

Generic dispensing rate

LIS

2007 2008 2009 2010 2011 2012

Non-LIS

Antihyperlipidemics

Diabetic Therapy

Antipsychotics
A Data Book: Health care spending and the Medicare program, June 2015 175

Chart 10-21. Drug spending and use, and characteristics of

beneficiaries filling the most prescriptions, 2012

Beneficiaries in the top 5 percenta

As a percent 

of Part D All Part D

Number of beneficiaries (in millions) 1.6 5% 33.8

Aggregate spending and use

 Gross spending (in billions) $17.4 19 $89.8

 Number of prescriptionsb(in millions) 229 19 1,217

 Average spending per prescription $76 $74

Per enrollee per year

 Gross spending $10,923 $2,824

Out-of-pocket spendingc

$490 $392

Number of prescriptionsb

144 38

Demographic characteristics

 Percent female 66% 58%

 Percent White 71 74

 Percent LIS 79 36

 Percent PDP 77 63

Note: LIS (low-income subsidy), PDP (prescription drug plan). “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.

a Top 5 percent is based on volume of prescriptions filled among those who filled at least one prescription in 2012. 

Because roughly 7 percent of Part D enrollees did not fill any prescriptions for a Part D–covered drug in 2012, the “top 5 

percent” translates to about 4.7 percent of all Part D enrollees. The figures reported in the table include claims for slightly 

over 600 beneficiaries who did not have a record of Part D enrollment in the denominator file and claims that were missing 

beneficiary identification information. These claims accounted or over 88,000 prescriptions at a gross cost of about $6 

million. 

b

“Number of prescriptions” are based on counts of prescription drug events (PDEs) (not standardized to a 30-day supply). 

c

“Out-of-pocket (OOP) spending” includes all payments that count toward the annual OOP spending threshold. 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

 In 2012, Part D enrollees in the top 5 percent (1.6 million), based on the number of prescriptions 

filled, accounted for $17.4 billion in gross spending (19 percent of total gross spending) for drugs 

covered under the Part D program. The number of prescriptions filled by enrollees in the top 5 

percent totaled 229 million, or 19 percent of all prescriptions filled under the Part D program.

 In 2012, Part D enrollees in the top 5 percent each filled a total of 144 prescriptions at a gross cost 

of $10,923, on average, compared with an average of 38 prescriptions each at a gross cost of 

$2,824 for all Part D enrollees. Compared with the difference in gross spending and the number of 

prescriptions filled, the difference in beneficiary out-of-pocket spending between enrollees in the 

top 5 percent and all Part D enrollees was much smaller ($490 compared with $392).

 Compared with the overall Part D population, enrollees in the top 5 percent were more likely to be 

female and non-White. Nearly 80 percent of the enrollees in the top 5 percent received the lowincome subsidy compared with 36 percent for all Part D enrollees, and 77 percent were enrolled in 

a stand-alone prescription drug plan compared with 63 percent for all Part D enrollees.
176 

Prescription drugs

Chart 10-22. Part D spending and use, 2013

Part D

Plan type

PDP MA–PD

Total gross spending (billions) $103.6 $72.3 $28.6

Total number of prescriptions* (millions) 1,368 900 440

Average cost per prescription $76 $80 $65

Total gross spending by specialty

 Primary care providers** $60.3 $41.5 $17.5

 Specialty and other providers $43.3 $30.8 $11.2

Total number of prescriptions* by specialty

 Primary care providers** 974.0 639.4 319.8

 Specialty and other providers 394.2 260.7 119.8

Average cost per prescription

 Primary care providers** $61.95 $64.96 $54.58

 Specialty and other providers $109.79 $117.97 $93.20

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). “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. 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, they are not comparable with the 2012 prescription counts shown in Chart 10-16 through 

Chart 10-21.

** The definition of “primary care” used here is based on that used for the Primary Care Incentive Payment Program and

includes practitioners who have a primary Medicare specialty designation of family practice, internal medicine, pediatrics, 

geriatrics, nurse practitioner and clinical nurse specialist, or physician assistant.

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

 In 2013, gross spending on drugs for the Part D program totaled $103.6 billion, with about 70

percent ($72.3 billion) accounted for by Medicare beneficiaries enrolled in PDPs. The number of 

prescriptions filled by Part D enrollees totaled about 1.37 billion, with about two-thirds (900 million) 

accounted for by PDP enrollees. The cost per prescription dispensed averaged $76 across all Part 

D enrollees. The average cost per prescription is lower among MA–PD enrollees ($65) compared 

with that of PDP enrollees ($80). 

 Prescriptions written by primary care providers accounted for about 58 percent ($60.3 billion) of the 

gross spending and 71 percent (974 million) of prescriptions dispensed under the Part D program. 

The share of spending and prescriptions written by primary care providers were higher in MA–PDs 

(about 61 percent of gross spending and about 73 percent of prescriptions) than in PDPs (about 57 

percent of gross spending and about 71 percent of prescriptions).

 The average cost per prescription dispensed was lower among primary care providers (about $62) 

compared with specialty and other providers (about $110). The cost per prescription dispensed for 

MA–PD enrollees was lower than that of PDP enrollees regardless of the provider type (primary 

care vs. specialty and others).
A Data Book: Health care spending and the Medicare program, June 2015 177

Chart 10-23. Part D patterns of prescribing by provider type, 2013

Part D

Provider type

Primary care* Specialty/others

Number of individual prescribers (thousands) 1,043 420 623

 Percent of all individual prescribers 40% 60%

Average beneficiary (patient) count 143 184 115

Average per beneficiary

 Gross spending $592 $690 $523

 Number of prescriptions** 6.7 9.8 4.5

Prescribers in the top 1 percent based on 

number of prescriptions filled per beneficiary

Number of individual prescribers 9,054 7,490 1,564

 Percent of all individual prescribers 83% 17%

Total gross spending (billions) $8.0 $6.8 $1.2

 Percent of total gross spending 8% 11% 3%

Total number of prescriptions** (millions) 131 115 16

 Percent of total gross spending 10% 12% 4%

Average per beneficiary

 Gross spending $3,344 $3,049 $4,753

 Number of prescriptions** 44 44 45

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. Numbers may not 

sum to totals due to rounding.

* The definition of “primary care” used here is based on that used for the Primary Care Incentive Payment Program and

includes practitioners who have a primary Medicare specialty designation of family practice, internal medicine, pediatrics, 

geriatrics, nurse practitioner and clinical nurse specialist, and physician assistant.

**“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 to the 2012 prescription counts shown in Chart 10-16 through 

Chart 10-21.

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

 In 2013, about 1 million individual providers wrote prescriptions for Medicare beneficiaries that 

were filled under Part D. Of those, about 40 percent were primary-care providers and 60 

percent were specialty or other types of providers.

 The average count of (Medicare only) beneficiaries (patients) was higher among primary-care 

providers compared with specialty and other types of providers—184 beneficiaries versus 115.

(Chart continued next page)
178 

Prescription drugs

Chart 10-23. Part D patterns of prescribing by provider type, 2013 

(continued) 

 On a per beneficiary basis, average gross spending for Part D prescriptions was higher for 

prescriptions written by primary-care providers ($690) compared with the average for specialty 

and other providers ($523). Primary-care providers also wrote more prescriptions per 

beneficiary, on average, than specialty and other providers: 9.8 compared with 4.5. 

 More than 9,000 prescribers were among the top 1 percent of all prescribers, as ranked by the 

average number of Part D prescriptions filled per beneficiary in 2013. Of those prescribers, 83 

percent were primary-care providers and 17 percent were specialty and other providers. 

 The top 1 percent of prescribers accounted for 8 percent of total gross spending and 10 

percent of all prescriptions filled. Among primary-care prescribers, results were more 

concentrated: the top 1 percent of prescribers accounted for 11 percent of gross spending and 

12 percent of all prescriptions. 

 Among the prescriptions that were written by prescribers ranked among the top 1 percent of 

all prescribers in 2013, per beneficiary Part D spending averaged more than $3,000 for a total 

of 44 to 45 prescriptions filled. 
A Data Book: Health care spending and the Medicare program, June 2015 179

Chart 10-24. Part D patterns of prescribing for selected

specialties, 2013

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 1,042.6 100% $592 6.7

All specialty/others 622.6 60 523 4.5

Selected specialties:

Cardiology 22.7 4 597 9.3

Psychiatry 25.9 4 1,417 13.4

Neurology 13.1 2 2,213 7.9

Nephrology 7.9 1 1,315 10.0

Infectious disease 4.9 1 4,515 10.1

Endocrinology 5.3 1 1,460 8.9

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 2012 prescription counts shown in Chart 10-16 through 

Chart 10-21.

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

 Cardiologists and psychiatrists were among the most numerous types of specialty-care prescribers, 

each making up 4 percent of all individual Part D prescribers in 2013. An additional 2 percent of all Part 

D prescribers had a neurology specialty. 

 Cardiologists wrote an average of 9.3 prescriptions per beneficiary for a combined $597 in average 

gross spending. That average number of prescriptions is considerably higher than the overall Part D 

average of 6.7 per beneficiary. However, average gross spending per beneficiary was about the same 

for cardiologists as for all Part D prescribers: $597 compared with $592, which reflects the widespread 

availability of generic cardiology medications.

 By comparison, other specialties had much higher Part D gross spending per beneficiary. Infectious 

disease specialists had the highest spending per beneficiary at $4,515, followed by neurologists at 

$2,213. Psychiatrists had the highest average number of prescriptions filled per beneficiary, at 13.4 

compared with the overall average of 6.7.

 

110

A Data Book: Health care spending and the Medicare program, June 2015 183

Chart 11-1. Number of dialysis facilities is growing, and share of 

for-profit and freestanding dialysis providers is 

increasing

Average annual

percent change

2014 2009–2014 2013–2014

Total number of:

Dialysis facilities 6,298 3% 5%

Hemodialysis stations 110,676 3 4

Mean number of 

hemodialysis stations per facility 18 0.1 –0.8

Percent of total

Hospital-based 7% –5 –5

Freestanding 93 4 6

Urban 80 4 5

Rural, micropolitan 13 1 3

Rural, adjacent to urban 5 2 0

Rural, not adjacent to urban 3 2 3

Frontier 1 0.5 6

For profit 87 4 6

Nonprofit 13 3 2

Note: “Nonprofit” includes facilities designated as either nonprofit or government. “Average annual percent change” is based on 

comparing 2009, 2013, and 2014 end-of-year files.

Source: Compiled by MedPAC from the 2009, 2013, and 2014 CMS Dialysis Compare end-of-year files.

 Between 2009 and 2014, the number of freestanding and for-profit facilities increased, while 

hospital-based and nonprofit facilities decreased. Freestanding facilities increased from 89

percent to 93 percent of all facilities, and for-profit facilities increased from 82 percent to 87

percent of all facilities.

 Between 2009 and 2014, the proportion of facilities located in rural areas has remained 

relatively constant.

 Since 2009, the number of facilities has increased 3 percent per year. The average size of a 

facility has remained relatively constant, averaging about 18 dialysis treatment stations per 

facility (17.4 stations in 2009, 17.7 stations in 2013, and 17.6 stations in 2014).
184 Other services

Chart 11-2. Medicare spending for outpatient dialysis services 

furnished by freestanding and hospital-based 

dialysis facilities, 2012 and 2013

Note: ESRD (end-stage renal disease).

Source: Compiled by MedPAC from the 2012 and 2013 institutional outpatient files from CMS. 

 In 2013, total spending for dialysis, dialysis drugs, and ESRD-related clinical laboratory tests 

was $11.0 billion. In 2013, Medicare paid nearly all facilities under a modernized prospective 

payment system that includes in the payment bundle certain dialysis drugs and ESRDrelated clinical laboratory tests that were separately paid before 2011. 

 Between 2012 and 2013, total ESRD expenditures increased by about 3 percent. 

 Freestanding dialysis facilities treat most dialysis beneficiaries and accounted for 93 percent 

of expenditures in 2012 and 2013. 

0

2

4

6

8

10

12

14

2012 2013

Spending on dialysis, dialysis drugs, 

and other ESRD-related services 

(in billions of dollars)

Freestanding Hospital-based

$10.7 $11.0

93% 93%

7% 7%
A Data Book: Health care spending and the Medicare program, June 2015 185

Chart 11-3. The ESRD population is growing, and most ESRD 

patients undergo dialysis

2002 2008 2012

Patients Patients Patients

(thousands) Percent (thousands) Percent (thousands) Percent

Total 431.0 100% 548.9 100% 636.9 100%

Dialysis 313.0 73 388.6 71 450.6 71

In-center hemodialysis 282.2 65 353.2 64 400.8 63

Home hemodialysis* 1.6 0.4 4.5 0.8 7.9 1.2

Peritoneal dialysis* 28.4 7 29.7 5 40.7 6

Unknown 0.8 0.2 1.2 0.2 1.2 0.2

Functioning graft and 

kidney transplants 118.1 27 160.2 29 186.3 29

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 2002 and 2012.

 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 2002 and 2012, the total number of in-center hemodialysis patients and 

peritoneal dialysis patients each increased by 4 percent annually. Although a smaller

proportion of all dialysis patients undergo home hemodialysis, the number of these patients 

grew 18 percent per year during this time 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 2012, 32 percent of transplanted kidneys were from living donors and 

the remainder were from cadaver donors.
186 Other services

Chart 11-4. Asian Americans and Hispanics are among the 

fastest growing segments of the ESRD population

Percent Average annual

of total percent change

in 2012 2007–2012

Total (n = 636,905) 100% 4%

Age (years)

0–19 1 –0.2

20–44 16 1

45–64 44 4

65–79 30 5

80+ 9 5

Sex

Male 57 4

Female 43 3

Race/ethnicity

White 60 4

African American 32 4

Native American 1 3

Asian American 6 7

Hispanic 17 6

Non-Hispanic 83 3

Underlying cause of ESRD

Diabetes 38 4

Hypertension 25 4

Glomerulonephritis 17 2

Other causes 21 4

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, 39 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 4 percent annually between 2007 and 2012. 

Among the fastest growing groups of patients are Asian Americans and Hispanics.
A Data Book: Health care spending and the Medicare program, June 2015 187

Chart 11-5. Characteristics of Medicare fee-for-service dialysis 

patients, 2013

Percent of all FFS dialysis patients

Age (years)

Under 45 12%

45–64 38

65–74 26

75–84 18

85+ 7

Sex

Male 55

Female 45

Race

White 49

African American 36

All other 15

Residence

Urban county 82

Rural county, micropolitan 11

Rural county, adjacent to urban 5

Rural county, not adjacent to urban 3

Frontier county 1

Prescription drug coverage status

Enrolled in Part D plan or other source of creditable drug coverage 85

LIS 58

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 less 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. 

 In 2013, nearly 20 percent of FFS dialysis patients resided in a rural county.

 Nearly half of all dialysis patients were dually eligible for Medicare and Medicaid services. 

 About 85 percent of FFS dialysis patients were enrolled in Part D plans or had other sources 

of creditable drug coverage.
188 Other services

Chart 11-6. Aggregate margins vary by type of freestanding 

dialysis facility, 2013

Percentage of 

Type of facility freestanding facilities Aggregate margin

All facilities 100% 4.3%

Urban 80 4.9

Rural 20 0.6

LDOs 77 4.1

Non-LDOs 23 5.2

Treatment volume (quintile)

Lowest 20 12.3

Second 20 3.8

Third 20 2.0

Fourth 20 6.0

Highest 20 9.7

Note: LDO (large dialysis organization). Margins include payments and costs for composite rate services, injectable drugs, and 

other end-stage renal disease–related services. 

Source: Compiled by MedPAC from 2013 cost reports and the 2013 institutional outpatient file from CMS.

 For 2013, the aggregate Medicare margin for composite rate services and injectable drugs 

was 4.3 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 2015 189

Chart 11-7. Medicare hospice spending and average length of 

stay were virtually unchanged in 2013

Average annual

change, Change,

2000 2012 2013 2000–2012 2012–2013

Beneficiaries in hospice 0.534 1.274 1.315 7.5% 3.2%

(in millions)

Medicare payments (in billions) $2.9 $15.1 $15.1 14.7% 0.1%

Average length of stay 53.5 88.0 87.8 4.2% 0.2%

among decedents (in days)

Median length of stay 17 18 17 +1 day* 1 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 percent change displayed in the chart may not equal the percent change calculated using the yearly data displayed in 

the chart.

* This figure reflects the raw change between 2000 and 2013, rather than the percent change.

Source: MedPAC analysis of the denominator file, the Medicare Beneficiary Database, and the 100 percent hospice claims standard 

analytic file from CMS.

 The number of Medicare beneficiaries receiving hospice services more than doubled 

between 2000 and 2012 and continued to grow in 2013, suggesting that access to hospice 

care has increased.

 Average length of stay held steady at about 88 days between 2012 and 2013, after a long 

period of growth. 

 Total Medicare payments to hospices were about $15.1 billion in 2013, about the same as 

2012. The flat spending between 2012 and 2013 partly reflects the effect of the sequester, 

which reduced Medicare payments by 2 percent beginning April 1, 2013. 
190 Other services

Chart 11-8. Hospice use increased across beneficiary groups 

from 2000 to 2013

Average annual

Share of decedents using hospice percentage Percentage

point change point change

2000 2012 2013 2000–2012 2012–2013

All 22.9% 46.7% 47.3% 2.0% 0.6%

FFS beneficiaries 21.5 45.7 46.2 2.0 0.5

MA beneficiaries 30.9 50.4 50.6 1.6 0.2

Dual eligibles 17.5 41.6 42.1 2.0 0.5

Non–dual eligibles 24.5 48.4 48.9 2.0 0.5

Age (years)

<65 17.0 29.2 29.2 1.0 0.0

65–84 24.7 45.0 45.3 1.7 0.3

85+ 21.4 54.0 55.0 2.7 1.0

Race/ethnicity

White 23.8 48.6 49.2 2.1 0.6

Minority 17.3 36.5 37.0 1.6 0.5

Gender

Male 22.4 42.8 43.3 1.7 0.5

Female 23.3 50.2 50.9 2.2 0.7

Beneficiary location

Urban 24.3 48.0 48.5 2.0 0.5

Micropolitan 18.5 43.4 44.3 2.1 0.9

Rural, adjacent to urban 17.6 42.2 42.9 2.1 0.7

Rural, nonadjacent to urban 15.8 37.7 38.0 1.8 0.3

Frontier 13.2 31.9 32.2 1.6 0.3

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. 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 almost all beneficiary groups in 2013, 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 older, White, female, MA enrollees, not dual 

eligible, or living in an urban area were more likely to use hospice than their counterparts.
A Data Book: Health care spending and the Medicare program, June 2015 191

Chart 11-9. Number of Medicare-participating hospices has 

increased due to growth in for-profit hospices

2000 2011 2012 2013

All hospices 2,255 3,585 3,727 3,925

For profit 672 2,054 2,199 2,411

Nonprofit 1,324 1,314 1,318 1,314

Government 257 217 209 200

Freestanding 1,069 2,491 2,643 2,844

Hospital based 785 587 568 553

Home health based 378 486 492 503

SNF based 22 21 23 25

Urban 1,424 2,536 2,670 2,824

Rural 788 986 983 978

Note: SNF (skilled nursing facility). Numbers may not sum to totals because of missing data for a small number of providers.

Source: MedPAC analysis of Medicare cost reports, Provider of Services file, and the standard analytic file of hospice claims from 

CMS.

 There were more than 3,900 Medicare-participating hospices in 2013. Most of them were 

for-profit hospices.

 Between 2000 and 2013, the number of Medicare-participating hospices grew by nearly 

1,700 providers. For-profit hospices accounted almost entirely for that growth.

 Growth in the number of providers has occurred predominantly among freestanding and 

home health–based providers. The number of hospital-based providers has declined.

 The number of hospices in rural and urban areas was substantially higher in 2013 than in 

2000, although the number of hospices in rural areas declined modestly in the past few 

years. The share of hospices located in rural areas (26 percent) and urban areas (74

percent) is similar to the share of Medicare beneficiaries residing in these two types of 

areas.
192 Other services

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

2013

Percent of cases with

Share length of stay

Diagnosis of total cases greater than 180 days

Cancer (except lung cancer) 21% 10%

Circulatory, except heart failure 13 22

Heart failure 9 22

Alzheimer’s and similar diseases 8 38

Lung cancer 8 9

Organic psychoses 6 32

Chronic airway obstruction, NOS 6 28

Dementia 6 35

Debility, NOS 5 26

Respiratory disease 4 13

Adult failure to thrive 4 25

Nervous system, except Alzheimer’s 3 33

Genitourinary disease 3 7

Other 2 12

Digestive disease 2 9

All 100 21

Note: NOS (not otherwise specified). Cases include all patients who received hospice care in 2013, not just decedents.

“Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file from CMS and the Medicare Beneficiary Database.

 In 2013, the most common terminal diagnosis among Medicare hospice patients was cancer

(all types), accounting for about 29 percent of cases. The next most common diagnoses 

were Alzheimer’s disease, dementia, organic psychoses, and other neurological conditions 

(23 percent of cases), and heart failure and other circulatory conditions (22 percent of 

cases).

 Length of stay varies by diagnosis. Nearly one-quarter or more of hospice patients in 2013 

with Alzheimer’s disease, dementia, nervous system disorders, organic psychoses, chronic 

airway obstruction, debility, and adult failure to thrive had lengths of stay exceeding 180 

days. Long hospice stays were least common among beneficiaries with genitourinary 

disease, digestive disease, and cancer.
A Data Book: Health care spending and the Medicare program, June 2015 193

Chart 11-11. Hospice length of stay changed little in 2013, after

a more than decade-long period of growth in the 

longest stays 

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.

 In 2013, the 10 percent of hospice decedents with the longest stays (i.e., the 90th

percentile) received 246 days or more of hospice care, unchanged from 2012. Before 2013, 

most growth in hospice length of stay occurred among decedents with the longest stays. 

Between 2000 and 2012, the 90th percentile in length of stay grew from 141 days to 246 

days.

 Short stays in hospice have changed little since 2000. The median length of stay in hospice 

was 17 days in 2013 and has held steady at 17 or 18 days since 2000. Hospice length of 

stay at the 25th percentile has remained at five or six days since 2000.

3 6

17

56

141

2 5

17

78

241

2 5

18

80

246

2 5

17

79

246

0

50

100

150

200

250

300

10th percentile 25th percentile Median 75th percentile 90th percentile

Length of stay (days)

2000

2011

2012

2013
194 Other services

Chart 11-12. Hospice length of stay among decedents, by

beneficiary and hospice characteristics, 2013

Average length Length of stay percentiles (in days)

of stay (in days) 10th 50th 90th

Beneficiary

Diagnosis

Cancer 53 3 18 129

Neurological 147 3 31 443

Heart/circulatory 81 2 12 236

Debility or adult failure to thrive 116 3 32 336

COPD 113 2 22 335

Other 42 2 6 103

Site of service

Home 89 4 26 237

Nursing facility 111 3 21 331

Assisted living facility 152 5 51 435

Hospice

For profit 105 3 21 306

Nonprofit 68 2 14 183

Freestanding 91 2 17 257

Home health based 68 2 15 187

Hospital based 59 2 13 158

Note: COPD (chronic obstructive pulmonary disease). Average length of stay is calculated for Medicare beneficiaries who died 

in 2013 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, COPD, or debility or adult failure to thrive have 

the longest stays, while beneficiaries with cancer have the shortest stays on average.

 Beneficiaries who receive hospice services in assisted living facilities and nursing facilities 

have longer stays on average than beneficiaries who receive care at home or in a hospice 

facility or hospital.

 For-profit and freestanding hospices have longer average lengths of stay than nonprofit and 

provider-based hospices. 
A Data Book: Health care spending and the Medicare program, June 2015 195

Chart 11-13. More than half of Medicare hospice spending in

2013 was for patients with stays exceeding 180

days

Medicare hospice spending, 2013

(in billions)

All hospice users in 2013 $15.1

Beneficiaries with LOS > 180 days 8.8

Days 1–180 2.9

Days 181–365 2.8

Days 366+ 3.1

Beneficiaries with LOS ≤ 180 days 6.2

Note: LOS (length of stay). LOS reflects the beneficiary’s lifetime LOS as of the end of 2013 (or at the time of discharge in 2013 

if the beneficiary was not enrolled in hospice at the end of 2013). All spending reflected in the chart occurred only in 2013.

Break-out groups do not sum to total because they exclude about $0.1 billion in payments to hospices for physician visits. 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data and the common Medicare enrollment file from 

CMS. 

 In 2013, Medicare hospice spending on patients with stays exceeding 180 days was nearly 

$9 billion, more than half of all Medicare hospice spending that year.

 About $3.1 billion, or about 20 percent, of Medicare hospice spending in 2013 was on 

additional hospice care for patients who had already received at least one year of hospice.
196 Other services

Chart 11-14. Hospice aggregate Medicare margins, 2006–2012

Share of Medicare margin

hospices

(2012) 2006 2009 2010 2011 2012

All 100% 6.4% 7.4% 7.4% 8.8% 10.1%

Freestanding 71 9.7 10.2 10.7 11.8 13.3

Home health based 13 3.8 5.9 3.2 6.1 5.5

Hospital based 15 –12.7 –12.2 –16.6 –16.0 -16.8

For profit 59 12.0 11.7 12.3 14.8 15.4

Nonprofit 35 1.5 3.8 3.0 2.4 3.7

Government 6 N/A N/A N/A N/A N/A

Urban 73 7.1 7.9 7.7 9.1 10.3

Rural 27 0.8 3.7 5.2 6.0 7.8

Below cap 89 7.0 7.9 7.7 9.1 10.4

Above cap 11 0.3 1.4 3.2 4.1 5.2

Above cap (including 

cap overpayments) 11 20.7 18.3 17.4 18.4 21.3

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. Percent of freestanding

and provider-based (home health–based and hospital-based) hospices does not sum to 100 percent because skilled 

nursing facility–based hospices are not broken out separately. Percent of hospices may not sum to 100 percent for other 

categories due to rounding.

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 10.1 percent in 2012, up from 8.8 percent in 2011.

 Margin estimates do not include nonreimbursable costs associated with bereavement 

services and volunteers (which, if included, would reduce margins by at most 1.4 and 0.3 

percentage points, respectively). Margins also do not include the costs and revenues 

associated with fundraising.

 Freestanding hospices had higher margins than provider-based (home health– and hospitalbased) hospices, in part, because of differences in their indirect costs. Provider-based 

hospices’ indirect costs are higher than those of freestanding providers and are likely 

inflated because of the allocation of overhead from the parent provider.

 In 2012, for-profit hospice margins were strong at 15.4 percent. The aggregate margin for 

nonprofit hospices was 3.7 percent. The subset of nonprofit hospices that were freestanding 

had a higher margin, 7.7 percent (not shown in chart).

 Hospices that exceeded the cap (Medicare’s aggregate average per beneficiary payment 

limit) had a margin of more than 21 percent before the return of the cap overpayments.
A Data Book: Health care spending and the Medicare program, June 2015 197

Chart 11-15. Medicare margins are higher among hospices with

more long stays, 2012

Note: Margins exclude overpayments to hospices that exceed the cap on the average annual Medicare payment per 

beneficiary. Margins are calculated based on Medicare-allowable, reimbursable costs.

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 provides an incentive for longer lengths of 

stay.

 Hospices with more patients who had stays greater than 180 days generally have higher 

margins. In 2012, hospices in the lowest length-of-stay quintile had a margin of –7.0 percent 

compared with an 18.3 percent margin for hospices in the second highest length-of-stay 

quintile. 

 Margins were somewhat lower in the highest length-of-stay quintile (13.7 percent) compared 

with the second highest quintile (18.3 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 more than 21 percent before the 

return of overpayments (see Chart 11-14).

7.0

3.3

13.2

18.3

13.7

-10

-5

0

5

10

15

20

1 2 3 4 5

Margin (in percent)

Share of providers' patients with stays greater than 180 days, by quintiles
198 Other services

Chart 11-16. Hospices that exceeded Medicare’s annual

payment cap, selected years

2002 2009 2010 2011 2012

Share of hospices 

 exceeding the cap 2.6% 12.5% 10.1% 9.8% 11.0%

Average payments over

 the cap per hospice

 exceeding the cap

 (in thousands) $470 $485 $426 $424 $510

Payments over the cap

 as a percent of overall

 Medicare hospice spending 0.6% 1.7% 1.1% 1.1% 1.4%

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 increased from 9.8 percent in 2011 to 

11 percent in 2012, reversing the trend seen since 2009 of a declining share of hospices 

exceeding the cap. 

 Medicare payments over the cap represented 1.4 percent of total Medicare hospice 

spending in 2012.

 On average, above-cap hospices exceeded the cap by about $510,000 per provider in 2012, 

the highest amount since 2006. 
A Data Book: Health care spending and the Medicare program, June 2015 199

Chart 11-17. Length-of-stay and live-discharge rates for aboveand below-cap hospices, 2012

Share of hospice users with Live discharges as a 

stays exceeding 180 days percent of all discharges

Above-cap Below-cap Above-cap Below-cap

Diagnosis hospices hospices hospices hospices

All 42% 20% 40% 16%

Cancer 18 9 24 11

Neurological conditions 53 33 39 20

Heart/circulatory 45 20 48 17

Debility or adult failure to thrive 42 26 47 23

COPD 46 27 49 22

Other 29 9 36 11

Note: COPD (chronic obstructive pulmonary disease). Length-of-stay data reflect the share of hospice users in 2012 whose 

hospice length of stay was beyond 180 days. “Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice 

claim.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file and denominator file from CMS. 

 Above-cap hospices have substantially more patients with very long stays and more live 

discharges than below-cap hospices for all diagnoses.

 In 2012, between 42 percent and 53 percent of above-cap hospices’ patients with 

neurological conditions, heart or circulatory conditions, COPD, or debility or adult failure to 

thrive had stays exceeding 180 days compared with 20 percent to 33 percent at below-cap 

hospices.

 For all diagnoses, the live-discharge rates at above-cap hospices were at least roughly 

double, and in some cases triple, the rates at below-cap hospices. For example, among 

patients with heart or circulatory conditions, 48 percent of discharges at above-cap hospices 

were live discharges compared with 17 percent at below-cap hospices.
200 Other services

Chart 11-18. Margins are higher among hospices with a greater 

share of their patients in nursing facilities, 2012

Note: Margins exclude overpayments to hospices that exceed the cap on the average annual Medicare payment per 

beneficiary. Margins are calculated based on Medicare-allowable, reimbursable costs.

Source: MedPAC analysis of Medicare hospice cost reports and 100 percent hospice claims standard analytic file from CMS.

 Hospices with a large share of their patients in nursing facilities have higher margins than 

other hospices.

 The higher profitability of hospices serving many nursing facility patients may be due to a 

combination of factors, such as longer lengths of stay, possible efficiencies in treating 

patients in a centralized location (e.g., lower mileage costs and less staff time for travel), and 

overlap in responsibilities between the hospice and the nursing facility.

3.0

9.0 9.6

17.1

0

2

4

6

8

10

12

14

16

18

1 2 3 4

Medicare margin (in percent)

Share of providers' patients in nursing facilities, by quartiles
A Data Book: Health care spending and the Medicare program, June 2015 201

Chart 11-19. Medicare spending for clinical laboratory services,

2004–2013

 Calendar year

Note: Spending is for services paid under the clinical laboratory fee schedule. Hospital-based services are furnished in labs 

owned or operated by hospitals. Total spending appears on top of each bar. The spending data include only program 

payments; there is no beneficiary cost sharing for clinical lab services. 

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, THE MEDICARE TRUSTEES' REPORT (WHICH IS THE 

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2015. THIS CHART 

REFLECTS DATA FROM THE 2014 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2015 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 Medicare spending for clinical laboratory services grew by an average of 4.4 percent per 

year between 2004 and 2013. This growth was primarily driven by rising volume since there 

were very few increases in payment rates during those years. 

 Medicare spending for lab services in all settings increased by 8.6 percent in 2012 but held 

steady in 2013. Clinical lab services accounted for 1.7 percent of total Medicare spending in 

2013. 

 In 2013, independent and physician-office labs accounted for 52 percent of Medicare 

spending for all lab services; hospital-based labs accounted for the remaining 48 percent. 

3.3 3.5 3.7 4.1 4.3 4.7 4.8 4.6 5.1 5.1

3.3 3.4 3.5

3.5 3.6

4.0 4.1 4.4

4.7 4.6

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Dollars (in billions)

Independent and physician office Hospital based

6.6

6.9

7.2

7.6 7.9

8.7 8.9 9.0

9.8 9.7

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