A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2018
A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2018

iii 

Introduction 

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

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

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

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

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

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

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

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

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

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

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

in tables and figures with brief discussions. 

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

the MedPAC website: www.medpac.gov. 

Notes on data 

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. At the time this 

Data Book was prepared, only part of the MCBS had been released for 2015. Since there are no 

MCBS data for 2014, charts that use data from the MCBS may reflect 2013 MCBS data and are 

flagged accordingly. The reader is advised to consult the 2015 MCBS directly, when the 

complete survey becomes available, for the most current data. 

The 2018 report of the Boards of Trustees of the Medicare trust funds was released as we were 

finalizing production of this Data Book. All but one of the charts in this Data Book that use 

information from the Boards of Trustees reflect the 2017 report. Chart 1-12 is based on 

information from the 2018 report.

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 

Table of contents 

Introduction ..............................................................................................................................iii

Sections 

1 National health care and Medicare spending .............................................................. 1 

1-1 Medicare was the largest single purchaser of personal health care, 2016 .................................................. 3

1-2 Medicare spending is concentrated in certain services and has shifted over time ........................................ 4

1-3 Aggregate Medicare spending for FFS beneficiaries, by sector, 2007–2016 ............................................... 5

1-4 Per capita Medicare spending for FFS beneficiaries, by sector, 2007–2016 ................................................ 6

1-5 Medicare’s share of spending on personal health care varied by type of service, 2016 .............................. 7

1-6 Health care spending growth rates have begun to gradually increase following recent slowdown ............ 8

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

growth rate is projected to rise ......................................................................................................................... 9

1-8 Trustees project Medicare spending to continue to increase as a share of GDP ....................................... 10

1-9 Changes in spending per enrollee, Medicare and private health insurance, 1970–2016 .......................... 11

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

of the next decade .......................................................................................................................................... 12

1-11 FFS program spending was highly concentrated in a small group of beneficiaries, 2013 ....................... 13

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

intermediate assumptions .............................................................................................................................. 14

1-13 General revenue is paying for a growing share of Medicare spending ...................................................... 15

1-14 Medicare enrollment is rising while the number of workers per HI beneficiary is declining .................. 16

1-15 Medicare HI and SMI benefits and cost sharing per FFS beneficiary, 2015 ............................................. 17

 

2 Medicare beneficiary demographics........................................................................... 19 

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

program spending, 2013 ................................................................................................................................ 21

2-2 Medicare enrollment and spending by age group, 2013 ............................................................................. 22

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

 Medicare spending, 2013 ........................................................................................................................ 23 

2-4 Enrollment in the Medicare program is projected to grow rapidly through 2030 ..................................... 24

2-5 Characteristics of the Medicare population, 2015 ....................................................................................... 25

3 Medicare beneficiary and other payer financial liability ......................................... 27 

3-1 Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 2015 ............... 29

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

by beneficiaries’ characteristics, 2015 .......................................................................................................... 30

3-3 Covered benefits and enrollment in standardized medigap plans, 2016 .................................................... 31

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

by source of payment, 2013 .......................................................................................................................... 32
vi 

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

by source of payment, 2013 .......................................................................................................................... 33

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

as Medicare costs ........................................................................................................................................... 34

4 Dual-eligible beneficiaries............................................................................................ 35 

4-1 Dual-eligible beneficiaries accounted for a disproportionate share of Medicare spending, 2013 ........... 37

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

under age 65 and disabled, 2015 ................................................................................................................... 38

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

poorer health status, 2015 .............................................................................................................................. 39

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

beneficiaries, 2015 ......................................................................................................................................... 40

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

and non-dual-eligible beneficiaries, 2013 .................................................................................................... 41

4-6 Both Medicare and total spending were concentrated among dual-eligible beneficiaries, 2013 ............. 42

 

5 Quality of care in the Medicare program................................................................... 43 

5-1 SNFs improved on some measures but not others from 2011 to 2016 ..................................................... 45

5-2 Home health agencies’ performance on quality measures from 2013 to 2016 ......................................... 46

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

avoidable rehospitalizations from 2012 to 2016 .......................................................................................... 47

5-4 Dialysis quality of care: Some measures show progress, others need improvement, 2011–2015 ........... 48

5-5 Medicare Advantage HMO quality measures for 2016 show variation by enrollee characteristics ........ 49

5-6 Between 34 and 72 low-value services provided per 100 FFS beneficiaries in 2014; 

Medicare spent between $2.4 billion and $6.5 billion on these services ................................................. 52

5-7 Imaging and cancer screening accounted for most of the volume of low-value care in 2014 ................. 54

5-8 Cardiovascular testing and procedures, other surgical procedures, and imaging accounted 

for most of spending on low-value care in 2014 ......................................................................................... 55

6 Acute inpatient services ............................................................................................... 57 

Short-term hospitals 

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

Medicare program, 2010–2016 .................................................................................................................... 59 

6-2 Percent change in hospital employment, 2015‒2017 .................................................................................. 60

6-3 Growth in Medicare’s FFS payments for hospital inpatient and outpatient services, 2006–2016 ........... 61

6-4 Share of Medicare acute care hospital inpatient discharges by hospital group, 2016 ............................... 62

6-5 Change in share of discharges by major diagnostic category, 2006 to 2016 ............................................. 63

6-6 Cumulative change in all-payer hospital outpatient visits and inpatient admissions, 2006–2016 ........... 64

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

per FFS beneficiary, 2006–2016 .................................................................................................................. 65

6-8 Trends in medical and surgical inpatient discharges per beneficiary diverged, 2006–2016 .................... 66
vii 

6-9 Trends in Medicare FFS and non-Medicare inpatient length of stay, 2006–2016 .................................... 67

6-10 Hospital emergency department use per Medicare FFS beneficiary increased, 2010–2016 .................... 68

6-11 Share of Medicare Part A fee-for-service beneficiaries with at least one hospitalization, 2006–2016.... 69

6-12 Number of Medicare FFS outpatient observation visits per 1,000 beneficiaries relative to 

short inpatient stays, 2010 to 2016 ............................................................................................................... 70

6-13 Hospital patient experience measures, 2012‒2016 ..................................................................................... 71

6-14 Risk-adjusted readmission rates fell after passage of the Hospital Readmissions Reduction Program... 72

6-15 Hospital occupancy rates, 2006–2016 .......................................................................................................... 73

6-16 Medicare inpatient payments, by source and PPS hospital group, 2016 ................................................... 74

6-17 Medicare inpatient disproportionate share payments and uncompensated care 

payments, 2012–2018 ................................................................................................................................... 75

6-18 Discharge destination of Medicare fee-for-service beneficiaries served in acute care hospitals, 

2006–2016 ...................................................................................................................................................... 76

6-19 Overall Medicare margin, 2006–2016 ......................................................................................................... 77

6-20 Overall Medicare margin, by urban and rural location, 2006–2016 .......................................................... 78

6-21 Hospital total all-payer margin, 2006–2016 ................................................................................................ 79

6-22 Hospital total all-payer margin, by urban and rural location and critical access hospitals, 2006–2016 .. 80

6-23 Hospital total all-payer margin, by teaching status, 2006‒2016 ................................................................. 81

6-24 Medicare margins by teaching and disproportionate share status, 2016 .................................................... 82 

6-25 Financial pressure leads to lower costs ........................................................................................................ 83

6-26 Change in the private-payer ratio of payments to costs for hospital services, 2006–2016 ....................... 84

6-27 Markup of hospital charges above costs for Medicare services, 2006–2016 ............................................ 85

Inpatient psychiatric facilities

6-28 Medicare payments to inpatient psychiatric facilities remained steady in 2017 ....................................... 86

6-29 Inpatient psychiatric facilities, 2006–2016 .................................................................................................. 87

6-30 One diagnosis accounted for almost three-quarters of Medicare IPF cases in 2016 ................................. 88

6-31 Characteristics of Medicare IPF users, 2016 ............................................................................................... 89

7 Ambulatory care .......................................................................................................... 91 

Physicians and other health professionals

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

and other health professionals, 2006–2016 .................................................................................................. 93

7-2 Growth in the volume of clinician services caused fee schedule spending to increase faster 

than input prices and payment updates, 2000–2016 ................................................................................... 94 

7-3 Growth in the volume of clinician services per fee-for-service beneficiary, 2000–2016 ......................... 95

7-4 Medicare beneficiaries’ ability to get timely appointments with physicians was comparable with 

privately insured individuals, 2014–2017 .................................................................................................... 96

7-5 Medicare and privately insured patients who were looking for a new physician reported 

more difficulty finding one in primary care, 2014–2017 ............................................................................ 97

7-6 Medicare beneficiaries’ access to physician care was comparable with privately insured 

individuals, and minorities in both groups reported unwanted delays more frequently, 2017 ................. 98

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

White beneficiaries, 2017 .............................................................................................................................. 99

7-8 Changes in physicians’ professional liability insurance premiums, 2010–2017 ..................................... 100 

7-9 The shares of primary care services billed by APNs and physician assistants grew, 2012 and 2016 ... 101
viii 

 Hospital outpatient services 

7-10 Spending on hospital outpatient services covered under the outpatient PPS, 2007–2017 ..................... 102

7-11 Most hospitals provide outpatient services ................................................................................................ 103

7-12 Payments and volume of services under the Medicare hospital outpatient PPS, 

by type of service, 2016 .............................................................................................................................. 104

7-13 Hospital outpatient services with the highest Medicare expenditures, 2016 ........................................... 105

7-14 Effects of SCH transfer payments on hospitals’ outpatient revenue, 2014–2016 ................................... 106

7-15 Number of hospital outpatient observation hours increased, 2007–2016 ................................................ 107

Ambulatory surgical centers

7-16 Number of Medicare-certified ASCs increased by 8 percent, 2010–2016 .............................................. 108

8 Post-acute care ........................................................................................................... 109 

8-1 Number of post-acute care providers remained stable in 2017 ................................................................ 111

8-2 Growth in Medicare’s fee-for-service post-acute care expenditures has slowed since 2011 ................. 112

Skilled nursing facilities

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

and Medicare spending ............................................................................................................................... 113

8-4 SNF admissions and stays declined in 2016 .............................................................................................. 114

8-5 Freestanding SNF Medicare margins remained high in 2016 .................................................................. 115

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

freestanding SNFs in 2016 .......................................................................................................................... 116

8-7 Financial performance of relatively efficient SNFs in 2016 reflects a combination of lower 

cost per day and higher payment per day ................................................................................................... 117

Home health services

8-8 Spending on home health care, 2001–2016 ............................................................................................... 118

8-9 Trends in the provision of home health care .............................................................................................. 119

8-10 Most home health episodes are not preceded by hospitalization or PAC stay ........................................ 120

8-11 Medicare margins for freestanding home health agencies ........................................................................ 121

Inpatient rehabilitation facilities

8-12 Number of FFS IRF cases increased in 2016 ............................................................................................ 122

8-13 Most common types of FFS inpatient rehabilitation facility cases, 2016 ................................................ 123

8-14 Inpatient rehabilitation facilities’ Medicare margins by type of facility, 2006–2016 ............................. 124

8-15 Low standardized costs led to high margins for both hospital-based and freestanding IRFs, 2016 ...... 125 

Long-term care hospitals

8-16 The top 25 MS–LTC–DRGs made up two-thirds of LTCH discharges in 2016 .................................... 126

8-17 The number of Medicare LTCH cases and users has decreased each year since peaking in 2012 ....... 127

8-18 LTCH cost growth in 2016 was the slowest since 2011 ........................................................................... 128

8-19 The aggregate average LTCH Medicare margin fell each year since 2013 ............................................ 129
ix 

9 Medicare Advantage.................................................................................................. 131 

9-1 Enrollment in MA plans, 2002–2018 .............................................................................................. 133 

9-2 MA plans available to almost all Medicare beneficiaries ............................................................... 134

9-3 Average monthly rebate dollars, by plan type, 2013–2018 ............................................................. 135

9-4 Changes in enrollment vary among major plan types ..................................................................... 136

9-5 MA and cost plan enrollment by state and type of plan, 2018 ........................................................ 137

9-6 MA plan benchmarks, bids, and Medicare program payments relative to FFS spending, 2018 ....... 138

9-7 Enrollment in employer group MA plans, 2006–2018 ................................................................... 139

9-8 Number of special needs plan enrollees, 2009–2018 ...................................................................... 140

9-9 Number of SNPs and SNP enrollment rose from 2017 to 2018 ..................................................... 141 

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

the CMS–HCC model, 2016 ............................................................................................................ 142

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

status, December 2016 ..................................................................................................................... 143

10 Prescription drugs ...................................................................................................... 145 

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

departments, and suppliers, 2005–2016 ..................................................................................................... 147

10-2 Change in Medicare payments and utilization for separately payable Part B drugs, 2009–2015 ........ 148

10-3 Top 10 Part B drugs paid based on ASP, by type of provider (dollars in millions), 2015 and 2016 ..... 150

10-4 Growth in ASP for the 20 highest expenditure Part B drugs, 2005–2018 ............................................... 151

10-5 Trend in Medicare Part B payment rates for two reference biologics and their biosimilar products .... 152

10-6 Price indices for Medicare Part B drugs, 2005–2016 ................................................................................ 153

10-7 In 2016, 88 percent of Medicare beneficiaries were enrolled in Part D plans or had 

other sources of creditable drug coverage .................................................................................................. 154

10-8 Changes in parameters of the Part D defined standard benefit over time ................................................ 156

10-9 Characteristics of stand-alone Medicare PDPs .......................................................................................... 158

10-10 Characteristics of MA–PDs ........................................................................................................................ 159

10-11 Change in average Part D premiums, 2014–2018 ..................................................................................... 160

10-12 More premium-free (for LIS enrollees) PDPs in 2018 ............................................................................. 162

10-13 In 2018, most Part D enrollees are in plans that use a five-tier formulary structure ............................... 163

10-14 In 2018, PDPs and MA–PDs apply some utilization management to more than 

45 percent of listed drugs ............................................................................................................................ 164

10-15 Characteristics of Part D enrollees, 2015 ................................................................................................... 165

10-16 Part D enrollment trends, 2007–2015 ........................................................................................................ 166

10-17 Part D enrollment by region, 2015 ............................................................................................................. 168

10-18 Components of Part D spending growth .................................................................................................... 170

10-19 The majority of Part D spending was incurred by slightly over one-quarter of all 

Part D enrollees, 2015 ................................................................................................................................. 171

10-20 Characteristics of Part D enrollees, by spending levels, 2015 .................................................................. 172

10-21 Part D spending and use per enrollee, 2015 ............................................................................................... 173

10-22 Trends in Part D spending and use per enrollee, 2007–2015 ................................................................... 174 

10-23 Top 15 therapeutic classes of drugs covered under Part D, by spending and volume, 2015 ................. 175

10-24 Part D patterns of prescribing by provider type, 2015 .............................................................................. 177 

10-25 Part D patterns of prescribing for selected specialties, 2015 .................................................................... 179 

10-26 Price growth for Part D–covered drugs, 2006–2015 ................................................................................. 181

10-27 Comparison of price growth for Part B and Part D biologics, 2006–2015 .............................................. 182
x 

11 Other services ............................................................................................................. 183

Dialysis

11-1 Number of dialysis facilities is growing, and most facilities are for profit and freestanding ............. 185 

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

dialysis facilities, 2015 and 2016 ......................................................................................................... 186 

11-3 The ESRD population is growing, and most ESRD patients undergo dialysis .................................. 187 

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

of the ESRD population ....................................................................................................................... 188

11-5 Characteristics of Medicare fee-for-service dialysis patients, 2016.................................................... 189 

11-6 Aggregate margins varied by type of freestanding dialysis facility, 2016 .......................................... 190 

Hospice

11-7 Hospice spending and use increased in 2016 ...................................................................................... 191 

11-8 Hospice use increased across beneficiary groups from 2000 to 2016 ................................................ 192 

11-9 Number of Medicare-participating hospices has increased due to growth in for-profit hospices ...... 193

11-10 Hospice cases and length of stay, by diagnosis, 2016 ......................................................................... 194 

11-11 Hospice average and median length of stay among decedents increased slightly in 2016 ................ 195

11-12 Hospice length of stay among decedents, by beneficiary and hospice characteristics, 2016 ............. 196

11-13 More than half of Medicare hospice spending in 2016 was for patients with stays 

exceeding 180 days .............................................................................................................................. 197

11-14 Hospice aggregate Medicare margins, 2009–2015 ............................................................................. 198 

11-15 Medicare margins were higher among hospices with more long stays, 2015 .................................... 199

11-16 Hospices that exceeded Medicare’s annual payment cap, selected years ........................................... 200

11-17 Hospice live-discharge rates, 2013–2016 ............................................................................................ 201 

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

in nursing facilities, 2015 ..................................................................................................................... 202

Clinical laboratory

11-19 Medicare spending for clinical laboratory services, 2005–2016 ........................................................ 203
 

S E C T I O N 

National health care and 

Medicare spending 

A Data Book: Health care spending and the Medicare program, June 2018 3

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

personal health care, 2016 

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

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

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

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

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

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

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

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

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

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

Percent Change and Percent Distribution, by Source of Funds: Selected Calendar Years 1970–2016,” released December 

2017. 

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

spending accounted for by private health insurance (35 percent in 2016) is greater than

Medicare’s share (22 percent in 2016). 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 $2.8 trillion spent on

personal health care in 2016, Medicare accounted for 22 percent, or $625 billion (as noted

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

administrative and business costs).

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

12 percent was consumer out-of-pocket spending.

• Medicare and private health insurance spending includes premium contributions from

enrollees.

Medicare

22%

Medicaid

18%

Other third-party 

payers

8%

Private health 

insurance

35%

Out of pocket

12%

CHIP, DoD, and VA

4%

Total = $2.8 trillion
4 National health care and Medicare spending

Chart 1-2. Medicare spending is concentrated in certain 

services and has shifted over time 

 Total spending 2007 = $431 billion Total spending 2016 = $663 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. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

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

• In 2016, Medicare spending totaled $663 billion for benefit expenses. Managed care was 

the largest spending category (28 percent), followed by inpatient hospital services (21 

percent), prescription drugs provided under Part D (14 percent), and services reimbursed 

under the physician fee schedule (11 percent). 

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

2016 than it was in 2007, falling from 29 percent to 21 percent. Spending on beneficiaries 

enrolled in managed care plans grew from 19 percent to 28 percent over the same period. 

Medicare managed care enrollment increased 112 percent over the same period (data not 

shown). 

Inpatient 

hospital

29%

Home 

health

4%

Hospice

2%

Managed care

19%

Physician fee 

schedule

14%

DME

2%

Outpatient 

hospital

5%

Other

8%

Prescription 

drugs provided 

under Part D

12%

SNF

5% Inpatient 

hospital

21%

Home 

health

3%

Hospice

3%

Managed care

28%

Physician fee 

schedule

11%

DME

1%

Outpatient 

hospital

7%

Other

8%

Prescription 

drugs provided 

under Part D

14%

SNF

4%
A Data Book: Health care spending and the Medicare program, June 2018 5

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

by sector, 2007–2016 

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

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

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

 

• Medicare spending for FFS beneficiaries has increased significantly since 2007 across all 

sectors, even though spending growth has slowed recently. The slowdown is partly attributable 

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

has increased. 

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

averaged 1.6 percent per year from 2007 to 2014. Spending then declined by 0.8 percent 

between 2014 and 2015 (calculated on unrounded numbers). This decline is partly attributable to 

a shift in service volume from the inpatient setting to the outpatient setting and to the decline in 

the growth of FFS enrollment, but it may also reflect broader economic conditions. Spending 

then increased by 1.2 percent between 2015 and 2016 (calculated on unrounded numbers). 

Despite the slowdown, spending on inpatient hospital services increased, in aggregate, 12.4 

percent from 2007 to 2016 (calculated on unrounded numbers). 

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

8.8 percent per year from 2007 to 2016. Aggregate spending on outpatient hospital services 

increased 113.7 percent from 2007 to 2016 (calculated on unrounded numbers).

126 130 131 133 135 139 141 141 140 142

58 60 61 65 68 69 69 70 70 70

38 42 45 47 50 50 47 47 48 48 

22 24 26 29 31 34 36

41 45 48

0

20

40

60

80

100

120

140

160

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Medicare spending (dollars in billions)

Calendar year

Inpatient hospital

Physician fee schedule

Skilled nursing facilities and home health agencies

Outpatient hospital
6 National health care and Medicare spending

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

by sector, 2007–2016 

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

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

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

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

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

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

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

• Medicare spending per beneficiary in FFS Medicare has increased substantially since 2007 

across all sectors, despite slowing down or declining recently in some sectors. 

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

level of spending, averaged 2.4 percent per year from 2007 to 2009 and then decreased by 

0.1 percent from 2009 to 2016. Despite the decline in recent years, spending per beneficiary 

for inpatient hospital services increased, in aggregate, 4.3 percent from 2007 to 2016. 

• Growth in spending per beneficiary for outpatient hospital services remained high 

throughout the period, averaging 8.3 percent per year from 2007 to 2016. Spending per 

beneficiary for outpatient hospital services increased, in aggregate, 105.6 percent from 2007 

to 2016. 

3,565 3,695 3,737 3,737 3,734 3,753 3,772 3,755 3,708 3,718

1,800 1,873 1,933 2,010 2,084 2,107 2,082 2,115 2,115 2,086

1,078 1,188 1,275 1,317 1,361 1,246 1,244 1,244 1,263 1,248

692 756 828 888 956 1,032 1,096

1,243 1,349 1,422

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

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 2018 7

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

care varied by type of service, 2016 

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

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

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

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

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

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

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

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

Expenditure and Program: Calendar Year 2016,” released December 2017. 

• While Medicare’s share of total personal health care spending was 22 percent in 2016 (see 

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

spending on hospital care (25 percent) and retail prescription drugs (29 percent) and a much 

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

types of care. 

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

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

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

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

people with limited income and assets. 

25 23

40

23

15

29

18

11

37

31

15

10

58

67

23

46

70

61

0

10

20

30

40

50

60

70

80

90

100

Hospital Clinician Home health

and hospice

Nursing home

and CCR

facilities

Durable

medical

equipment

Retail

prescription

drugs

Share of spending (in percent)

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

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

gradually increase following recent slowdown 

Note: GDP (gross domestic product). 

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2016. 

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

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

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

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

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

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

increasing from 7.9 percent to 17.7 percent. Private health insurance spending, Medicare 

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

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

respectively, as a share of GDP. 

0

5

10

15

20

25

1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Share of GDP (in percent)

Calendar year

Total health care spending

Private health insurance spending

Medicare spending

 Medicaid spending

Historical Projected 
A Data Book: Health care spending and the Medicare program, June 2018 9

Chart 1-7. Despite recent slowdown in per beneficiary 

spending growth, total Medicare spending growth 

rate is projected to rise 

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

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017 and the Congressional Budget Office’s 

2018 Baseline. 

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

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

to 1 percent between 2010 and 2016. 

• For 2017 to 2025, the Trustees and CBO project that growth in per beneficiary spending will 

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

growth rate of 4 percent. 

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

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

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

throughout the next decade. 

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

growth in total spending over the next decade is projected by the Trustees to average 7 

percent and by CBO to average 6 percent annually, which outpaces the projected average 

annual GDP growth of less than 5 percent. 

2 1 2

3 3 3

10

6

7

1

4 4

0

2

4

6

8

10

12

14

1980s 1990s 2000s 2010–2016 Trustees CBO

Average annual change (in percent)

Spending per beneficiary

Enrollment

12

9

4

7

6

7

Historical Projected, 2017−2025
10 National health care and Medicare spending

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

increase as a share of GDP 

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

assumptions. The Part D benefit began in 2006. 

 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

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

in 1975, it is projected to reach nearly 6 percent of GDP in 2075. 

• The Medicare Trustees project that spending will rise from 3.6 percent of GDP in 2015 to 5.4 

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

then to 5.9 percent of GDP in 2075, with growth in spending per beneficiary becoming the 

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

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

generation reach age 65 and become eligible to receive benefits. 

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

than in the past. Nominal Medicare spending grew on average 9.6 percent per year over the 

period from 1975 to 2015, considerably faster than nominal growth in the economy, which 

averaged 6.1 percent per year over the same time frame (data not shown). Between 2015 and 

2045, Medicare spending is projected to continue growing faster than GDP, averaging 6.1 

percent per year compared with an annual average growth rate of 4.5 percent for the 

economy as a whole. Then, between 2045 and 2085, Medicare spending is projected to grow 

at a rate similar to GDP, averaging 4.5 percent per year compared with an annual average 

growth rate of 4.4 percent for the economy as a whole (data not shown). 

1.0

1.7

2.4 2.6

3.6

4.4

5.4

5.6 5.6 5.7 5.9 5.8

0

1

2

3

4

5

6

7

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 2018 11

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

private health insurance, 1970–2016 

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

Advantage plans. 

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2013 and 2016. 

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

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

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

insurance than in previous decades. 

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

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

introduction of the prospective payment system 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 growth of per capita spending for private payers, followed by a period of growth. 

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

mix of services and Medicare covers an older population, which tends to be more costly. In 

addition, spending trends are also affected by changes in the generosity of covered benefits 

(e.g., introduction of the Part D drug benefit in 2006) and changes in enrollees’ out-of-pocket 

spending. 

-5

0

5

10

15

20

25

30

35

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Change in spending per enrollee (percent)

Calendar year

 Medicare

 PHI Medicare PHI

1970–1979 13.1 14.9 

1980–1989 10.0 13.3 

1990–1999 6.0 5.7 

2000–2009 7.3 7.4 

2010–2016 1.3 3.5 

1970–2016 7.9 9.4 

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

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

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

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

administrative expenses) by fiscal year. 

Source: Congressional Budget Office's April 2018 Baseline; the annual report of the Boards of Trustees of the Medicare trust 

funds 2017. 

 

• Medicare spending has more than doubled since 2005, increasing from $337 billion to $695 

billion by 2016 (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 2017 and 

2025 will grow at an average annual rate of 7.3 percent or 6.8 percent, respectively. 

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

CBO’s projections. 

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

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

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

beneficiaries, among other factors. 

0

200

400

600

800

1,000

1,200

1,400

1,600

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 2018 13

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

small group of beneficiaries, 2013 

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

sum to 100 percent due to rounding. 

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA. 

• Medicare FFS spending is concentrated among a small number of beneficiaries. In 2013, 

the costliest 5 percent of beneficiaries accounted for 42 percent of annual Medicare FFS 

spending, and the costliest 25 percent accounted for 84 percent. By contrast, the least 

costly 50 percent of beneficiaries accounted for only 4 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%

4

Next 25%

13

Next 15%

24

Next 5%

18

Next 4%

25

Costliest 1% 17

0

10

20

30

40

50

60

70

80

90

100

Percent of beneficiaries Percent of program spending

Percent

84
14 National health care and Medicare spending

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

in 2026 under Trustees’ intermediate assumptions 

Note: HI (Hospital Insurance). 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. 

 *Costs and income for 2017 represent actual (not projected) experience. 

 **Under the low-cost assumption, trust fund costs would be below income through the 75-year projection period ending in 

2092. 

 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2018. (The 2018 report of the Boards of Trustees 

of the Medicare trust funds was released as we were finalizing production of this Data Book. Other charts in this Data 

Book that use information from the Boards of Trustees reflect the 2017 report. This chart is based on information from the 

2018 report.) 

 

• The 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). 

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

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

both intermediate and high-cost assumptions project that deficits will return beginning in 

2018. HI Trust Fund assets are projected to be exhausted by 2026 under the Trustees’ 

intermediate assumptions. Under high-cost assumptions, the HI Trust Fund could be 

exhausted as early as 2023. Under low-cost assumptions, it would remain able to pay full 

benefits indefinitely. 

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

current rate of 2.90 percent to 3.72 percent to balance the HI Trust Fund over the next 75 

years. Alternatively, Part A spending would need to be immediately reduced by 17 percent. 

Costs below income Costs exceed income HI Trust Fund assets exhausted

High cost

Intermediate

Low cost

2017* 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 ............................................................2092**

Calendar year

Estimate
A Data Book: Health care spending and the Medicare program, June 2018 15

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

Medicare spending 

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

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

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

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

primary responsibility for prescription drug spending. 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: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

• The Medicare Trustees project that Medicare’s share of GDP will rise to 5.5 percent by 2036 

and to 5.9 percent by 2075. 

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

income. They are expected to continue to be a substantial share of Medicare financing, 

growing to about 48 percent by 2030, and then remaining stable throughout the 75-year 

budget period. 

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

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

national priorities. 

0%

1%

2%

3%

4%

5%

6%

7%

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

Share of GDP

Calendar year

Historical Projected Total Medicare spending

General revenue transfers

State transfers and drug fees

Premiums

Tax on benefits Payroll taxes

Part A deficit

Dedicated 

revenues 

2086
16 National health care and Medicare spending

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

workers per HI beneficiary is declining 

 Medicare HI enrollment Workers per HI beneficiary

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

 

• As the baby-boom generation ages, enrollment in the Medicare program will surge. By 2030, 

Medicare is projected to have over 80 million beneficiaries—up from 60 million beneficiaries 

today. 

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

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

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

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

2026. 

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

0

20

40

60

80

100

1970 1990 2010 2030

Enrollment (in millions)

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1970 1990 2010 2030

Workers per HI beneficiary
A Data Book: Health care spending and the Medicare program, June 2018 17

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

per FFS beneficiary, 2015

Average benefit in 2015 

(in dollars)

Average cost sharing in 2015 

(in dollars)

HI $4,856 $435 

SMI 5,259 1,332 

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

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

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

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

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

 

• In calendar year 2015, the Medicare program made $4,856 in HI (Part A) benefit payments 

and $5,259 in SMI (Part B) benefit payments on average per FFS beneficiary. 

• Beneficiaries owed an average of $435 in cost sharing for HI and $1,332 in cost sharing for 

SMI in calendar year 2015. (Cost sharing excludes all monthly premiums.) 

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

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

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

coverage. 

 

S E C T I O N 

Medicare beneficiary 

demographics 

A Data Book: Health care spending and the Medicare program, June 2018 21

Chart 2-1. Aged beneficiaries accounted for the greatest share 

of the Medicare population and program spending, 

2013 

Percent of beneficiaries Percent of spending 

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

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

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

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

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

• In 2013, beneficiaries ages 65 and older without ESRD composed 82.7 percent of the 

beneficiary population and accounted for 75.6 percent of Medicare spending. Beneficiaries 

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

population and spending. 

• In 2013, average Medicare spending per beneficiary was $11,239 (data not shown). 

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

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

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

beneficiaries under age 65 with disability (non-ESRD). In 2013, $72,725 was spent per 

ESRD beneficiary versus $10,265 per aged beneficiary and $12,776 per beneficiary under 

age 65 enrolled because of disability (data not shown). 

Disabled

16.3%

ESRD

0.9%

Aged

82.7%

Disabled

18.5%

ESRD

5.6%

Aged

75.6%

Total beneficiaries: 53.9 million Total spending: $606 billion 
22 Medicare beneficiary demographics 

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

2013 

Percent of beneficiaries Percent of spending 

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

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

• For the aged population (65 and older), per capita expenditures increase with age. In 2013, 

per capita expenditures were $8,506 for beneficiaries 65 to 74 years old, $12,416 for those 

75 to 84 years old, and $15,138 for those 85 or older (data not shown). 

• In 2013, per capita expenditures for Medicare beneficiaries under age 65 who were enrolled 

because of end-stage renal disease or disability were $14,063 (data not shown). 

Under 

65

16.7%

65–74

45.9%

75–84

24.9%

85+

12.5% Under 

65

21.0%

65–74

34.7%

75–84

27.5%

85+

16.8%

Average per capita = $11,239
A Data Book: Health care spending and the Medicare program, June 2018 23

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

accounted for a disproportionate share of 

 Medicare spending, 2013 

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: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

• In 2013, 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 2013, per 

capita expenditures were $6,382 for those who reported excellent or very good health, 

$13,500 for those who reported good or fair health, and $24,131 for those who reported 

poor health (data not shown). 

Poor health

8.3%

Good or 

fair 

health

46.5%

Excellent 

or very 

good 

health

44.6%

Poor 

health

17.9%

Good or 

fair 

health

56.0%

Excellent 

or very 

good 

health

25.3%

Average per capita = $11,239
24 Medicare beneficiary demographics 

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

grow rapidly through 2030 

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

• The total number of people enrolled in the Medicare program will increase from 56 million in 

2016 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

63.7

80.9

88.5

92.3

98.7

105.8

112.2

120.5

0

20

40

60

80

100

120

140

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

Beneficiaries (in millions)

Historic Projected 
A Data Book: Health care spending and the Medicare program, June 2018 25

Chart 2-5. Characteristics of the Medicare population, 2015 

Percent of the Percent of the 

 Medicare Medicare 

Characteristic population Characteristic population 

 

Total (53.9 million) 100% Living arrangement

 Institution 3% 

Sex Alone 29 

 Male 45 With spouse 48 

 Female 55 Other 19 

 

Race/ethnicity Education 

White, non-Hispanic 74 No high school diploma 18 

 African American, High school diploma only 28 

 non-Hispanic 10 Some college or more 54 

 Hispanic 9 

Other 7 Income status

 Below poverty 15 

Age 100–125% of poverty 9 

 <65 16 125–200% of poverty 19

 65–74 46 200–400% of poverty 27 

 75–84 26 Over 400% of poverty 31 

 85+ 11 

 Supplemental insurance status 

Health status Medicare only 14 

 Excellent or very good 44 Managed care 34 

 Good or fair 48 Employer-sponsored insurance 22 

 Poor 7 Medigap 17 

 Medigap with employerResidence sponsored insurance 1 

 Urban 79 Medicaid 12 

 Rural 21 Other 1 

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

MSAs. In 2015, poverty was defined as income of $11,367 for people living alone and $14,342 for married couples. Totals 

may not sum to 100 percent due to rounding and exclusion of an “other” category. Poverty thresholds are calculated by 

the U.S. Census Bureau (https://www.census.gov/data/tables/time-series/demo/income-poverty/historical-povertythresholds.html). Some beneficiaries may have more than one type of supplemental insurance. 

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2015. 

• Most Medicare beneficiaries are female and White. 

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

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

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

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

plans are the most common source of supplemental coverage.

S E C T I O N 

Medicare beneficiary and 

other payer financial liability

 A Data Book: Health care spending and the Medicare program, June 2018 29

Chart 3-1. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, 2015 

Note: Beneficiaries are assigned to the supplemental coverage category they were in for the most time in 2015. They could 

have had coverage in other categories during 2015. “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 2015 or who had Medicare 

as a secondary payer. Percentages do not sum to 100 due to rounding. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2015. 

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

or replaces the Medicare benefit package. In 2015, 87 percent of beneficiaries had supplemental 

coverage or participated in Medicare managed care. 

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

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

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

• About 37 percent of beneficiaries participated in Medicare managed care. This care includes 

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

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

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

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

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

Chart 4-1 excludes beneficiaries in Medicare Advantage. 

Medigap

19.2%

Employersponsored 

insurance

19.1%

Medicaid

11.2% Other public sector

0.5%

Medicare managed 

care

36.9%

No supplemental 

coverage

13.0%
30 Medicare beneficiary and other payer financial liability

Chart 3-2. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, by 

beneficiaries’ characteristics, 2015 

 Number of Employer- Medicare Other 

 beneficiaries sponsored Medigap managed public Medicare 

 (thousands) insurance insurance Medicaid care sector only 

 

All beneficiaries 45,573 19% 19% 11% 37% 1% 13% 

Age 

 <65 7,325 7 4 37 32 1 20 

 65–69 10,540 19 22 6 37 1 14 

 70–74 10,003 21 22 6 40 0 11 

 75–79 7,455 22 23 7 38 0 10 

 80–84 5,266 25 21 6 37 0 11 

 85+ 4,984 23 23 6 36 0 11 

Income-to-poverty ratio 

≤1.00 7,360 4 7 42 36 1 11 

 1.00 to 1.25 3,816 6 12 28 39 0 14 

 1.25 to 1.50 3,117 9 18 17 39 1 17 

 1.50 to 2.00 5,874 14 19 5 43 1 19 

 >2.00 25,357 28 24 1 35 0 12 

Eligibility status 

 Aged 38,096 21 22 6 38 0 12 

 Disabled 7,108 7 4 37 32 1 19 

 ESRD 369 14 15 27 14 5 24 

Residence 

 Urban 36,061 19 18 10 40 1 12 

 Rural 9,496 20 24 15 23 0 17 

Sex 

 Male 20,142 19 18 11 36 1 16 

 Female 25,431 19 20 12 38 1 11 

Health status 

 Excellent/very good 20,187 23 23 5 38 0 11 

 Good/fair 21,789 17 17 14 37 1 14 

 Poor 3,288 8 10 29 33 1 20 

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

most time in 2015. They could have had coverage in other categories during 2015. “Medicare managed care” includes 

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

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

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

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

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

enrollment in 2015 or who had Medicare as a secondary payer. The number of beneficiaries differs among boldface 

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

because of rounding. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2015. 

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

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

poor health. 

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

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

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

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

health. 

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

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

poor health. 
 A Data Book: Health care spending and the Medicare program, June 2018 31

Chart 3-3. Covered benefits and enrollment in standardized 

medigap plans, 2016 

 Medigap standardized plan type 

 

High 

deductible 

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

Part A hospital costs           

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

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

Hospice cost sharing        50% 75%  

SNF coinsurance      50% 75%  

Part A deductible       50% 75% 50% 

Part B deductible    

Part B excess charges    

Foreign travel emergency       

Lives covered 

(in thousands) 150 275 900 175 6,700 250 1,300 75 50 5 1,100 

Percent change 

2015–2016 5% –7% –9% –8% 7% 13% 42% 2% –1% 325% 18% 

 

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

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

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

but $50 for emergency room visits. 

Source: MedPAC analysis of National Association of Insurance Commissioners data, 2017. 

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

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

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

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

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

• Plan F, which covers all Medicare cost sharing, is the most popular plan, with 6.7 million enrollees. 

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

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

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

Part B deductible. 

• During 2016, more than 12 million beneficiaries enrolled in medigap plans. Of all Medicare 

beneficiaries, about one-fifth were enrolled in medigap plans. Charts 3-1 and 3-2 indicate that about 

8.8 million beneficiaries (19.2 percent of 45.6 million beneficiaries) had medigap coverage in 2015. 

The discrepancy in medigap enrollment between this chart and Charts 3-1 and 3-2 occurs because 

this chart includes all Medicare beneficiaries while Charts 3-1 and 3-2 exclude beneficiaries living in 

long-term institutions, those who did not have both Part A and Part B coverage throughout their 

Medicare enrollment in 2015, and those who had Medicare as a secondary payer. In addition, this 

chart is based on data from 2016, while Charts 3-1 and 3-2 are based on data from 2015.
32 Medicare beneficiary and other payer financial liability

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

noninstitutionalized FFS Medicare beneficiaries, by 

source of payment, 2013 

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

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

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

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

Source: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

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

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

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

$15,000 in 2013. Medicare was the largest source of payment: It paid about 65 percent of the health 

care costs for FFS beneficiaries living in the community, an average of $9,748 per beneficiary. The 

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

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

Medicare beneficiaries. 

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

medigap—paid about 15 percent of beneficiaries’ costs, an average of $2,198 per beneficiary. 

• Beneficiaries paid about 13 percent of their health care costs out of pocket, an average of $1,993 per 

beneficiary. 

• Public sources of supplemental coverage—primarily Medicaid—paid about 7 percent of beneficiaries’ 

health care costs, an average of $1,009 per beneficiary.

Medicare

65%

Beneficiaries' 

direct spending

13%

Private 

supplements

15%

Public 

supplements

7%

Per capita total spending = $14,948
 A Data Book: Health care spending and the Medicare program, June 2018 33

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

 among noninstitutionalized FFS beneficiaries, by 

 source of payment, 2013 

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: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

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

the community in 2013. Per capita spending for the 10 percent of beneficiaries with the 

highest total spending averaged $74,130. Per capita spending for the 10 percent of 

beneficiaries with the lowest total spending averaged $439. 

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

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

spending increased. For example, Medicare paid 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 9 percent of total spending for the 10 percent of 

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

439 1,777 4,460

10,214

23,623

74,130

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

<10 10–25 25–50 50–75 75–90 >90

Dollars

Groups of beneficiaries ranked by total spending (percentile ranges)

Medicare

Supplemental payers

Out of pocket
34 Medicare beneficiary and other payer financial liability

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

has grown more than twice as fast as Medicare 

costs 

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

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

percent. 

Source: Employer-sponsored premium data are from Kaiser Family Foundation surveys, 2007 through 2016. Medicare spending 

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

through 2015 are from MedPAC analysis of claims and reinsurance data for individuals with Part D coverage. Part D 

spending for 2016 is a projection. 

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

price growth for Medicare services. 

• Per capita costs in FFS Medicare grew by 20 percent from 2007 to 2016. This 20 percent growth rate 

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

Commission’s estimates of the cost of Part D premiums and reinsurance from 2007 to 2016. The 

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

a shrinking of the coverage gap. 

• In the commercial sector, employer-sponsored HMO premiums grew by 53 percent and PPO 

premiums by 47 percent over the same period, despite the rapidly increasing deductibles reported in 

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

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

grew at a slightly slower rate than HMO premiums. 

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

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

0%

10%

20%

30%

40%

50%

60%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percent

Employer-sponsored HMO premium

growth for a single person

Employer-sponsored PPO premium

growth for a single person

Medicare per capita FFS cost growth

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

sequester
S E C T I O N 

Dual-eligible 

beneficiaries 

A Data Book: Health care spending and the Medicare program, June 2018 37

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

disproportionate share of Medicare spending, 2013 

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: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

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

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

health care. 

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

expenditures. Although they were 18 percent of the Medicare FFS population in 2013, they 

represented 32 percent of aggregate Medicare FFS spending. 

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

beneficiaries compared with non-dual-eligible beneficiaries: In 2013, $19,789 was spent per 

dual-eligible beneficiary, and $9,035 was spent per non-dual-eligible beneficiary (data not 

shown). 

• In 2013, average total spending⎯which includes Medicare, Medicaid, supplemental 

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

$31,894 per beneficiary, about twice the amount for other Medicare beneficiaries (data not 

shown). 

Dual 

eligible

18%

Non-dual 

eligible

82%

Dual 

eligible

32%

Non-dual 

eligible

68%
38 Dual-eligible beneficiaries

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

non-dual-eligible beneficiaries to be under age 65 

and disabled, 2015 

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, Survey file 2015. 

• 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 2015, 47 percent of dual-eligible beneficiaries were under age 65 

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

Under 65 

(disabled)

47%

65-74

25%

75-84

17%

85+

10%

Under 65 

(disabled)

12%

65-74

49%

75-84

27%

85+

11%
A Data Book: Health care spending and the Medicare program, June 2018 39

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

non-dual-eligible beneficiaries to report poorer 

health status, 2015 

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. 

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Survey file 2015. 

 

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

poorer health status. In 2015, 19 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 (48 percent) reported being in excellent or very 

good health in 2015. In comparison, less than one-fifth (18 percent) of dual-eligible 

beneficiaries reported being in excellent or very good health. 

 

Poor 

health

19%

Good or 

fair health

63%

Excellent 

or very 

good 

health

18%

Poor 

health

6%

Good or 

fair health

47%

Excellent 

or very 

good 

health

48%
40 Dual-eligible beneficiaries

Chart 4-4. Demographic differences between dual-eligible 

beneficiaries and non-dual-eligible beneficiaries, 2015 

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

Sex 

 Male 41% 45% 

 Female 59 55 

Race/ethnicity 

 White, non-Hispanic 54 77 

 African American, non-Hispanic 18 9 

 Hispanic 15 8 

 Other 13 6 

Limitations in ADLs 

 No limitations in ADLs 40 66 

 Limitations in 1–2 ADLs 30 23 

 Limitations in 3–6 ADLs 30 11 

Residence 

 Urban 73 80 

 Rural 27 20 

Living arrangement 

 Institution 13 2 

 Alone 34 28 

 With spouse 14 53 

 With children, nonrelatives, others 38 17 

Education 

 No high school diploma 41 15 

 High school diploma only 32 27 

 Some college or more 28 58 

Income status 

 Below poverty 54 9 

 100–125% of poverty 22 7 

 125–200% of poverty 19 19 

 200–400% of poverty 4 30 

 Over 400% of poverty 1 35 

Supplemental insurance status 

 Medicare or Medicare/Medicaid only 87 16 

 Medicare managed care 5 38 

 Employer-sponsored insurance <1 25 

 Medigap 1 19 

 Medigap/employer 0 1 

 Other* 6 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 of MSAs. In 2015, poverty was defined as annual income of $11,367 for people 

living alone and $14,342 for married couples. Totals may not sum to 100 percent due to rounding and exclusion of an “other” 

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

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Survey file 2015. 

• Dual-eligible beneficiaries qualify for Medicaid due in part to low incomes. In 2015, 54 percent of dual-eligible 

beneficiaries 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 2018 41

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

between dual-eligible beneficiaries and non-dualeligible beneficiaries, 2013 

 Dual-eligible Non-dual-eligible 

Service beneficiaries beneficiaries 

Average FFS Medicare payment for all beneficiaries 

Total Medicare FFS payments $19,789 $9,035 

Inpatient hospital 6,340 2,821 

Physiciana 3,445 2,377 

Outpatient hospital 2,283 1,307 

Home health 771 387 

Skilled nursing facilityb 1,608 573 

Hospice 473 231 

Prescribed medicationc

 4,740 1,322 

Share of FFS beneficiaries using service 

Share using any type of service 97.9% 86.1% 

Inpatient hospital 25.4 14.7 

Physiciana 93.6 81.6 

Outpatient hospital 78.5 61.1 

Home health 13.5 8.1 

Skilled nursing facilityb 9.3 4.1 

Hospice 3.9 1.9 

Prescribed medicationc

 80.5 53.6 

Note: FFS (fee-for-service). Data in this analysis are restricted to beneficiaries in FFS Medicare. 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: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

• In 2013, average per capita Medicare FFS spending for dual-eligible beneficiaries was more than 

twice that for non-dual-eligible beneficiaries⎯$19,789 compared with $9,035. 

• For each type of service, average Medicare FFS per capita spending was higher for dual-eligible 

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-dual-eligible counterparts. Dualeligible beneficiaries are more likely than non-dual-eligible beneficiaries to use each type of Medicarecovered service.
42 Dual-eligible beneficiaries

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

among dual-eligible beneficiaries, 2013 

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: AT THE TIME THIS DATA BOOK WAS PREPARED, ONLY PART OF THE MEDICARE CURRENT BENEFICIARY 

SURVEY (MCBS), WHICH IS THE CUSTOMARY SOURCE OF DATA FOR THIS CHART, HAD BEEN RELEASED 

FOR 2015. THIS CHART REFLECTS MEDPAC ANALYSIS OF THE 2013 MCBS COST AND USE FILES, WHICH ARE 

THE MOST RECENT AVAILABLE. (THERE ARE NO MCBS DATA FOR 2014.) THE READER IS ADVISED TO 

CONSULT THE 2015 MCBS DIRECTLY, WHEN THE COMPLETE SURVEY BECOMES AVAILABLE, FOR THE MOST 

CURRENT VERSION OF THESE DATA.

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

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

35 percent of Medicare spending and 25 percent of total spending on dual-eligible 

beneficiaries in 2013. In contrast, the least costly 50 percent of dual-eligible beneficiaries 

accounted for only 8 percent of Medicare spending and 22 percent of total spending on 

dual-eligible beneficiaries. 

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

in 2013 was about twice that for non-dual-eligible beneficiaries—$19,789 compared with 

$9,035, respectively (data not shown). 

8

50

22

24

30

25

34

15

28

35

5

25

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
S E C T I O N 

Quality of care in the 

Medicare program 

A Data Book: Health care spending and the Medicare program, June 2018 45

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

from 2011 to 2016 

Measure 2011 2013 2015 2016 

Discharged to the community 33.2% 37.5% 38.7% 39.5% 

Potentially avoidable readmissions 

 During SNF stay 12.4 11.1 10.4 10.8 

 During 30 days after discharge from SNF 5.9 5.5 5.0 5.8 

Rate of improvement in one or more mobility ADLs 43.6 43.8 43.6 43.6 

Rate of no decline in mobility 87.2 87.2 87.1 87.1 

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

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

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

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

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

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

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

hospital-based swing-bed units. 

Source: MedPAC analysis of Medicare claims and Minimum Data Set data for 2011–2016. 

• Rates of risk-adjusted community discharge and potentially avoidable readmission during 

the SNF stay improved between 2011 and 2016. A greater share of beneficiaries was 

discharged to the community (39.5 percent compared with 33.2 percent). A lesser share of 

beneficiaries was readmitted to an acute care hospital during the SNF stay (10.8 percent 

compared with 12.4 percent). The share of beneficiaries readmitted to an acute care 

hospital in the 30 days after discharge increased between 2015 and 2016, putting the rate 

only slightly below that in 2011. 

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

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

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

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

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

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

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

between 2011 and 2016. The mobility measures are composites of the patients’ abilities in 

bed mobility, transfer, and ambulation, and they reflect the likelihood that a patient will 

change, given his or her functional ability at admission. A facility admitting patients with 

worse prognoses will have 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. The rate of no 

decline in mobility is the share of stays with no decline in any of the three ADLs. 
46 Quality of care in the Medicare program 

Chart 5-2. Home health agencies’ performance on quality 

measures from 2013 to 2016 

Measure 2013 2014 2015 2016 

Average share of an agency’s beneficiaries who: 

Used emergency department care 11.7% 11.8% 12.2% 12.2% 

Had to be admitted to the hospital 15.6 15.2 15.5 16.2 

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

Walking 58 58 63 69 

Transferring 53 53 59 65 

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

patients. 

Source: MedPAC analysis of Outcome and Assessment Information Set data compiled by the University of Colorado. 

• The share of beneficiaries using emergency department care or being admitted to the 

hospital increased slightly from 2013 to 2016. The share of beneficiaries receiving 

emergency care did not change from 2015 to 2016. The average risk-adjusted rate of 

hospitalization for home health stays increased slightly from 15.5 percent in 2015 to 16.2 

percent in 2016. 

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

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

include home health episodes that end with a hospitalization. The scores for these 

measures increased in 2016. 

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

states in 2018. Agencies in these states will receive bonuses or penalties of up to 3 percent 

depending on their performance on 20 measures, including the functional and emergency 

department use measures listed above. 

 
A Data Book: Health care spending and the Medicare program, June 2018 47

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

the community and potentially avoidable 

rehospitalizations from 2012 to 2016 

Measure 2012 2013 2014 2015 2016 

Potentially avoidable rehospitalizations 

during IRF stay 2.6% 2.5% 2.5% 2.4% 2.5% 

Potentially avoidable rehospitalizations 

during 30 days after discharge from IRF 4.6 4.5 4.4 4.1 4.4 

Discharged to the community 75.3 75.9 76.2 76.0 76.9 

Discharged to a SNF 6.7 6.7 6.9 6.8 6.7 

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

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

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

Source: Analysis of Inpatient Rehabilitation Facility‒Patient Assessment Instruments from CMS. 

• Between 2012 and 2016, the national average rate of risk-adjusted potentially avoidable 

rehospitalizations during IRF stays declined from 2.6 percent to 2.5 percent. (Lower rates 

are better.) A similar pattern was observed in the rate of risk-adjusted potentially avoidable 

rehospitalizations within 30 days after discharge from an IRF: The national average declined 

between 2012 and 2016 from 4.6 percent to 4.4 percent. 

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

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

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

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

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

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

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

• Between 2012 and 2016, the national average for the risk-adjusted community discharge 

rate increased from 75.3 percent to 76.9 percent. (Higher rates are better). Our measure of 

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

community if the beneficiary is subsequently readmitted to an acute care hospital within 30 

days of the IRF discharge. The national risk-adjusted rate of discharge to a SNF was 

essentially unchanged. 

 
48 Quality of care in the Medicare program 

Chart 5-4. Dialysis quality of care: Some measures show 

progress, others need improvement, 2011–2015 

Outcome measure 2011 2013 2015 

Share of in-center hemodialysis patients: 

 Receiving adequate dialysis 96% 97% 97% 

 Managing anemia* 

 Mean hemoglobin <10 g/dL 14 24 26 

 Mean hemoglobin 10 to <12 g/dL 69 70 69 

 Mean hemoglobin ≥12 g/dL 16 5 5 

 Dialyzed with an AV fistula 59 62 63 

Share of peritoneal dialysis patients: 

 Receiving adequate dialysis 88 91 92 

 Managing anemia* 

 Mean hemoglobin <10 g/dL 20 32 35 

 Mean hemoglobin 10 to <12 g/dL 65 62 60 

 Mean hemoglobin ≥12 g/dL 15 6 5 

 

Share of all dialysis patients wait-listed for a kidney 18 18 16 

Renal transplant rate per 100 dialysis-patient years 3.8 3.5 3.4 

Annual mortality rate per 100 patient years* 17.8 16.7 16.6 

Total hospital admissions per patient year* 1.9 1.8 1.7 

Hospital days per patient year 12.5 11.6 11.4 

 

Note: g/dL (grams per deciliter [of blood]), AV (arteriovenous). The rate per patient year is calculated by dividing the total 

number of events by the fraction of the year that patients were followed. Data on dialysis adequacy, anemia management, 

and fistula utilization represent the share of patients meeting CMS’s clinical performance measures. The United States 

Renal Data System adjusts data by age, gender, race, and primary diagnosis of end-stage renal disease. 

 *Lower values suggest higher quality. 

Source: Compiled by MedPAC with data from Fistula First, the United States Renal Data System, and institutional outpatient files 

from CMS. 

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

performance on others remains unchanged or has declined. 

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

is removed and returned during dialysis. Between 2011 and 2015, use of arteriovenous 

fistulas, considered the best type of vascular access, increased from 59 percent to 63 percent 

of hemodialysis patients. Between 2011 and 2015, overall adjusted mortality rates decreased 

by 6.8 percent (from 17.8 percent to 16.6 percent). 

• Between 2011 and 2015, the proportion of hemodialysis patients receiving adequate dialysis 

remained high. Between 2011 and 2015, 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 2011 and 2015, the proportion of 

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

transplant rate per 100 dialysis-patient years declined. 
A Data Book: Health care spending and the Medicare program, June 2018 49

Chart 5-5. Medicare Advantage HMO quality measures for 2016 

show variation by enrollee characteristics 

Measures and beneficiary categories 

Plans reporting by 

Universe Sampling 

Colorectal cancer screening 87% 75% 

Aged, not LI 88 77 

Aged, LI 82 73 

Under 65, not LI 82 71 

Under 65, LI 76 69 

Eye exams for diabetics 85 76 

Aged, not LI 86 78 

Aged, LI 86 78 

Under 65, not LI 78 66 

Under 65, LI 80 68 

Diabetics with poor control of blood sugar* 11 18 

Aged, not LI 9 15 

Aged, LI 13 20 

Under 65, not LI 19 24 

Under 65, LI 22 30 

Medication reconciliation postdischarge 84 58 

Aged, not LI 85 61 

Aged, LI 83 57 

Under 65, not LI 77 54 

Under 65, LI 84 46 

Controlling blood pressure N/A 78 

Aged, not LI -- 80 

Aged, LI -- 74 

Under 65, not LI -- 75 

Under 65, LI -- 68 

Breast cancer screening 79 N/A 

Aged, not LI 81 --

Aged, LI 74 --

Under 65, not LI 76 --

Under 65, LI 73 --

Osteoporosis management* 48 N/A 

Not LI 51 --

LI 42 --

Note: HMO (health maintenance organization) LI (low income), N/A (not applicable). Reported results are for the 2016 “measurement 

year,” or period of performance. See accompanying text for the difference between “universe” and “sampling” results. An 

enrollee is classified as low income if, for at least one month of the year, the person was receiving the Part D low-income 

subsidy or was dually eligible for Medicare and Medicaid. Beneficiaries under age 65 are entitled to Medicare on the basis of 

disability (including those entitled because they have end-stage renal disease). Data exclude cost-reimbursed plans, regional 

preferred provider organizations, private fee-for-service plans, Medicare–Medicaid demonstration plans, and plans in 

Puerto Rico (because of our inability to identify the low-income status of beneficiaries in the Commonwealth). 

*For the measure of diabetics with poor control of blood sugar, lower rates are better. Osteoporosis management measure 

applies to women ages 67 to 85 who suffered a fracture, so results are not presented for the under-65 population. 

Source: MedPAC analysis of CMS Healthcare Effectiveness Data and Information Set® (HEDIS®) person-level data, denominator 

file, and common Medicare environment file. 

(Chart continued next pages) 
50 Quality of care in the Medicare program 

Chart 5-5. Medicare Advantage HMO quality measures for 2016 

show variation by enrollee characteristics 

(continued) 

• The chart provides information on a set of HEDIS clinical quality measures that Medicare 

Advantage (MA) HMOs report to CMS. The seven measures listed are a subset of the 

measures CMS uses to calculate the plans’ star ratings that determine MA quality bonus 

payments. The values reported in this chart are based on our analyses of enrollee-level 

HEDIS data rather than contract-level summary reporting used in past versions of this Data 

Book. As explained in the Commission’s March 2018 report to the Congress, it is likely that 

contract-level values for some measures have become less representative of the actual 

performance across different geographic areas because of the extent of contract 

consolidations that result in contracts covering wide, noncontiguous geographic areas. 

Contract consolidations also prevent us from being able to report year-over-year changes 

for MA. 

• HEDIS uses different reporting methods for certain measures, referred to in the chart as 

“universe” and “sampling.” For the first four measures displayed in the chart, MA 

organizations can choose to report values for the universe of enrollees to whom a measure 

applies using administrative data (including information from electronic medical records) or 

they can opt to report values for a sampling of medical records (generally 411 records per 

MA contract). For the blood pressure control measure, all organizations must use medical 

record sampling. For the last two measures on the chart, all plans report on a universe 

basis. 

• For plans reporting by universe, the chart shows the aggregate average share of enrollees 

across all such plans; the numerator for the measure is the total number, across all HMO 

plans, of enrollees receiving a screening (for example), divided by the total number of 

enrollees across all HMO plans who are eligible for the screening. For the sampling 

category, the chart shows the enrollment-weighted average of the rates for each contract for 

each of the population categories. Because samples are drawn at the contract level, we use 

the contract-level data for each population category as the weighting factor. Because of 

contract consolidations, and because values for the population groups shown in the chart 

are based on a subset of a sample in each contract, the results for sampling plans may not 

fully capture differences among plans in the quality of care for the subpopulations. 

• When universe reporting is an option, our analysis found that only a small number of 

organizations report values for the universe of enrollees. For example, only 5 contracts 

report on a universe basis for the measure of diabetics with poor control of blood sugar, out 

of 302 HMO contracts reporting on the measure. However, universe-reporting plans tend to 

be large, so the five universe-reporting plans for this measure represented about 10 percent 

of MA HMO enrollment in 2016. Four of the five universe-reporting contracts have the 

maximum overall-quality star rating of five stars. 

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2018 51

Chart 5-5. Medicare Advantage HMO quality measures for 2016 

show variation by enrollee characteristics 

(continued) 

• Although the universe-reporting plans represent a smaller share of enrollees, we found that 

they tend to have better quality rates on all four of the measures where universe reporting is 

optional. For example, the average aggregate colorectal cancer screening rate for universereporting plans is 87 percent compared with 75 percent for sampling plans (a 12 percentage 

point difference). Medication reconciliation postdischarge is 84 percent for universereporting plans compared with 58 percent for sampling (a 26 percentage point difference). 

• Our analysis found some large differences in results based on age. The under-65 population 

was less likely to receive colorectal cancer screening, eye exams for diabetic enrollees, 

postdischarge medication reconciliation, and breast cancer screening. Diabetic enrollees 

under 65 were much more likely to have poor control of blood sugar than aged diabetics. 

Poor rates of control were about 1.5 to about 2 times higher for the under-65 population 

regardless of income for both types of reporting plans. 

• Large differences were observed in results by income status for some of the measures. For 

example, among low-income enrollees, the osteoporosis management rate was 42 percent 

compared with 51 percent for non-low-income enrollees (a difference of 9 percentage 

points). For the aged population, the rate for control of high blood pressure was 74 percent 

compared with 80 percent for non-low-income enrollees (a difference of 6 percentage 

points). For the controlling blood pressure measure, there was a difference of 7 percentage 

points in the under-65 population between low-income and non-low-income enrollees. For 

two measures, however—eye exams for diabetics and (for universe-reporting plans) 

medication reconciliation—results were better for those with low income among the under65 enrollees. 

• In determining star ratings, CMS makes an adjustment for measures for which there are 

systematic cross-contract and within-contract differences across population groups based 

on disability status and low-income status. 
52 Quality of care in the Medicare program 

Chart 5-6. Between 34 and 72 low-value services provided per 

100 FFS beneficiaries in 2014; Medicare spent 

between $2.4 billion and $6.5 billion on these services 

Measure 

Broader version of measure Narrower version of measure 

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% $232 3.4 3.1% $66 

PSA screening at age ≥75 years 9.0 6.2 79 5.1 4.2 44 

Colon cancer screening 

for older adults 8.0 7.5 405 0.3 0.3 3 

Spinal injection for low back pain 6.6 3.3 1,261 3.4 2.0 643 

Carotid artery disease screening in 

asymptomatic adults 5.1 4.6 268 4.2 3.8 221 

Preoperative chest radiography 4.6 4.1 67 1.1 1.1 17 

PTH testing in early CKD 4.5 2.6 83 3.9 2.3 71 

Stress testing for stable 

coronary disease 4.3 4.1 1,198 0.5 0.5 137 

T3 level testing for patients with 

hypothyroidism 3.8 2.2 23 3.8 2.2 23 

Head imaging for headache 3.6 3.3 242 2.4 2.2 160 

Cervical cancer screening at 

age >65 years 2.2 2.2 44 1.9 1.9 39 

Homocysteine testing in 

cardiovascular disease 1.5 1.2 12 0.4 0.3 3 

Head imaging for syncope 1.2 1.1 78 0.8 0.7 51 

Preoperative echocardiography 0.8 0.8 62 0.2 0.2 19 

Preoperative stress testing 0.6 0.6 177 0.2 0.2 60 

Screening for carotid artery disease 

for syncope 0.6 0.6 33 0.4 0.4 23 

CT for rhinosinusitis 0.6 0.5 39 0.2 0.2 17 

Vitamin D testing in absence of 

hypercalcemia or decreased kidney 

function 0.5 0.4 8 0.5 0.4 8 

Imaging for plantar fasciitis 0.5 0.4 9 0.4 0.3 6 

BMD testing at frequent intervals 0.4 0.4 9 0.3 0.3 6 

Cancer screening for patients with CKD 

on dialysis 0.4 0.3 9 0.1 0.1 1 

PCI/stenting for stable 

coronary disease 0.3 0.3 1,284 0.1 0.1 216 

Arthroscopic surgery for knee 

osteoarthritis 0.2 0.2 204 0.1 0.1 108 

Vertebroplasty 0.2 0.2 338 0.2 0.2 327 

Preoperative PFT 0.2 0.2 2 0.1 0.1 1 

Hypercoagulability testing after DVT 0.2 0.1 5 0.1 0.1 2 

IVC filter placement 0.1 0.1 33 0.1 0.1 33 

Carotid endarterectomy for 

asymptomatic patients 0.1 0.1 165 0.03 0.03 66 

EEG for headache 0.1 0.1 4 0.04 0.04 2 

Renal artery stenting 0.1 0.1 152 0.02 0.02 51 

Pulmonary artery catheterization in ICU 0.01 0.01 0.2 0.01 0.01 0.2 

Total 72.2 37.4 6,526 34.2 22.5 2,425 

(Chart continued next page) 
A Data Book: Health care spending and the Medicare program, June 2018 53

Chart 5-6. Between 34 and 72 low-value services provided per 

100 FFS beneficiaries in 2014; Medicare spent 

between $2.4 billion and $6.5 billion on these services 

(continued) 

Note: FFS (fee-for-service), PSA (prostate-specific antigen), PTH (parathyroid hormone), CKD (chronic kidney disease), CT 

(computed tomography), BMD (bone mineral density), PCI (percutaneous coronary intervention), PFT (pulmonary function 

test), DVT (deep vein thrombosis), IVC (inferior vena cava), EEG (electroencephalography), ICU (intensive care unit). 

“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 services covered by multiple 

measures. “Spending” includes Medicare Part A and Part B program spending and beneficiary cost sharing for services 

detected by measures of low-value care. Spending is based on a standardized price for each service from 2009 that was 

updated to 2014. 

Source: MedPAC analysis of 100 percent of Medicare claims using measures developed by Schwartz and colleagues (Schwartz, 

A. L., B. E. Landon, A. G. Elshaug, et al. 2014. Measuring low-value care in Medicare. JAMA Internal Medicine 174: 

1067–1076; Schwartz, A. L., M. E. Chernew, B. E. Landon, et al. 2015. Changes in low-value services in year 1 of the 

Medicare Pioneer Accountable Care Organization Program. JAMA Internal Medicine 175: 1815–1825). 

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

which the risk of harm from the service outweighs its potential benefit. 

• The 31 measures of low-value care in this chart were developed by a team of researchers. 

The measures are drawn from evidence-based lists—such as Choosing Wisely—and the 

medical literature. We applied these measures to 100 percent of Medicare claims data from 

2014. These 31 measures do not represent all instances of low-value care; the actual 

number (and corresponding spending) may be much higher. 

• The researchers developed two versions of each measure: a broader version (more 

sensitive, less specific) and a narrower version (less sensitive, more specific). Increasing the 

sensitivity of a measure captures more potentially inappropriate use but is also 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 instances of inappropriate use. 

• Based on the broader versions of the measures, our analysis found about 72 instances of 

low-value care per 100 beneficiaries in 2014, and about 37 percent of beneficiaries received 

at least 1 low-value service. Medicare spending for these services was $6.5 billion. Based 

on the narrower versions of the measures, our analysis showed about 34 instances of lowvalue care per 100 beneficiaries, and almost 23 percent of beneficiaries received at least 1 

low-value service. Medicare spending for these services totaled about $2.4 billion. 
54 Quality of care in the Medicare program 

Chart 5-7. Imaging and cancer screening accounted for most of 

the volume of low-value care in 2014 

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

Source: MedPAC analysis of 100 percent of Medicare claims using measures developed by Schwartz and colleagues (Schwartz, 

A. L., B. E. Landon, A. G. Elshaug, et al. 2014. Measuring low-value care in Medicare. JAMA Internal Medicine 174: 

1067–1076; Schwartz, A. L., M. E. Chernew, B. E. Landon, et al. 2015. Changes in low-value services in year 1 of the 

Medicare Pioneer Accountable Care Organization Program. JAMA Internal Medicine 175: 1815–1825). 

• We assigned each of the 31 measures of low-value care from Chart 5-6 to 1 of 6 clinical 

categories. 

• Imaging and cancer screening accounted for 60 percent of the volume of low-value care per 

100 beneficiaries among the broader 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 adults. The cancer screening category includes prostatespecific antigen testing for men ages 75 or older and colorectal cancer screening for older 

adults. 

• Among the narrower versions of the measures, imaging and diagnostic and preventive 

testing accounted for 61 percent of the volume of low-value care per 100 beneficiaries. 

0

10

20

30

40

50

60

70

80

Broader measures Narrower measures

Count per 100 beneficiaries

Cardiovascular testing and procedures

Preoperative testing

Other surgical procedures

Diagnostic and preventive testing

Cancer screening

Imaging

Total: 72

Total: 34
A Data Book: Health care spending and the Medicare program, June 2018 55

Chart 5-8. Cardiovascular testing and procedures, other 

surgical procedures, and imaging accounted for 

most of spending on low-value care in 2014 

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 amount per service in 2009, adjusted for the increase in 

payment rates between 2009 and 2014. This method was developed by Schwartz et al. (2014). 

Source: MedPAC analysis of 100 percent of Medicare claims using measures developed by Schwartz and colleagues (Schwartz, 

A. L., B. E. Landon, A. G. Elshaug, et al. 2014. Measuring low-value care in Medicare. JAMA Internal Medicine 174: 

1067–1076; Schwartz, A. L., M. E. Chernew, B. E. Landon, et al. 2015. Changes in low-value services in year 1 of the 

Medicare Pioneer Accountable Care Organization Program. JAMA Internal Medicine 175: 1815–1825). 

• Cardiovascular testing and procedures and other surgical procedures accounted for 71 percent 

of total spending on low-value care using the broader measures. Other surgical procedures and 

imaging made up two-thirds of spending on low-value care using the narrower 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 “other surgical procedures” category includes spinal injection for 

low back pain and arthroscopic surgery for knee osteoarthritis. The “imaging” category includes 

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

asymptomatic adults. 

• The spending estimates probably understate actual spending on low-value care because they do 

not include the cost of downstream services (e.g., follow-up tests and procedures) that may 

result from the initial low-value service. Also, we are not capturing all low-value care through 

these 31 measures. 

0

1

2

3

4

5

6

7

Broader measures Narrower measures

Medicare spending (in billions of dollars)

Cardiovascular testing and procedures

Preoperative testing

Other surgical procedures

Diagnostic and preventive testing

Cancer screening

Imaging

Total: $6.5

Total: $2.4

 

S E C T I O N 

Acute inpatient services 

Short-term hospitals 

Inpatient psychiatric facilities 

A Data Book: Health care spending and the Medicare program, June 2018 59

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

participating in the Medicare program, 2010–2016 

 

Note: “Hospitals” refers 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 2016, with 21 acute 

care hospitals closing (less than 1 percent of all acute care hospitals participating in the 

Medicare program) and 11 hospitals starting participation in the Medicare program. 

• In 2016, rural hospital closures accounted for over half of all hospital closures. A dozen or 

more rural hospitals have closed in each of the four most recent years (2013 to 2016). Rural 

hospital closures could in part reflect declining inpatient volume at many rural hospitals. 

• In 2016, 4,585 acute care hospitals submitted claims to Medicare for inpatient services (data 

not shown). 

 

3

6 7

12

13

13

15

29

14

17

14

9

13

11 11

16

22

30

24

28

21

0

5

10

15

20

25

30

35

2010 2011 2012 2013 2014 2015 2016

Number of hospitals

Rural closed hospitals All newly opened hospitals All closed hospitals
60 Acute inpatient services

Chart 6-2. Percent change in hospital employment, 2015‒2017 

Note: “Total non-farm employment” is defined as all employment not of or relating to farms or farming. 

Source: MedPAC analysis of Bureau of Labor Statistics, Current Employment Statistics data set as of December 2017. 

• The Bureau of Labor Statistics survey of current employment data indicates that the number 

of individuals directly employed within the hospital industry increased 3.9 percent from 

October 2015 to October 2017. Employment in the rest of the health care sector increased 

4.4 percent, and employment across the rest of the economy (non-farm minus health care) 

increased 3.1 percent. 

• In the most recent year (from 2016 to 2017), hospital employment increased 1.4 percent, the 

rest of the health care sector increased 2.2 percent, and employment across the rest of the 

economy (non-farm minus health care) increased 1.3 percent. 

• From 2015 to 2017, the number of hospital staff in health care clinical and technical 

occupations overall increased 6 percent (data not shown). Within this category, larger than 

average increases occurred for physician assistants (20 percent); pharmacists (9 percent); 

diagnostic-related technologists (7 percent); and registered nurses (6 percent). Licensed 

practical nurses/licensed vocational nurses were among the few occupations in this 

category with a decline in employment (‒4 percent). 

• From 2015 to 2017, the number of hospital staff in nonclinical occupations increased for just 

a few occupational categories: life and physical science research (18 percent); computer 

and math science (9 percent); and business and finance (7 percent) (data not shown). By 

contrast, growth in the number of employed individuals was lower than average in 

nonclinical occupational categories such as building and grounds (2 percent); management 

(1 percent); and food service (‒1 percent). Some of these functions may have been 

outsourced in recent years. 

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

Oct-15

Nov-15Dec-15

Jan-16

Feb-16Mar-16

Apr-16

May-16

Jun-16

Jul-16

Aug-16Sep-16

Oct-16

Nov-16Dec-16

Jan-17

Feb-17Mar-17

Apr-17

May-17

Jun-17

Jul-17

Aug-17Sep-17

Oct-17

Percent change

Total non-farm employment, excluding health care

Health care employment, excluding hospitals

Hospital employment 4.4%

3.1%

3.9%
A Data Book: Health care spending and the Medicare program, June 2018 61

Chart 6-3. Growth in Medicare’s FFS payments for hospital 

inpatient and outpatient services, 2006–2016 

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 through end-stage renal disease. 

Source: CMS, Office of the Actuary. 

• Aggregate Medicare FFS inpatient spending was $155 billion and outpatient spending was 

$60 billion in 2016. From 2015 to 2016, inpatient spending increased 3.3 percent, while 

outpatient spending increased nearly 7.1 percent. 

• Inpatient spending increased as much between 2015 and 2016 ($5 billion) as it did between 

2011 and 2015. 

• Outpatient spending has increased as a share of total Medicare hospital spending in the 

past 10 years. In 2006, outpatient spending accounted for almost 18 percent of all Medicare 

spending for hospital services; in 2016, outpatient spending grew to almost 28 percent of 

total Medicare hospital spending. 

135 136 139 141 143 145 145 147 147 150 155

29 31 32 34 37 40 43 46 52 56 60

0

50

100

150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Billions of dollars

Calendar year

Inpatient

Outpatient
62 Acute inpatient services

Chart 6-4. Share of Medicare acute care hospital inpatient 

discharges by hospital group, 2016 

 Hospitals Medicare discharges 

 Share of Number Share of 

Hospital group Number total (thousands) total 

 

All PPS and CAHs 4,583 100% 9,488 100% 

CAHs 1,345 29.4 309 3.3 

PPS hospitals 3,238 70.7 9,179 96.7 

Urban (PPS only) 2,431 53.0 8,225 86.7 

 Large urban 1,298 28.3 4,276 45.1 

 Other urban 1,115 24.3 3,922 41.3 

Rural (PPS only) 807 17.6 954 10.1 

 Rural referral 92 2.0 226 2.4 

 Sole community 363 7.9 476 5.0 

 Medicare dependent 157 3.4 126 1.3 

 Other rural, <50 beds 112 2.4 44 0.5 

 Other rural, ≥50 beds 101 2.2 108 1.1 

Tax status (PPS only) 

 Voluntary 1,876 40.9 6,440 67.9 

 Proprietary 857 18.7 1,653 17.4 

 Government 505 11.0 1,084 11.4 

Teaching status (PPS only) 

 Major teaching 307 6.7 1,663 17.5 

 Other teaching 769 16.8 3,565 37.6 

 Nonteaching 2,162 47.2 3,950 41.6 

 

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 interns and residents 

to beds of at least 0.25. Other teaching hospitals have a ratio below 0.25. Data are limited to providers with complete 

2016 cost reports. Hospitals in urban, rural, tax status, and teaching status categories are all PPS hospitals. Components 

may not sum to totals due to rounding. The “Medicare dependent” hospital category includes 18 urban facilities located 

within metropolitan statistical areas. These 18 facilities are included in the “Medicare dependent” category but excluded 

from the “Rural (PPS only)” category, resulting in the rural subcategories not summing to the rural totals. 

Source: MedPAC analysis of PPS impact files and Medicare cost report data from CMS. 

• In 2016, 3,238 hospitals provided almost 9.2 million discharges under Medicare’s acute inpatient 

PPS, and 1,345 CAHs provided 309,000 discharges. The number of discharges declined from 2015 

to 2016 at both PPS hospitals and CAHs (data not shown). 

• Approximately 19 percent of PPS hospitals were covered by three special payment provisions (rural 

referral centers (RRCs), sole community hospitals (SCHs), and Medicare-dependent hospitals 

(MDHs)) intended to help rural facilities that are not CAHs; these facilities accounted for 9 percent of 

all discharges. 

• About 91 percent of rural hospitals were paid through the CAH, RRC, or SCH provisions or MDH 

Program in 2016. Collectively, these four types of hospitals accounted for 90 percent of all rural 

Medicare discharges. 
A Data Book: Health care spending and the Medicare program, June 2018 63

Chart 6-5. Change in share of discharges by major diagnostic 

category, 2006 to 2016 

 Share of Share of Percentage 

MDC all discharges all discharges point 

number MDC name 2006 2016 change 

 5 Circulatory system 27% 20% –7 

 8 Musculoskeletal system 12 14 2 

 4 Respiratory system 14 13 –1 

 6 Digestive system 11 10 –1 

 18 Infectious and parasitic diseases 4 9 5 

 1 Nervous system 8 8 0 

 11 Kidney and urinary tract 6 8 2 

 10 Endocrine, nutritional and metabolic 4 4 0 

 7 Hepatobiliary system and pancreas 3 3 0 

 9 Skin, subcutaneous tissue and breast 3 3 0 

 Total 92 92 0 

Note: MDC (major diagnostic category). 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• In 2016 (and 2006), 10 major diagnostic categories accounted for 92 percent of all 

discharges from hospitals paid under the inpatient prospective payment system. 

• Circulatory system discharges accounted for one-fifth of all inpatient discharges in 2016, a 

decline of 7 percentage points from 2006. 

• Musculoskeletal system discharges accounted for 14 percent of all inpatient discharges in 

2016, up 2 percentage points from 2006. This increase is due to growth in the number of 

discharges for major joint replacement surgery. 

• Infectious and parasitic disease discharges accounted for 9 percent of all inpatient 

discharges in 2016, up 5 percentage points from 2006. 
64 Acute inpatient services

Chart 6-6. Cumulative change in all-payer hospital outpatient 

visits and inpatient admissions, 2006–2016 

Note: Cumulative change is the total percentage change from 2006 through 2016. Data are admissions to and outpatient visits 

at about 5,000 community hospitals. Inpatient data exclude separate nursing home units. 

Source: American Hospital Association, AHA Hospital Statistics. 

• In 2016, community hospitals provided a total of nearly 747 million outpatient visits and 33 

million inpatient admissions across all patients (data not shown). 

• All-payer hospital outpatient service use grew rapidly between 2006 and 2016, while 

inpatient service use declined overall. From 2006 to 2016, the number of outpatient visits 

increased about 25 percent. By contrast, over the same period, the number of all-payer 

inpatient admissions declined more than 5 percent. 

• All-payer outpatient and inpatient service use both increased from 2014 to 2016. Over this 

period, the number of outpatient visits increased by 9.0 percentage points, the most rapid 

growth observed in over a decade. Over the same period, the number of inpatient 

admissions increased 1.1 percentage points. 

0.0 0.0

1.2 0.6 -0.5 -1.3 -2.5

-4.8

-6.3 -5.7 -5.2

0.0 0.6

4.1

7.1

8.7 9.4

12.6 13.1

15.6

20.4

24.6

-10

-5

0

5

10

15

20

25

30

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cumulative percent change

Fiscal year

Total inpatient admissions

Total outpatient visits
A Data Book: Health care spending and the Medicare program, June 2018 65

Chart 6-7. Cumulative change in Medicare outpatient visits 

 and inpatient discharges per FFS beneficiary, 

2006–2016 

Note: FFS (fee-for-service). Data are for short-term general and surgical hospitals, including critical access and children’s 

hospitals. Years for outpatient visits are calendar years, and years for inpatient discharges are fiscal years. 

Source: MedPAC analysis of Medicare Provider Analysis and Review and hospital outpatient claims data from CMS. 

• In 2016, Medicare accounted for approximately 53 million outpatient visits and 10 million 

inpatient admissions (data not shown). 

• From 2006 to 2016, the number of Medicare outpatient visits per FFS beneficiary increased 

49.0 percent. By contrast, over the same period, the number of Medicare inpatient 

admissions per FFS beneficiary declined nearly 22 percent. 

• Together, these two trends suggest a shift in services from the inpatient to the outpatient 

setting. The growth in outpatient services also reflects a shift in some services from those 

provided in physician offices to those being billed as outpatient hospital services. 

• From 2015 to 2016, the number of Medicare outpatient services per FFS beneficiary 

increased 1.6 percentage points, and Medicare inpatient discharges per FFS beneficiary 

declined 2.3 percentage points. Compared with growth in recent prior years, outpatient visits 

increased slightly more slowly and inpatient discharges continued to decline. 

-0.9 -2.0

-5.7 -8.1 -10.0

-13.9

-16.9

-19.8 -19.5 -21.8

0

5.8

9.3

14.2

19.2

25.4

32.1

39.1

44.2

47.4 49.0

-30

-20

-10

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cumulative percent change

Year

Inpatient discharges per FFS Part A beneficiary

Outpatient visits per FFS Part B beneficiary
66 Acute inpatient services

Chart 6-8. Trends in medical and surgical inpatient discharges 

per beneficiary diverged, 2006–2016 

Note: Data are for short-term general and surgical hospitals, including critical access hospitals and children’s hospitals. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• From 2006 to 2016, the volume of medical and surgical inpatient discharges per FFS 

beneficiary declined nearly 21 percent and 23 percent, respectively. 

• From 2015 to 2016, the volume of surgical discharges increased 4.3 percent per beneficiary 

(data not shown) and 3.1 percentage points relative to cumulative change over the last 

decade. This increase is in part attributable to growth in the number of major joint 

replacement surgeries, infectious and disease surgeries, and stomach or esophageal 

surgeries. 

• From 2015 to 2016, the volume of medical discharges declined 5.2 percent per beneficiary 

(data not shown) and 4.4 percentage points relative to cumulative change over the last 

decade. This decrease is in part attributable to a decline in the number of admissions for 

respiratory diagnoses such as pneumonia and chronic obstructive pulmonary disease and 

admissions for various types of circulatory system diagnoses. 

• The increase in surgical discharges from 2015 to 2016 relative to medical discharges 

resulted in an increase in the overall average patient case mix for Medicare inpatient 

discharges of 3.4 percent, the largest increase in case mix observed in the last decade (data 

not shown). 

-16.1

-20.5

-26.1

-23.0

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cummulative percent change

Fiscal year

Medical discharges per beneficiary

Surgical discharges per beneficiary
A Data Book: Health care spending and the Medicare program, June 2018 67

Chart 6-9. Trends in Medicare FFS and non-Medicare inpatient 

length of stay, 2006–2016 

Note: FFS (fee-for-service). Length of stay is calculated from discharges and patient days for more than 3,000 hospitals covered 

by the acute inpatient prospective payment system. The chart excludes critical access hospitals. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• In 2016, the average length of inpatient stays for Medicare beneficiaries was approximately 

one-half a day longer than for non-Medicare inpatients. In 2006, the difference was more 

than a full day. 

• The average length of inpatient stays for Medicare beneficiaries declined slightly between 

2015 and 2016. 

• While Medicare length of stay fell between 2006 and 2016, the average length of stay for 

non-Medicare inpatients increased. Between 2006 and 2016, Medicare inpatient length of 

stay fell 9.3 percent, and the inpatient length of stay for all non-Medicare inpatients 

increased 3.3 percent. 

4.94 4.92 4.89 4.80 4.72 4.71 4.65 4.63 4.57 4.56 4.48

3.91 3.92 3.96 3.95 3.90 3.89 3.88 3.93 4.02 4.04 4.04

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Inpatient days

Fiscal year

Medicare beneficiaries

Non-Medicare inpatients
68 Acute inpatient services

Chart 6-10. Hospital emergency department use per Medicare 

FFS beneficiary increased, 2010–2016 

Note: FFS (fee-for-service), ED (emergency department). Years for outpatient ED visits are calendar years, and years for 

inpatient ED visits are fiscal years. 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. 

• In 2016, Medicare FFS beneficiaries accounted for 28 million visits to hospital emergency 

departments (EDs). Among these ED visits, 19 million were outpatient ED visits—those that 

did not result in an inpatient admission—and 10 million were inpatient ED visits—those that 

resulted in an inpatient admission (data not shown). 

• From 2010 to 2016 the number of outpatient ED visits per 1,000 FFS beneficiaries 

increased from 431 to 483, or 12 percent. 

• From 2010 to 2016, the number of ED visits resulting in inpatient admissions per 1,000 FFS 

beneficiaries increased from 256 to 265, or less than 4 percent. 

• From 2010 to 2016, the number of outpatient ED visits billed at the highest of the five ED 

payment levels (Level 5) increased as a share of all ED visits, climbing from 19 percent to 

27 percent of all Medicare ED visits. By contrast, during the same period, ED visits coded in 

the three lowest ED payment levels declined as a share of all Medicare ED visits. For 

example, the share of Level 3 ED visits declined as a share of all ED visits from 33 percent 

to 28 percent (data not shown). 

431 445 460 456 466 479 483

256 267 269 267 264 269 265

0

100

200

300

400

500

2010 2011 2012 2013 2014 2015 2016

ED visits per 1,000 FFS beneficiaries

Year

Outpatient ED visits ED visits resulting in an inpatient admission
A Data Book: Health care spending and the Medicare program, June 2018 69

Chart 6-11. Share of Medicare Part A fee-for-service 

 beneficiaries with at least one hospitalization, 

2006–2016 

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. 

• From 2006 to 2016, the share of Medicare fee-for-service beneficiaries with Part A coverage 

who had at least one inpatient hospitalization declined 5 percentage points, from more than 

23.4 percent of beneficiaries to 18.4 percent of beneficiaries. 

• From 2015 to 2016, the share of Medicare fee-for-service beneficiaries with Part A coverage 

who had at least one inpatient hospitalization slightly decreased. 

• Medicare fee-for-service beneficiaries with Part A coverage who used inpatient hospital 

services in 2016 had an average of 1.68 inpatient claims over the course of the year, slightly 

decreasing from the previous year (data not shown). 

• A portion of the long-term decline in beneficiaries’ utilization of inpatient services could 

reflect the increase in the number of cases in which beneficiaries are served in outpatient 

observation status (see Chart 6-12). 

23.4% 22.9% 22.6%

21.8% 21.5% 21.2%

20.2% 19.7%

19.0% 19.0%

18.4%

10%

12%

14%

16%

18%

20%

22%

24%

26%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percent

Fiscal year
70 Acute inpatient services

Chart 6-12. Number of Medicare FFS outpatient observation 

visits per 1,000 beneficiaries relative to short 

inpatient stays, 2010 to 2016 

Note: FFS (fee-for-service). Years for outpatient visits are calendar years, and years for inpatient stays are fiscal years. 

Source: Medicare hospital cost reports and Medicare outpatient claims data. 

• In 2016, Medicare beneficiaries had approximately 2 million outpatient observation visits 

(data not shown). 

• From 2010 to 2016, the number of outpatient observation visits per 1,000 beneficiaries 

increased by 17 visits, similar to the combined decline in inpatient discharges lasting 

between 1 and 3 days (20 fewer discharges per 1,000 beneficiaries between 2010 and 

2016). This finding suggests that outpatient observation visits may account for a portion of 

the decline in short inpatient discharges. 

• In 2016, the average length of an outpatient observation visit was 28 hours (data not 

shown). 

• In 2016, nearly 250,000 outpatient observation visits were 48 hours or longer, representing 

approximately 12 percent of all observation stays (data not shown). 

43 46

52 54 57 59 60

150

145

137 133 130 131 130

0

20

40

60

80

100

120

140

160

180

2010 2011 2012 2013 2014 2015 2016

Stays or visits per 1,000 beneficiaries

Year

Outpatient observation visits Inpatient stays of 1 to 3 days
A Data Book: Health care spending and the Medicare program, June 2018 71

Chart 6-13. Hospital patient experience measures, 2012‒2016 

H‒CAHPS® measure 2012 2013 2014 2015 2016 

Percentage point 

change, 

2012−2016 

Hospital rating 70% 71% 71% 72% 73% 3 

Communication with nurses 78 79 79 80 80 2 

Communication with doctors 81 82 82 82 82 1 

Responsiveness of hospital staff 67 68 68 68 69 2 

Communication about medicines 64 64 65 65 65 1 

Cleanliness of hospital environment 73 74 74 74 75 2 

Quietness of hospital environment 60 61 62 62 63 3 

Discharge information 85 86 86 87 87 2 

Recommend the hospital 71 71 71 72 72 1 

Care transition* — 51 52 52 52 — 

Note: H‒CAHPS® (Hospital Consumer Assessment of Healthcare Providers and Systems®). H‒CAHPS is a standardized 32-item 

survey of patients' evaluations of hospital care. The survey items are combined to calculate measures of patient experience for

each hospital. The H‒CAHPS measures included in the table are “top-box,” or the most positive, response to H‒CAHPS 

survey items. The top-box response is “Always” for four H‒CAHPS composite measures (communication with nurses, 

communication with doctors, responsiveness of hospital staff, and communication about medicines) and two individual items 

(cleanliness of hospital environment and quietness of hospital environment), “Yes” for the discharge information composite, “‘9’ 

or ‘10’ (high)” for the hospital rating item, “Definitely yes” for the recommend the hospital item, and “Strongly agree” for the care 

transition composite. Each year’s results are based on a sample of hospital surveys of their patients from January to 

December. About 4,239 hospitals are included, and, on average, these hospitals had patient-level survey response rates of 28 

percent. 

 *The care transition measure was added to the H‒CAHPS survey in 2013, and CMS began publicly reporting it in 2014. 

Source: CMS summary of H‒CAHPS public report of survey results tables. 

• In 2008, CMS began publicly reporting H‒CAHPS results on the Hospital Compare 

website. In 2013, Medicare began the value-based purchasing program, which makes 

incentive payments to hospitals based on the outcomes of certain quality measures. This 

program incorporates results from H‒CAHPS. 

• The share of patients who rated their hospital a 9 or 10 on a 10-point scale increased from 

70 percent in 2012 to 73 percent in 2016. 

• All nine hospital patient experience measures improved from 2012 to 2016. Two of the 

measures (hospital rating, quietness of hospital environment) improved by 3 percentage 

points. 
72 Acute inpatient services

Chart 6-14. Risk-adjusted readmission rates fell after passage of 

the Hospital Readmissions Reduction Program 

Note: HRRP (Hospital Readmissions Reduction Program), PPACA (Patient Protection and Affordable Care Act of 2010), AMI 

(acute myocardial infarction), COPD (chronic obstructive pulmonary disease). The pneumonia measure reflects the 

expanded definition used starting in fiscal year 2016, which includes simple pneumonia, aspiration pneumonia, and sepsis 

with pneumonia as a secondary diagnosis. 

Source: MedPAC analysis of 2008 through 2016 Medicare claims files for Medicare FFS beneficiaries age 65 or older. 

• The Congress enacted the HRRP in 2010, with penalties for hospitals that have aboveaverage readmission rates for select conditions starting in 2013. 

• Rates of unplanned readmissions declined across all conditions between 2010 and 2016. 

Rates declined faster for conditions covered by the HRRP program than other conditions. 

• The Commission’s June 2018 report to the Congress presents data showing that the HRRP 

contributed to a significant decline in readmission rates without causing a material increase 

in emergency department visits, a material increase in observation stays, or a net adverse 

effect on mortality rates. 

24.8

24.0

22.7

21.9

21.1 21.3

20.1

21.9 21.4 20.5

19.6 19.0 19.1

18.0

20.0

19.2

18.2

17.4 16.5 16.5 15.5

19.7

19.0

18.1

17.4 17.0 16.7

16.0

17.5

16.8

16.0 15.4 15.0 15.0

14.2

6.0 5.7 5.6 5.3 5.2 4.8 4.5 4.5 4.2

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2008 2009 2010 2011 2012 2013 2014 2015 2016

Readmission rate (percent)

Fiscal year

Heart failure COPD

AMI Pneumonia

Non-HRRP conditions Hip and knee replacement

No HRRP PPACA passes HRRP penalties
A Data Book: Health care spending and the Medicare program, June 2018 73

Chart 6-15. Hospital occupancy rates, 2006–2016 

Note: “Hospital occupancy rates” were defined as total bed days (including swing bed days) and observation bed days used, 

minus nursery bed days used, divided by total bed days available. 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. 

From 2006 to 2014, occupancy rates declined slowly, by 3 percentage points, but between 

2015 and 2016, occupancy rates remained stable at 62 percent. 

• Occupancy rates are generally higher for urban than rural hospitals. In 2016, the aggregate 

occupancy rate for urban hospitals was 66 percent, and the aggregate occupancy rate for 

rural hospitals was 40 percent. 

• The decline in occupancy rates from 2006 to 2016 has been greater for rural hospitals than 

for urban hospitals. During this period, rural occupancy rates declined about 7 percentage 

points, whereas urban occupancy rates declined 1 percentage point. 

 

67 67 67 66 65 65 64 64 64 66 66

47 47 47 46 44 44 42 41 41 41 40

64 64 64 63 62 62 61 61 61 62 62

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Occupancy rate (percent)

Fiscal year

Urban

Rural

All hospitals
74 Acute inpatient services

Chart 6-16. Medicare inpatient payments, by source and PPS 

hospital group, 2016 

 Share of total payments 

 

 Additional Total 

 rural payments 

Hospital group Base IME DSH UC Outlier hospital* (millions) 

All PPS hospitals 80.9% 5.5% 2.6% 5.5% 3.9% 1.5% $116,322 

 

Urban IPPS 80.8 5.9 2.8 5.7 4.21 0.7 107,299 

Rural IPPS 81.7 0.9 1.0 3.3 1.2 11.8 9,023 

 

Large urban 79.4 7.0 2.9 6.1 4.6 0.0 58,828 

Other urban 82.6 4.6 2.6 5.1 3.6 1.4 48,438 

Rural referral 88.8 0.9 2.1 5.3 2.1 0.7 2,218 

SCH (federal rate) 82.3 4.3 1.4 6.9 2.6 2.6 1,113 

SCH (HSP rate) 74.8 0.0 0.0 0.0 0.0 25.2 3,910 

Medicare dependent 77.9 0.0 1.5 4.3 1.0 15.2 645 

Other rural, <50 beds 82.6 0.1 1.5 5.0 2.0 8.8 339 

Other rural, ≥50 beds 85.3 1.7 2.0 6.8 1.4 2.9 831 

 

Voluntary 81.5 5.9 2.5 4.9 3.9 1.4 82,683 

Proprietary 84.7 2.2 2.9 6.2 3.1 1.1 18,653 

Government 72.8 8.0 3.2 7.8 5.3 3.0 14,986 

Major teaching 67.8 16.1 3.2 6.9 5.9 0.2 30,125 

Other teaching 83.6 3.7 2.7 5.5 3.4 1.1 43,934 

Nonteaching 87.3 0.0 2.1 4.5 3.0 3.0 42,264 

Note: PPS (prospective payment system), IME (indirect medical education), DSH (disproportionate share), UC (uncompensated 

care), IPPS (inpatient prospective payment system), SCH (sole community hospital), HSP (hospital-specific payment). The 

chart includes hospitals covered by the IPPS and excludes critical access hospitals. “Medicare-dependent” category includes 

facilities paid at either the HSP or the federal rate. Component percentages may not sum to 100 due to rounding. Simulated 

payments reflect 2016 payment rules applied to actual number of cases in 2016. 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. 

• In 2016, Medicare inpatient payments to hospitals covered by the acute IPPS exceeded $116 billion. About 

$107 billion (92 percent) went to urban hospitals, and approximately $9 billion (8 percent) went to rural 

hospitals, which does not include $2.7 billion in payments to critical access hospitals (CAHs) for inpatient 

care. Cost-based reimbursement for CAHs results in payments significantly above what CAHs would be paid 

under the IPPS. 

• In 2016, base Medicare severity–diagnosis related group payments accounted for about 81 percent of all 

inpatient payments. Special payments—including IME, DSH, UC, and outlier payments, as well as additional 

payments to rural hospitals through the SCH provision and Medicare-Dependent Hospital Program—

accounted for 19 percent of all inpatient payments. 

• In 2016, uncompensated care payments for each eligible hospital were based on each hospital’s number of 

Medicaid days and days for Medicare beneficiaries receiving supplemental Social Security Disability 

Insurance. 

• Outlier payments accounted for 3.9 percent of total inpatient payments in 2016, or about $4.5 billion.
A Data Book: Health care spending and the Medicare program, June 2018 75

Chart 6-17. Medicare inpatient disproportionate share payments 

and uncompensated care payments, 2012–2018 

Note: DSH (disproportionate share). The chart includes hospitals covered by the inpatient prospective payment system. The chart

excludes hospitals not eligible for DSH payments: critical access hospitals, hospitals in Maryland, and sole community 

hospitals paid hospital-specific rates. Data represent DSH and uncompensated care payment levels finalized by CMS. 

Source: CMS hospital inpatient prospective payment systems (IPPS) for acute care hospitals and long-term care hospital 

prospective payment system final rules from fiscal years 2012 to 2018. 

• In 2012, hospitals received almost $12 billion in aggregate Medicare DSH payments. The traditional 

DSH payment formula was based on hospitals’ share of Medicaid patients and Medicare patients with 

Social Security Disability Insurance. 

• Beginning in 2014, DSH payments were calculated as 25 percent of the operating DSH payment the 

hospital would have received under the traditional DSH formula (noted above). Aggregate DSH 

payments have been approximately $3 billion to $4 billion per year since the policy change. For fiscal 

year (FY) 2019, CMS has proposed $4.1 billion in DSH payments (data not shown). The increase in 

DSH payments between 2018 and 2019 is due to CMS-estimated growth in inpatient discharges for FY 

2019 and the annual update to IPPS payment rates. 

• Beginning in 2014, DSH-eligible hospitals are also eligible to receive uncompensated care payments. 

These payments are calculated as a fixed pool of dollars equal to 75 percent of the DSH payment 

received under the traditional DSH formula, minus an amount that increases in proportion to the decline 

in the share of the uninsured population. These payments are distributed based on the share of 

uncompensated care each hospital provides. The amount of uncompensated care payments declined 

$3 billion between 2014 and 2017 because of declines in the uninsured population. Uncompensated 

care payments increase in 2018 due to a mandated change to the method used to calculate the 

uninsured population. For fiscal year 2019, CMS has proposed $8 billion in uncompensated care 

payments because it estimates the uninsured population will increase. 

• From FY 2013 to 2014, inpatient DSH payments declined approximately $9 billion, falling from $12.1 

billion to $3.2 billion, but hospitals were eligible to receive $9 billion in uncompensated care payments 

that were paid separately from the inpatient payment system. 

• On net, the sum of DSH and uncompensated care payments declined $1 billion between 2012 and 

2018 because the decline in the uninsured population more than offset the growth in DSH (due to 

Medicaid expansion) and the growth in Medicare discharges. 

3.2 3.3 3.4 3.6 3.9

9.0 7.6 6.4 6.0 6.8

0

2

4

6

8

10

12

14

2012 2013 2014 2015 2016 2017 2018

Billions of dollars

Fiscal year

DSH payments Uncompensated care payments

11.7 12.1

10.9

12.2

9.8 9.6

10.7
76 Acute inpatient services

Chart 6-18. Discharge destination of Medicare fee-for-service 

beneficiaries served in acute care hospitals, 

2006–2016 

 Percentage 

 point change 

Destination 2006 2015 2016 2006–2016 

Home self-care 52.3% 45.5% 45.6 –6.7 

Skilled nursing or swing bed 18.8 21.2 20.2 1.4 

Home with organized home health care 13.8 16.9 17.5 3.7 

Inpatient rehabilitation facility 3.4 3.9 4.0 0.6 

Died in hospital 3.8 3.3 3.3 –0.5 

Hospice 1.6 3.0 3.0 1.4 

Transferred to other acute care hospital 2.5 2.1 1.9 –0.6 

Other setting (e.g., ICF, nursing facility) 2.0 1.6 2.0 0.0 

Long-term care hospital 0.9 1.2 1.2 0.3 

Left against medical advice 0.6 0.8 0.9 0.3 

Inpatient psychiatric facility 0.4 0.4 0.4 0.0 

 

Note: ICF (intermediate care facility). Numbers may not sum due to rounding. These data include hospitals reimbursed by the 

Medicare inpatient prospective payment system and critical access hospitals. 

Source: Medicare inpatient claims data. 

• In 2016, about 46 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 post-acute care providers, particularly home health care, skilled nursing care, 

and hospice. 

• In 2016, about 43 percent of all Medicare fee-for-service patients discharged from an acute 

care hospital were discharged to post-acute care services (skilled nursing facility (SNF), 

home health care agency, inpatient rehabilitation facility, or long-term care hospital). The 

share of beneficiaries discharged to post-acute care services increased about 8 percentage 

points between 2006 and 2016. 

• About one in five beneficiaries is discharged to skilled nursing care, either in a SNF or 

hospital swing bed. The share of beneficiaries discharged to SNF-level care increased 1.4 

percentage points between 2006 and 2016. 

• An increasing share of beneficiaries are being discharged home with organized home health 

care, increasing from 13.8 percent of discharges in 2006 to 17.5 percent in 2016. 

• From 2006 to 2016, discharges to hospice care increased from 1.6 percent of discharges to 

3.0 percent of discharges. A little more than half of these hospice discharges are to medical 

facility‒level care rather than home care. 

• The share of patients dying in the hospital or being transferred to another acute care 

hospital declined between 2006 and 2016.
A Data Book: Health care spending and the Medicare program, June 2018 77

Chart 6-19. Overall Medicare margin, 2006–2016 

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, bad debts, Medicare payments for health information technology, and uncompensated care payments. 

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, Medicare payments for 

health information technology, and—starting in 2014—uncompensated care payments. 

• The overall Medicare margin in 2006 was ‒4.8 percent. In fiscal year 2016, it was 

–9.6 percent. 

• In 2016, 25 percent of hospitals had overall Medicare margins of 1.6 percent or higher, and 

another 25 percent had margins of –20.7 percent or lower (data not shown). About 30 

percent of hospitals had positive overall Medicare margins in 2016. 

-4.8

-6.1

-7.3

-5.3

-4.9

-5.7 -5.5

-5.1

-5.8

-7.6

-9.6

-12

-10

-8

-6

-4

-2

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Margin (percent)

Fiscal year
78 Acute inpatient services

Chart 6-20. Overall Medicare margin, by urban and rural 

location, 2006–2016 

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, bad debts, Medicare payments for health information technology, and uncompensated care payments. 

Maryland hospitals are excluded from this analysis. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• Overall Medicare margins historically were higher for urban hospitals than for rural hospitals; 

however, over the last decade, overall Medicare margins for rural hospitals have exceeded those for 

urban hospitals. In 2016, the difference between urban and rural hospital margins was about 2.4 

percentage points. 

• The difference in overall Medicare margins between urban and rural widened after 2009 as a result of 

legislation to assist rural hospitals implemented after 2008. Most recently, in 2016, the overall 

Medicare margin for urban hospitals was –9.8 percent, compared with –7.4 percent for rural hospitals. 

• The overall Medicare margin includes inpatient and outpatient services, but not laboratory services. 

The rural margin rose to 2.4 percent by 2013 in part because of low-volume add-on payments and 

health information technology payments. However, in 2014, the rural margin fell to –3.6 percent 

because some unprofitable services that had been paid as laboratory services shifted into the 

outpatient payment system. These outpatient tests were a disproportionately large share of rural 

hospital payments, causing rural margins to fall faster than urban margins. Because of special rural 

add-on payments, rural margins continue to be higher than urban hospitals’ margins. 

-4.9

-6.3

-7.4

-5.4 -5.1

-6.1 -5.9 -5.9 -6.0

-7.9

-9.8

-4.2

-4.9

-5.9

-4.0

-2.6 -2.6

-1.1

2.4

-3.6

-5.0

-7.4

-12

-10

-8

-6

-4

-2

0

2

4

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Margin (percent)

Fiscal year

Urban

Rural
A Data Book: Health care spending and the Medicare program, June 2018 79

Chart 6-21. Hospital total all-payer margin, 2006–2016 

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 and Maryland hospitals. 

 *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. 

• The 2008 decline in the U.S. stock market resulted in significant investment losses for 

hospitals, which resulted in a corresponding decline in total margin. From 2013 to 2015, allpayer margins were close to 7 percent, a level higher than the prior two decades. The allpayer margin decreased slightly to 6.4 percent in 2016. 

5.3

6.0

1.8

4.3

6.3

6.0

6.4

7.2 7.1

6.8

6.4

0

1

2

3

4

5

6

7

8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Margin (percent)

Fiscal year

*
80 Acute inpatient services

Chart 6-22. Hospital total all-payer margin, by urban and rural 

location and critical access hospitals, 2006–2016 

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. Analysis excludes Maryland hospitals. 

 *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 

2016, total margins were 6.5 percent for urban hospitals and 4.6 percent for rural hospitals. 

From 2009 to 2013, the growth in urban and rural total all-payer margins reflected low cost 

growth and increasing private-payer reimbursement rates. 

• In general, all-payer margins for critical access hospitals have historically been lower than 

for other urban or rural hospitals. 

 

5.7 5.8

2.1

3.7

5.3

4.7 5.0 4.9 4.8 4.8 4.6

5.3

6.0

1.7

4.3

6.4 6.1

6.6

7.4 7.3 7.0

6.5

4.4

4.9

2.8

2.8

3.3 3.4 3.6 3.6 3.4

4.4

3.6

0

1

2

3

4

5

6

7

8

9

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Margin (percent)

Fiscal year

Rural

Urban

Critical access hospitals

*

*

*
A Data Book: Health care spending and the Medicare program, June 2018 81

Chart 6-23. Hospital total all-payer margin, by teaching status, 

2006‒2016 

Note: “Major teaching” hospitals are defined by a ratio of interns and residents to beds of 0.25 or greater, while “other teaching” 

hospitals have a ratio of greater than 0 and less than 0.25. 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 and Maryland hospitals. 

 *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 2016, the total margin for major 

teaching hospitals was 4.9 percent, comparatively lower than the total margins for other 

teaching hospitals (7.1 percent) and nonteaching hospitals (7.2 percent). 

• Following several years of increasing margins, in 2008, total (all-payer) margins declined 

significantly because of losses in investment revenues. As a result, total margins for major 

teaching hospitals were negative in 2008. Since 2008, total margins for major teaching 

hospitals have recovered and remain above their historic average. 

5.5

5.9

3.0 4.7

6.5 6.3

6.9 7.1

7.5 7.5 7.2

6.2

7.0

2.4

5.4

7.4 7.1 7.1

8.3 8.6

7.6

7.1

4.2

5.1

-0.5

2.5

4.9

4.3

5.2

6.2

5.1 5.3

4.9

-2

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Margin (percent)

Fiscal year

Nonteaching

Other teaching

Major teaching

*

*

*
82 Acute inpatient services

Chart 6-24. Medicare margins by teaching and disproportionate 

share status, 2016 

 Overall 

 Share of Medicare 

Hospital group hospitals margin 

All hospitals 100% –9.6% 

Major teaching 11 –8.6 

Other teaching 24 –8.5 

Nonteaching 65 –11.3 

Both IME and DSH 32 –8.2 

IME only 3 –16.0 

DSH only 53 –10.7 

Neither IME nor DSH 12 –15.3 

Note: IME (indirect medical education), DSH (disproportionate share). Components may not sum to 100 percent due to 

rounding. Maryland hospitals are excluded from this analysis. 

Source: MedPAC analysis of 2015 Medicare cost report data from CMS. 

• By contrast with all-payer total margins, teaching hospitals (both major teaching and other 

teaching) had higher overall Medicare margins in 2016 compared with nonteaching 

hospitals. Their better financial performance was largely due to the additional payments they 

received from the IME and DSH adjustments to their inpatient payments. 

• Hospitals that do not receive DSH payments had the lowest Medicare margins. In 2016, the 

overall Medicare margins of these hospitals were –16.0 percent (IME only) and –15.3 

percent (neither IME and DSH), well below the margins of hospitals that receive both IME 

and DSH (–8.2 percent). 

• Major teaching hospitals have higher Medicare margins than nonteaching hospitals, but they 

have lower total (all-payer) margins than both other teaching and nonteaching hospitals (see 

Chart 6-23). 

 
A Data Book: Health care spending and the Medicare program, June 2018 83

Chart 6-25. Financial pressure leads to lower costs 

 Level of financial pressure, 2013–2015 

 High pressure Low pressure 

 (non-Medicare Medium (non-Medicare 

 margin ≤ 1%) pressure margin > 5%) 

Number of hospitals 714 379 1,699 

Financial characteristics, 2016 (medians) 

Non-Medicare margin 

 (private, Medicaid, uninsured) –2.7% 3.4% 14.0% 

Standardized cost per discharge 

(as a share of the national median) 

 For-profit and nonprofit hospitals 93 99 102 

 Nonprofit hospitals 93 99 103 

 For-profit hospitals 90 95 100 

Annual growth in cost per 

discharge, 2013–2016 2.4% 2.6% 2.1% 

Overall 2016 Medicare margin (medians) 0.1% –4.6% –11.4% 

Patient characteristics (medians) 

Total hospital discharges in 2016 3,597 5,710 7,842 

Medicare share of inpatient days 39% 37% 37% 

Medicaid share of inpatient days 8% 8% 6% 

Medicare case-mix index 1.42 1.53 1.64 

 

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 2017. “High-pressure hospitals” are defined as those with a median 

non-Medicare profit margin of 1 percent or less from 2013 to 2015 and a net worth that grew by less than 1 percent per 

year over that period if the hospital’s Medicare profits had been zero. “Low-pressure hospitals” are defined as those with a 

median non-Medicare profit margin greater than 5 percent from 2013 to 2015 and a net worth that grew by more than 1 

percent per year over that period if the hospital’s Medicare profits had been zero. “Medium-pressure hospitals” are those 

that fit into neither the high- nor the low-pressure categories. 

Source: MedPAC analysis of Medicare cost report and claims files from CMS. 

• Higher financial pressure hospitals had 9 percent lower standardized costs per discharge 

than hospitals under a low level of financial pressure. 

• Cost growth was similar for all categories of hospitals (between 2.1 percent and 2.6 

percent), suggesting that hospitals’ cost differentials remain fairly stable across time. 

• Hospitals with lower volume, lower case mix, and higher Medicare shares of discharges are 

more likely to be under financial pressure. 
84 Acute inpatient services

Chart 6-26. Change in the private-payer ratio of 

payments to costs for hospital services, 2006−2016 

Note: Data are for community hospitals (including critical access hospitals and Maryland hospitals) and cover all hospital 

services. The private-payer ratio of payments to costs includes self-pay patients. Data for 2006 to 2010 exclude Medicare 

and Medicaid managed care patients from the private-payer ratio of payments to costs. In 2012, hospitals began 

excluding data related to bad debt and charity care from their reported charges and payments. 

Source: MedPAC analysis of data from the American Hospital Association Annual Survey of Hospitals. 

• The private-payer ratio of payments to costs reflects hospitals’ weighted average profit 

margin on all service lines of business, such as inpatient, outpatient, and hospital-owned 

physician practices. In 2016, the private-payer ratio of payments to costs was 1.52. This 

ratio includes payments and costs attributed to uninsured patients who pay for their own 

services (self-pay). 

• The private-payer payment-to-cost ratio for hospital services has fluctuated over time, in part 

because of shifts in the relative bargaining power of hospitals and insurers. For example, in 

1992, hospitals’ private-payer payment-to-cost ratio was 1.32, but it declined to 1.15 in 1999 

with the expansion of health management organizations and movements to narrow 

insurance networks (data not shown). Over the last decade, the private-payer payment-tocost ratio has increased to its historically highest level. 

• From 2012 to 2016, the private-payer ratio of payments to costs was relatively flat at around 

1.50. During this period, total hospital profit margins remained near 7 percent (see Chart 6-

21), in part because of a decline in uncompensated care as more patients gained insurance. 

1.30 1.32 1.27

1.34 1.36 1.37

1.49 1.49 1.50 1.51 1.52

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Ratio of payments to costs

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2018 85

Chart 6-27. Markup of hospital charges above costs for 

 Medicare services, 2006–2016

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). Medicare managed care charges are not included. 

Source: American Hospital Association Annual Survey of Hospitals. 

• The average markup of hospitals’ charges above costs rose from 181 percent in 2006 to 

256 percent in 2016. Hospital charges ($729 billion) were over three times costs ($205 

billion) in 2016 (data not shown). 

• 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 markup of charges over costs in 2016 is generally higher for urban hospitals (266 

percent) than for rural hospitals (182 percent) (data not shown). 

• Among urban hospitals in 2016, the markup of charges over costs was higher for for-profit 

hospitals (521 percent) than for nonprofit hospitals (264 percent). Rural for-profit hospitals 

have a higher markup of charges over costs (415 percent) than rural nonprofit hospitals (204 

percent) (data not shown). 

181 185 193

207

218

229 227 234

244 252 256

0

50

100

150

200

250

300

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percent

Fiscal year
86 Acute inpatient services

Chart 6-28. Medicare payments to inpatient psychiatric facilities 

remained steady in 2017 

Note: Spending for inpatient psychiatric care furnished in scatter beds in acute care hospitals (and paid for under the acute care 

inpatient prospective payment system) is not included in this chart. 

Source: CMS Office of the Actuary. 

• The inpatient psychiatric facility prospective payment system started January 1, 2005. It was 

phased in over a three-year period. 

• Medicare program spending for beneficiaries’ care in inpatient psychiatric facilities grew an 

average of 1 percent per year between 2006 and 2017. 

 

4.1 4.0 4.0 4.1 4.2 4.3 4.4 4.4 4.5 4.4 4.4 4.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Dollars (in billions)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2018 87

Chart 6-29. Inpatient psychiatric facilities, 2006–2016 

 Average annual change 

 2006– 2015– 

Type of IPF 2006 2010 2015 2016 2015 2016 

 

All 1,647 1,596 1,571 1,587 –0.5% 1.0% 

 

Urban 1,308 1,260 1,239 1,252 –0.6 1.0 

Rural 339 336 330 332 –0.3 0.6 

 

Freestanding 396 447 481 497 2.2 3.3 

Hospital-based units 1,251 1,149 1,090 1,090 –1.5 0.0 

 

Nonprofit 902 807 723 726 –2.4 0.4 

For profit 348 386 504 512 4.2 1.6 

Government 397 403 344 349 –1.6 1.5 

Note: IPF (inpatient psychiatric facility). Data are from facilities that submitted valid Medicare cost reports in the given fiscal 

year. Components may not sum to totals due to missing data. 

 

Source: MedPAC analysis of Medicare cost report files from CMS. 

• Between 2006 and 2015, the number of IPFs that filed Medicare cost reports fell, on 

average, 0.5 percent per year. Between 2015 and 2016, the number of IPFs grew 1 percent. 

• A growing share of Medicare IPF users receive care in for-profit facilities. Between 2006 and 

2015, the number of for-profit IPFs grew more than 4 percent per year, on average. Over the 

same period, the number of nonprofit IPFs fell more than 2 percent per year, on average. 

The number of for-profit IPFs continued to grow in 2016. 

 
88 Acute inpatient services

Chart 6-30. One diagnosis accounted for almost three-quarters 

 of Medicare IPF cases in 2016 

MS–DRG Diagnosis Share 

 

 885 Psychosis 70.9% 

 884 Organic disturbances and mental retardation 6.6 

 057 Degenerative nervous system disorders without MCC 6.5 

 897 Alcohol/drug abuse or dependency, no rehabilitation, without MCC 4.7 

 881 Depressive neurosis 4.4 

 895 Alcohol/drug abuse or dependency with rehabilitation, without MCC 1.6 

 882 Neurosis except depressive 1.3 

 880 Acute adjustment reaction and psychosocial dysfunction 0.9 

 883 Disorders of personality and impulse control 0.6 

056 Degenerative nervous system disorders with MCC 0.6 

 894 Alcohol/drug use—left AMA 0.3 

 886 Behavioral and developmental disorders 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 

 887 Other mental disorders 0.1 

 081 Nontraumatic stupor and coma without MCC <0.1 

 080 Nontraumatic stupor and coma with MCC <0.1 

 

 Nonpsychiatric MS–DRGs 0.9 

 Total 100.0 

Note: IPF (inpatient psychiatric facility), MS–DRG (Medicare severity–diagnosis related group), MCC (major comorbidity or 

complication), AMA (against medical advice), OR (operating room). Totals may not sum to 100 percent due to rounding. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• Medicare patients in IPFs are generally assigned 1 of 17 psychiatric MS–DRGs. 

• The most frequently occurring IPF diagnosis—accounting for about 71 percent of IPF 

discharges in 2016—was psychosis. This broad category includes patients with principal 

diagnoses of schizophrenia, bipolar disorder, and major depression. 

• In 2016, the next most common discharge diagnosis, accounting for almost 7 percent of IPF 

cases, was organic disturbances and mental retardation. 

 
A Data Book: Health care spending and the Medicare program, June 2018 89

Chart 6-31. Characteristics of Medicare IPF users, 2016

 

 Share of users 

 Share of with more than 

Characteristic all IPF users one IPF stay 

Current eligibility status* 

 Aged 41.7% 29.0% 

 Disabled 58.2 70.9 

 ESRD only 0.1 0.1 

 

Age (years) 

 <45 23.1 30.7 

 45–64 34.6 39.6 

 65–79 27.1 21.5 

 80+ 15.3 8.2 

 

All 100.0 27.9 

Note: IPF (inpatient psychiatric facility), ESRD (end-stage renal disease). Components 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. 

• Of Medicare beneficiaries who had at least one IPF stay in 2016, 58.2 percent qualified for 

Medicare because of a disability. These beneficiaries tend to be younger and poorer than 

the typical fee-for-service beneficiary. 

• Approximately 28 percent of Medicare beneficiaries who used an IPF in 2016 had more than 

one IPF stay during the year. These beneficiaries were far more likely than all IPF users to 

be disabled, often because of a psychiatric diagnosis.

 

S E C T I O N 

Ambulatory care

Physicians and other 

health professionals 

Hospital outpatient services 

Ambulatory surgical centers 

Imaging services 

A Data Book: Health care spending and the Medicare program, June 2018 93

Chart 7-1. Medicare spending per fee-for-service beneficiary on 

services in the fee schedule for physicians and other 

health professionals, 2006–2016 

Note: Dollar amounts are Medicare spending only and do not include beneficiary cost sharing. The category “disabled” excludes 

beneficiaries who qualify for Medicare because they have end-stage renal disease. All beneficiaries ages 65 and over are 

included in the “aged” category. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

• The fee schedule for physicians and other health professionals includes a broad range of 

services such as office visits, surgical procedures, and diagnostic and therapeutic services. 

“Other health professionals” refers to nurse practitioners, physician assistants, physical 

therapists, and other clinicians. Total fee schedule spending was $69.9 billion in 2016. 

• Spending per fee-for-service beneficiary for fee schedule services for aged beneficiaries 

(ages 65 and over) increased between 2006 and 2012. Spending for disabled beneficiaries 

(under age 65) increased between 2006 and 2014. From 2006 to 2016, spending per 

beneficiary for all beneficiaries grew at a cumulative rate of 18 percent. 

• The small decline in spending per beneficiary in 2016 was caused by several factors, including 

the net effects of the small increase in volume (1.6 percent), a larger penalty for clinicians who 

did not submit data under the Physician Quality Reporting System, and a larger penalty for 

clinicians who did not meet the electronic health record meaningful use requirement. 

• Per capita spending for disabled beneficiaries is lower than per capita spending for aged 

beneficiaries. In 2016, for example, per capita spending for disabled beneficiaries was 

$1,795 compared with $2,096 for aged beneficiaries. However, spending per capita grew 

faster for disabled beneficiaries than aged beneficiaries between 2006 and 2016. 

1,801

1,905

2,037

2,132 2,126 2,096

1,434 1,491

1,669

1,764 1,822 1,795

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2006 2008 2010 2012 2014 2016

Spending per beneficiary (dollars)

Aged

Disabled
94 Ambulatory care

Chart 7-2. Growth in the volume of clinician services caused 

fee schedule spending to increase faster than input 

prices and payment updates, 2000–2016 

Note: MEI (Medicare Economic Index). The MEI measures the change in clinician input prices. “Spending per beneficiary” 

includes only services paid under the fee schedule for physicians and other health professionals and excludes services 

paid under the clinical laboratory fee schedule. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. Clemens, K., Centers for Medicare & 

Medicaid Services, Department of Health and Human Services. 2014. Estimated sustainable growth rate and conversion 

factor, for Medicare payments to physicians in 2015. Fact sheet. https://www.cms.gov/medicare/medicare-fee-for-servicepayment/sustainablegratesconfact/downloads/sgr2015p.pdf. Centers for Medicare & Medicaid Services, Department of 

Health and Human Services. 2017. Market basket data. https://www.cms.gov/Research-Statistics-Data-andSystems/Statistics-Trends-and-Reports/MedicareProgramRatesStats/MarketBasketData.html. 

• From 2000 to 2016, Medicare spending per fee-for-service beneficiary for services paid 

under the fee schedule for physicians and other health professionals increased by a 

cumulative 68 percent. 

• Spending per beneficiary grew much more rapidly over the period than both the fee 

schedule payment rate updates and the MEI, which measures changes in input prices. 

Payment updates grew cumulatively by 10 percent, and the MEI increased 32 percent. 

• Growth in the volume of services contributed much more to the increase in Medicare 

spending than payment rate updates. Both factors—volume growth and updates—combined 

to increase Medicare revenue for physicians and other health professionals. 

0

10 12

19

30

37

43 45

50

55

61

67

69 67

70 70 68

2

5

8

11

14

18 20 22 24 26 26 27 28 29 30 32

5

0

1 3 5 5 5 5 7 8 999 10 10 10

-10

0

10

20

30

40

50

60

70

80

Cumulative percent change

Spending per beneficiary

MEI

Updates
A Data Book: Health care spending and the Medicare program, June 2018 95

Chart 7-3. Growth in the volume of clinician services per 

fee-for-service beneficiary, 2000–2016 

Note: E&M (evaluation and management). “Volume” refers to the units of service multiplied by relative value units from the fee 

schedule for physicians and other health professionals. Volume for all years is measured on a common scale, using 

relative value units for 2016. Volume growth for E&M from 2009 to 2010 is not directly observable because of a change in 

payment policy for consultations. To compute cumulative volume growth for E&M through 2016, we used a growth rate for 

2009 to 2010 of 1.85 percent, which is the average of the 2008 to 2009 growth rate of 1.7 percent and the 2010 to 2011 

growth rate of 2.0 percent. 

Source: MedPAC analysis of claims data for 100 percent of Medicare beneficiaries. 

• From 2000 to 2016, the volume of some services furnished by physicians and other health 

professionals grew much faster than others. 

• The volume of tests grew by 91 percent, the volume of “other procedures” (i.e., other than 

major procedures) grew by 78 percent, and the volume of imaging grew by 73 percent. The 

comparable growth rates for major procedures and evaluation and management services 

were only 44 percent and 43 percent, respectively. 

• Volume growth increases Medicare spending, limiting funds available for other priorities in 

the federal budget and requiring taxpayers and beneficiaries to contribute more to the 

Medicare program. Rapid volume growth may be a sign that some services in the fee 

schedule for physicians and other health professionals are mispriced. 

91

73

78

44

43

0

10

20

30

40

50

60

70

80

90

100

2000 2002 2004 2006 2008 2010 2012 2014 2016

Cumulative percent change

Tests

Imaging

Other procedures

E&M

Major procedures
96 Ambulatory care

Chart 7-4. Medicare beneficiaries’ ability to get timely 

appointments with physicians was comparable with 

privately insured individuals, 2014–2017 

 Medicare (ages 65 and older) Private insurance (ages 50–64) 

Survey question 2014 2015 2016 2017 2014 2015 2016 2017 

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 72%a 68%b 73%a 69%a 69%a 67% 69%a

Sometimes 20ab 19a 22b 20 23a 23a 23 22 

Usually 3 4 4 3 4 4 5 4 

Always 3 3 3 3 3 3 4 3 

 

For illness or injury 

Never 83ab 82a 79a 80a 79a 77a 75a 76a

Sometimes 12ab 13ab 16a 15 16a 17a 19a 18 

Usually 2 3b 2a 2 2 3 3a 2 

Always 1a 2 2a 1 2a 2 3a 2 

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 all years. Sample sizes for individual 

questions varied. 

a Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured samples 

in the given year. 

 b Statistically significant difference (at a 95 percent confidence level) from 2017 within the same insurance coverage 

category. 

Source: MedPAC-sponsored annual telephone surveys conducted 2014–2017. 

• Most Medicare beneficiaries have one or more doctor appointments in a given year. Their 

ability to schedule timely appointments is one indicator of access that we examine. 

• Medicare beneficiaries (ages 65 and older) report similar (or better) access to physicians for 

appointments as compared with privately insured individuals ages 50 to 64. For example, in 

2017, 73 percent of Medicare beneficiaries compared with 69 percent of privately insured 

individuals reported “never” having to wait longer than they wanted to get an appointment for 

routine care. 

• Medicare beneficiaries reported slightly more timely appointments for injury and illness as 

compared with their privately insured counterparts. 

• Appointment scheduling for illness and injury is better than for routine care appointments for 

both Medicare beneficiaries and privately insured individuals. 
A Data Book: Health care spending and the Medicare program, June 2018 97

Chart 7-5. Medicare and privately insured patients who were 

looking for a new physician reported more difficulty 

finding one in primary care, 2014–2017 

 Medicare (ages 65 and older) Private insurance (ages 50–64) 

Survey question 2014 2015 2016 2017 2014 2015 2016 2017 

Looking for a new physician: “In the past 12 months, have you tried to get a new ...?” (Percent 

answering “Yes”) 

Primary care physician 8% 7%a 8%a 9%a 8% 9%ab 10%a 11%a

Specialist 17 16 18 17%a 17b 18b 18 20a

 

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 64 69a 63 63 63 59a

Small problem 16 18 15 13 16 18 16 18 

Big problem 15 14 20 14a 19 17 20 22a

 

Specialist 

No problem 85 87a 82 83 85b 82a 79 81 

Small problem 7b 7b 10 11 9 8 9 11 

Big problem 7 6 8a 5a 6 9 11a 8a

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 all years. Sample sizes for individual 

questions varied. 

a

 Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured samples in the 

given year. 

 b Statistically significant difference (at a 95 percent confidence level) from 2017 within the same insurance coverage category. 

Source: MedPAC-sponsored annual telephone surveys, conducted 2014–2017. 

• In 2017, only 9 percent of Medicare beneficiaries and 11 percent of privately insured individuals reported looking 

for a new primary care physician. This finding suggests that most people were either satisfied with their current 

physician or did not need to look for one. 

• Of the 9 percent of Medicare beneficiaries who looked for a new primary care physician in 2017, 27 percent 

reported problems finding one: 14 percent reported their problem as “big,” and 13 percent reported their problem 

as “small.” Although this finding means that only 2 percent of the total Medicare population reported problems 

finding a primary care physician, the Commission is concerned about the continuing pattern of greater problems 

accessing primary care than specialty care. 

• Of the 11 percent of privately insured individuals who looked for a new primary care physician in 2017, 40 

percent reported problems finding one: 22 percent reported their problem as “big,” and 18 percent reported their 

problem as “small.” 

• In 2017, Medicare beneficiaries and privately insured individuals were more likely to report problems accessing a 

new primary care physician than a new specialist. 
98 Ambulatory care

Chart 7-6. Medicare beneficiaries’ access to physician care 

was comparable with privately insured individuals, 

and minorities in both groups reported unwanted 

delays more frequently, 2017 

 Medicare (ages 65 and older) Private insurance (ages 50–64) 

Survey question All White Minority All White Minority 

Unwanted delay in getting an appointment: Among those who needed an appointment, “How often did

you have to wait longer than you wanted to get a doctor’s appointment?” 

For routine care 

Never 73%a 74%ab 69%b 69%a 70%a 66% 

Sometimes 20a 20 19 22a 23 23 

Usually 3 3b 5b 4 4 5 

Always 3 2ab 6b 3 3ab 4b

 

For illness or injury 

Never 80a 81 78a 76a 77b 72ab

Sometimes 15a 15a 15a 18a 18ab 22ab

Usually 2 2 3 2 2 3 

Always 1a 1a 2 2a 2a 2 

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 2017. Sample size for individual 

questions varied. 

a Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured 

populations in the given category. 

b Statistically significant difference (at a 95 percent confidence level) by race within the same insurance category. 

Source: MedPAC-sponsored telephone surveys conducted in 2017. 

• In 2017, Medicare beneficiaries (ages 65 and older) reported better access to physicians for 

appointments in comparison with privately insured individuals ages 50 to 64. 

• Access varied by race, with minorities more likely than Whites to report access problems in 

both insurance categories. For example, in 2017, 81 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 78 percent of minority beneficiaries. 
A Data Book: Health care spending and the Medicare program, June 2018 99

Chart 7-7. Minorities in Medicare were more likely to report 

problems finding a new specialist than White 

beneficiaries, 2017 

Medicare (ages 65 and older) Private insurance (ages 50–64) 

Survey question All White Minority All White Minority 

Looking for a new physician: “In the past 12 months, have you tried to get a new ...?” 

 Primary care physician 9%a 8% 9% 11%a 11% 10% 

 Specialist 17 18a 15 20 21ab 17b

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 69a 67 80a 59a 58 61a

Small problem 13 14 11 18 20 14 

Big problem 14a 16 8a 22a 22 21a

Specialist 

No problem 83 85b 75b 81 82b 74b

Small problem 11 11 13 11 11 13 

Big problem 5a 3ab 11b 8a 7ab 13b

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 2017. Sample size for individual 

questions varied. 

a Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured 

populations in the given category. 

b Statistically significant difference (at a 95 percent confidence level) by race within the same insurance category. 

Source: MedPAC-sponsored telephone surveys conducted in 2017. 

• Among the small share of Medicare beneficiaries looking for a specialist, minorities were

more likely than Whites to report problems finding one.
100 Ambulatory care

Chart 7-8. Changes in physicians’ professional liability 

insurance premiums, 2010–2017

Note: Bars represent a four-quarter moving average percentage change. 

Source: CMS, Office of the Actuary. Data are from CMS’s Professional Liability Physician Premium Survey. 

• Professional liability insurance (PLI) accounts for 4.3 percent of total payments under the

fee schedule for physicians and other health professionals.

• Changes in PLI premiums reflect a cyclical pattern, alternating between periods of low

premiums (characterized by high investment returns for insurers and vigorous competition)

and high premiums (characterized by declining investment returns and market exit).

• Premiums increased from 2002 through 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, after which point they have declined each

subsequent quarter.

-3.6

-2.1

-1.2 -1.0

-0.2

1.2

1.6

1.0

0.3

-0.5

-1.0 -1.2 -1.1

-0.7 -0.5 -0.6

-5

-4

-3

-2

-1

0

1

2

3

4

5

2010 2011 2012 2013 2014 2015 2016 2017

Percent change
A Data Book: Health care spending and the Medicare program, June 2018 101

Chart 7-9. The shares of primary care services billed by APNs 

and physician assistants grew, 2012 and 2016 

 Total units of service 2012 = 135.6 million Total units of service 2016 = 148.8 million 

Note: APN (advanced practice nurse). Units of service are specified primary care services—office visits, home visits, visits to 

patients in extended care facilities, transitional care management, chronic care management, annual wellness visits, and 

“welcome to Medicare” visits—billed by APNs, physician assistants, or physicians with a specialty designation of family 

medicine, internal medicine, geriatric medicine, or pediatric medicine. APNs are nurse practitioners and clinical nurse 

specialists. 

Source: MedPAC analysis of claims data for 100 percent of beneficiaries. 

• The distribution of primary care services among the clinicians who bill Medicare for these 

services—primary care physicians (PCPs), APNs, and physician assistants—has changed 

over time. 

• In 2012, clinicians provided 135.6 million primary care services to beneficiaries. PCPs billed 

for most of the services (112.8 million, or 83 percent), followed by APNs (15.3 million, or 11 

percent), and physician assistants (7.5 million, or 6 percent). 

• By 2016, total primary care services had grown to 148.8 million units of service, an increase 

of about 10 percent compared with 2012. PCPs continued to account for most of these 

services, but their billed services decreased to 108.1 million, or 73 percent of the total. 

Primary care services billed by APNs grew to 28.2 million, or 19 percent. Primary care 

services billed by physician assistants increased to 12.5 million, or 8 percent. 

• Units of service billed by primary care physicians include some services provided by APNs 

and physician assistants but billed as “incident to” or under the direct supervision of 

physicians. Medicare pays for such services as if physicians had personally furnished them. 

Claims data do not specify whether a service billed by a physician was provided by an APN 

or physician assistant. 

Primary 

care 

physician

83%

APN

11%

Physician 

assistant

6%

Primary 

care 

physician

73%

APN

19%

Physician 

assistant

8%
102 Ambulatory care

Chart 7-10. Spending on hospital outpatient services covered 

under the outpatient PPS, 2007–2017 

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 years 2007 to 2017 increased by 115 percent, 

reaching an estimated $64.2 billion. The Office of the Actuary projects continued growth in 

total spending, averaging 9.5 percent per year from 2017 to 2019. 

• 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 (data not 

shown). The Office of the Actuary estimates that spending under the outpatient PPS was $64.2 

billion in 2017 ($51.3 billion in program spending, $12.9 billion in beneficiary copayments). We 

estimate that the outpatient PPS accounted for about 7 percent of total Medicare program 

spending in 2017. 

• Beneficiary cost sharing under the outpatient PPS includes the Part B deductible and 

coinsurance for each service. Under the outpatient PPS, beneficiary cost sharing was about 

20 percent in 2016. 

21.9 23.6 26.3 28.6 31.1 33.9 36.3

41.2 44.9 47.9 8.0 51.3 7.8

7.7

8.2

8.7

9.2

10.2

10.2

11.5

12.0

12.9

0

10

20

30

40

50

60

70

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017*

Dollars (in billions)

Beneficiary cost sharing

Program payments
A Data Book: Health care spending and the Medicare program, June 2018 103

Chart 7-11. Most hospitals provide outpatient services 

 Percent offering 

 Acute care Outpatient Outpatient Emergency 

Year hospitals services surgery services 

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% 

2014 3,429 96 92 93 

2016 3,370 96 93 93 

2017 3,346 96 93 92

Note: N/A (not applicable). We list emergency services from 2006 through 2010 as “N/A” because the data source we used in 

this chart changed the variable for identifying hospitals’ provision of emergency services. We believe this change in 

variable definition makes it appear that the share of hospitals providing emergency services increased sharply from 2010 

to 2012, but we question whether such a large increase actually occurred. This chart includes services provided or 

arranged by acute care short-term hospitals and excludes long-term, Christian Science, psychiatric, rehabilitation, 

children’s, critical access, and alcohol/drug hospitals. 

Source: Medicare Provider of Services files from CMS. 

• The number of hospitals that furnish services under Medicare’s outpatient prospective 

payment system has declined slowly since 2006, from 3,651 in 2006 to 3,346 in 2017. 

• The share of hospitals providing outpatient services remained stable, and the share offering 

outpatient surgery steadily increased from 2006 through 2014 and has remained stable 

since then. The share offering emergency services has remained stable over the period we 

are able to measure accurately. 
104 Ambulatory care

Chart 7-12. Payments and volume of services under the 

Medicare hospital outpatient PPS, by type of 

service, 2016 

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 the following categories, 

according to the Berenson-Eggers Type of Service codes developed by CMS: evaluation and management, procedures, 

imaging, and tests. “Pass-through drugs” and “separately paid drugs and blood products” are classified by their payment 

status indicator. 

Source: MedPAC analysis of standard analytic file of outpatient claims for 2016. 

• Hospitals provide many types of services in their outpatient departments, including

emergency and clinic visits, imaging and other diagnostic services, laboratory tests, and

ambulatory surgery.

• The payments for services are distributed differently from volume. For example, in 2016,

procedures accounted for 46 percent of payments but only 16 percent of volume.

• Procedures (e.g., endoscopies, surgeries, and skin and musculoskeletal procedures)

accounted for the greatest share of payments for services (46 percent) in 2016, followed by

evaluation and management services (20 percent), separately paid drugs and blood

products (17 percent), and imaging services (13 percent).

Tests

2%

Passthrough 

drugs

2%

Procedures

46%

Imaging

13%

E&M

20%

Separately 

paid drugs/

blood 

products

17%

Tests

2%

Pass-through 

drugs

5%

Procedures

16%

Imaging

10%

E&M 17%

Separately 

paid 

drugs/blood 

products

50%
A Data Book: Health care spending and the Medicare program, June 2018 105

Chart 7-13. Hospital outpatient services with the highest 

Medicare expenditures, 2016 

 Share of Volume Payment 

APC title payments (thousands) rate 

Total 51% 

All emergency visits 7 13,674 $300 

Clinic visits 6 30,842 102 

Comprehensive observation services 6 1,474 2,174 

Level 2 endovascular procedures 3 203 9,542 

Level 2 ICD and similar procedures 3 47 30,490 

Diagnostic cardiac catheterization 2 407 2,549 

Level 2 lower GI procedures 2 1,400 753 

Level 1 intraocular procedures 2 518 1,746 

Level 3 electrophysiologic procedures 2 57 15,561 

Level 3 radiation therapy 2 1,668 506 

Level 3 nuclear medicine and related services 1 731 1,108 

Level 3 pacemaker and similar procedures 1 87 9,273 

Level 3 musculoskeletal procedures 1 184 4,962 

Level 3 ultrasound and related services 1 1,721 417 

Level 1 laparoscopy 1 191 4,001 

Level 3 endovascular procedures 1 50 14,612 

Level 2 ultrasound and related services 1 4,018 154 

Level 5 drug administration 1 2,008 280 

Level 1 X-ray and related services 1 9,134 61 

Level 5 urology and related services 1 159 3,394 

Level 1 upper gastrointestinal procedures 1 868 745 

Level 2 vascular procedures 1 251 2,247 

Level 4 nuclear medicine and related services 1 383 1,284 

Level 1 endovascular procedures 1 147 4,592 

Level 2 drug administration 1 11,616 42 

Level 2 computed tomography with contrast and computed 

 tomography angiography 1 1,346 348 

Level 4 drug administration 1 2,614 173 

Average APC 535 173 

Note: APC (ambulatory payment classification), ICD (implantable cardioverter-defibrillator), GI (gastrointestinal). The payment

rate for “all emergency visits” is a weighted average of payment rates from 10 APCs. The shares of payments for the 27 

APC categories do not add to the total share of payments (51 percent) because of rounding. The average APC figures in 

the last line represent averages for all APCs. 

 

Source: MedPAC analysis of 100 percent analytic files of outpatient claims for calendar year 2016. 

• Although the outpatient prospective payment system covers thousands of services, 

expenditures are concentrated in a few categories that have high volume, high payment 

rates, or both. 
106 Ambulatory care

Chart 7-14. Effects of SCH transfer payments on hospitals’ 

outpatient revenue, 2014–2016 

 2014 2015 2016 

 

 Share of Share of Share of

 payments Number payments Number payments 

 Number of from of from of from 

Hospital group hospitals SCH transfer hospitals SCH transfer hospitals SCH transfer 

 

All hospitals 2,953 0.0% 2,915 0.0% 2,870 0.0% 

 

Urban 2,114 –0.4 2,163 –0.4 2,137 –0.4 

Rural SCHs 373 5.6 354 5.6 350 5.6 

Rural ≤100 beds 347 –0.4 300 –0.4 289 –0.4 

Other rural 119 –0.4 98 –0.4 93 –0.4 

 

Major teaching 273 –0.3 286 –0.3 288 –0.3 

Other teaching 700 –0.2 695 –0.2 699 –0.2 

Nonteaching 1,980 0.3 1,934 0.3 1,882 0.3 

Note: SCH (sole community hospital). 

Source: MedPAC analysis of Medicare Cost Report files from CMS. 

• In 2006, CMS implemented a policy (the “SCH transfer”) that increased outpatient 

prospective payment system (PPS) rates to rural SCHs by 7.1 percent above the standard 

PPS rates. This policy is made budget neutral by reducing payments to all other hospitals. 

• This table reflects the effects of the SCH transfer policy for hospital categories in 2014, 

2015, and 2016. We obtained the data for this table from the hospitals’ 2014, 2015, and 

2016 cost reports. 

• The SCH transfer is budget neutral and does not affect total outpatient PPS payments. 

However, the percentage of total outpatient payments from this policy was 5.6 percent of 

outpatient revenue for rural SCHs in 2014 through 2016. Also, the SCH transfer policy 

reduced outpatient payments to small rural hospitals by 0.4 percent each year between 

2014 and 2016. 
A Data Book: Health care spending and the Medicare program, June 2018 107

Chart 7-15. Number of hospital outpatient observation hours 

increased, 2007–2016 

Source: MedPAC analysis of Limited Data Set claims for the outpatient prospective payment system 2007–2016. 

• 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 hospital outpatient observation hours (both packaged and separately paid) 

has increased substantially, from about 27 million in 2007 to more than 58 million in 2016. 

Before 2007, it was difficult to count the total number of observation hours because 

hospitals were not required to report packaged observation hours on Medicare claims. 

27.2

31.1

36.0

39.2

42.5

50.0

53.1 53.3 54.9

58.2

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Observation hours (millions)
108 Ambulatory care

Chart 7-16. Number of Medicare-certified ASCs increased by 

 8 percent, 2010–2016 

 2010 2011 2012 2013 2014 2015 2016 

Medicare payments (billions of dollars) $3.3 $3.4 $3.6 $3.7 $3.8 $4.1 $4.3 

 

New centers (during year) 192 197 174 173 186 158 142 

Closed or merged centers (during year) 111 122 112 110 105 91 63 

Net total number of centers (end of year) 5,105 5,180 5,242 5,305 5,386 5,453 5,532 

 

Net percent growth in number 

of centers from previous year 1.5% 1.5% 1.2% 1.2% 1.5% 1.2% 1.4% 

 

Share of all centers that are: 

 For profit 95 95 95 95 95 94 94 

 Nonprofit 3 3 3 3 3 3 3 

 Government 1 1 1 2 2 3 3 

 Urban 92 92 93 93 93 93 94 

 Rural 8 8 7 7 7 7 6

Note: ASC (ambulatory surgical center). Medicare payments include program spending and beneficiary cost sharing for ASC 

facility services. Totals may not sum to 100 percent due to rounding. 

Source: MedPAC analysis of Provider of Services file from CMS 2017. Payment data are from CMS, Office of the Actuary. 

• ASCs are distinct entities that furnish ambulatory surgical services not requiring an overnight 

stay. The most common ASC procedures are cataract removal with lens insertion, upper 

gastrointestinal endoscopy, colonoscopy, and nerve procedures. 

• Total Medicare payments per Medicare beneficiary for ASC services increased by 

approximately 4 percent per year, on average, from 2010 through 2016 (data not shown). 

Payments per ASC fee-for-service beneficiary grew by 3.3 percent per year during this 

period. Between 2015 and 2016, total payments rose by 4.9 percent, and payments per 

beneficiary grew by 3.5 percent (per beneficiary data not shown). 

• The number of Medicare-certified ASCs grew at an average annual rate of greater than 1 

percent from 2010 through 2016. Each year from 2010 through 2016, an average of 175 

new facilities entered the market, while an average of 102 closed or merged with other 

facilities. 

• Compared with earlier years (not shown), the number of ASCs grew slowly from 2010 

through 2016. The slower growth may reflect the substantially higher rates that Medicare 

pays for ambulatory surgical services provided in hospital outpatient departments than in 

ASCs, the very slow growth of national health care spending and Medicare spending, and 

the significant increase in hospital employment of physicians. 
S E C T I O N 

Post-acute care

Skilled nursing facilities 

Home health services 

Inpatient rehabilitation facilities 

Long-term care hospitals 

A Data Book: Health care spending and the Medicare program, June 2018 111

Chart 8-1. Number of post-acute care providers remained 

stable in 2017 

 Average 

 annual 

 percent Percent 

 change change

 2013 2014 2015 2016 2017 2013−2017 2016−2017 

 

Home health 

agencies 12,613 12,461 12,346 12,204 11,844 −1.6% −3.0% 

 

Inpatient 

rehabilitation 

facilities 1,161 1,177 1,182 1,188 1,178 0.4 −0.8 

 

Long-term 

care hospitals 432 422 426 423 411 −1.2 −2.8 

 

Skilled nursing 

facilities 15,163 15,173 15,223 15,263 15,277 0.2 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 has been declining since 2013 after several years of 

substantial growth. The decline in agencies was concentrated in Texas and Florida, two 

states that saw considerable growth following the implementation of the prospective 

payment system in October 2000. 

• The supply of inpatient rehabilitation facilities (IRFs) has been relatively stable since 2013. 

Most IRFs are distinct units in acute care hospitals; only about one-fifth are freestanding 

facilities. However, because hospital-based units tend to have fewer beds, they account for 

only about half of Medicare discharges from IRFs. 

• Although the moratorium on new long-term care hospitals (LTCHs) led to a decrease in the 

number of LTCHs beginning in 2012 (data not shown), the number of LTCHs further 

declined to 411 in 2017 primarily due to the implementation of a payment policy that reduces 

payment for discharges not meeting certain criteria. 

• The total number of skilled nursing facilities (SNFs) has increased slightly since 2009, and 

the mix of facilities shifted from hospital-based to freestanding facilities (data not shown). In 

2017, hospital-based facilities made up 5 percent of all SNF facilities (data not shown). 
112 Post-acute care

Chart 8-2. Growth in Medicare’s fee-for-service post-acute care 

expenditures has slowed since 2011 

Note: These calendar year‒incurred data represent only program spending; they do not include beneficiary copayments. 

Source: CMS Office of the Actuary 2018. 

• Increases in aggregate 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). Since 2012, growth in FFS 

post-acute care spending has remained flat. 

• FFS spending on inpatient rehabilitation facilities declined between 2004 and 2008, 

reflecting policies intended to ensure that patients who do not need this intensity of services 

are treated in less-intensive settings. However, spending on inpatient rehabilitation facilities 

has increased since 2008. 

• FFS spending on skilled nursing facilities increased sharply in 2011, reflecting CMS’s 

adjustment for the implementation of the new case-mix groups (resource utilization groups, 

version IV) beginning October 2010. Once CMS established that the adjustment it made 

was too large, it lowered the adjustment, and spending dropped in 2012. 

32.9

39.1

45.6

52.5

58.6 58.3 59.3 59.8

15.0

17.6

21.0

24.9

27.8 28.2 29.1 29.1

9.7

11.6

14.1

17.3

19.6 18.2 18.0 18.3

5.8 6.4 6.1 5.9 6.1 6.7 7.2 7.7

2.4 3.6 4.3 4.5 5.0 5.3 5.0 4.7 0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dollars (in billions)

Calendar year

All post-acute care

Skilled nursing facilities

Home health agencies

Inpatient rehabilitation facilities

Long-term care hospitals
A Data Book: Health care spending and the Medicare program, June 2018 113

Chart 8-3. Freestanding SNFs and for-profit SNFs accounted 

for the majority of facilities, Medicare stays, and 

Medicare spending 

 Medicare payments 

 Facilities Medicare-covered stays (billions) 

Type of SNF 2011 2016 2011 2016 2011 2016 

Totals 14,935 15,080 2,455,730 2,310,753 $28.8 $26.4 

Freestanding 95% 96% 93% 95% 97% 97% 

Hospital based 5 4 7 5 3 3 

Urban 71 72 81 83 84 85 

Rural 29 28 19 17 16 15 

For profit 70 70 72 71 76 74 

Nonprofit 25 23 25 24 21 21 

Government 5 6 3 4 3 4 

Note: SNF (skilled nursing facility). Totals may not sum to 100 percent due to rounding and missing values. 

Source: MedPAC analysis of the Provider of Services and Medicare Provider Analysis and Review files, 2011 and 2016. 

• In 2016, freestanding facilities accounted for 95 percent of stays and 97 percent of 

Medicare’s payments. 

• Urban facilities accounted for 72 percent of facilities, 83 percent of stays, and 85 percent of 

Medicare payments in 2016. 

• In 2016, for-profit facilities accounted for 70 percent of facilities and higher shares of stays 

and Medicare payments (71 percent and 74 percent, respectively). 

 
114 Post-acute care

Chart 8-4. SNF admissions and stays declined in 2016 

 Percent 

 change 

Volume measure 2012 2014 2015 2016 2015‒2016 

Covered admissions per 

 1,000 FFS beneficiaries 69.0 68.6 68.9 66.4 –3.6% 

Covered days per 1,000 1,893 1,849 1,824 1,706 –6.5 

 FFS beneficiaries 

Covered days per admission 27.4 27. 0 26.5 25.7 –3.0 

Note: SNF (skilled nursing facility), FFS (fee-for-service). Data include 50 states and the District of Columbia. Yearly figures 

presented in the table are rounded, but the percent-change column was calculated using unrounded data. 

Source: Calendar year data from CMS, Office of Information Products and Data Analytics 2017. 

• In 2016, 4.2 percent of beneficiaries used SNF services, down slightly from 2011 (data not 

shown). 

• Between 2015 and 2016, SNF admissions per 1,000 FFS beneficiaries decreased 3.6 

percent, consistent with the decrease in inpatient hospital use. An acute care hospital stay 

of three or more days is a prerequisite for Medicare coverage of SNF care. 

• During the same period, covered days declined at a faster rate (–6.5 percent), so there were 

fewer covered days per admission (25.7 days). 
A Data Book: Health care spending and the Medicare program, June 2018 115

Chart 8-5. Freestanding SNF Medicare margins remained high 

in 2016 

 2004 2006 2008 2010 2012 2014 2016 

All 13.8% 12.8% 16.7% 19.4% 14.1% 12.8% 11.4% 

 

Rural 16.4 13.6 18.1 19.5 13.3 10.9 9.8 

Urban 13.3 12.7 16.4 19.4 14.2 13.1 11.7 

 

Nonprofit 4.3 4.0 8.1 11.4 6.4 4.6 2.3 

For profit 15.9 14.9 18.7 21.3 16.0 15.1 14.0 

Note: SNF (skilled nursing facility). 

Source: MedPAC analysis of freestanding SNF cost reports 2004–2016. 

• Though lower than in recent years, the Medicare margin for freestanding SNFs in 2016 

exceeded 10 percent for the 17th consecutive year (not all years are shown). After reaching 

over 21 percent in 2011 (not shown), the margins have declined 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 2016, on average, urban facilities had higher Medicare margins than rural facilities. Forprofit SNFs had considerably higher Medicare margins than nonprofit SNFs, reflecting their 

larger size, their lower cost growth, and their higher share of the more profitable therapy 

case-mix groups (the ultra-high and very high groups). 

• In 2016, total margins (the margin across all payers and all lines of business) for 

freestanding facilities remained positive (0.7 percent, data not shown). 
116 Post-acute care

Chart 8-6. Cost and payment differences explain variation in 

 Medicare margins for freestanding SNFs in 2016 

 

 Highest margin Lowest margin Ratio of highest 

 quartile quartile quartile to 

Characteristic (n = 3,263) (n = 3,262) lowest quartile 

Cost measures 

 Standardized cost per day $266 $387 0.7 

 Standardized cost per discharge $11,190 $14,246 0.8 

 Average daily census (patients) 88 66 1.3 

 Average length of stay (days) 42 36 1.2 

Revenue measures 

 Medicare payment per day $510 $441 1.2 

 Medicare payment per discharge $22,472 $15,940 1.4 

 Share of days in intensive therapy 87% 79% 1.1 

 Share of medically complex days 3 4 0.8 

 Medicare share of facility revenue 24 14 1.7 

Patient characteristics 

 Case-mix index 1.41 1.32 1.1 

 Share of dual-eligible beneficiaries 39% 27% 1.4 

 Share of minority beneficiaries 14 5 2.8 

 Share of very old beneficiaries 28 33 0.9 

 Medicaid share of days 65 56 1.2 

Facility mix 

 Share for profit 88% 57% N/A 

 Share urban 80 69 N/A 

Note: SNF (skilled nursing facility), N/A (not applicable). Values shown are medians for the quartile. Highest margin quartile SNFs 

were in the top 25 percent of the distribution of Medicare margins. Lowest margin quartile SNFs were in the bottom 25 

percent of the distribution of Medicare margins. “Standardized cost per day” includes Medicare costs adjusted for differences 

in area wages and the case mix (using the nursing component’s relative weights) of Medicare beneficiaries. “Days in 

intensive therapy” are days classified into ultra-high and very high rehabilitation case-mix groups. “Very old beneficiaries” are 

85 years or older. “Medically complex days” are those assigned to clinically complex or special-care case-mix groups. 

Quartile figures presented in the table are rounded, but the ratio column was calculated using unrounded data. 

Source: MedPAC analysis of freestanding SNF cost reports 2016. 

• Medicare margins varied widely across freestanding SNFs. One-quarter of SNFs had 

Medicare margins at or below 0.7 percent, and one-quarter of facilities had Medicare 

margins at or above 20.2 percent (data not shown). 

• High-margin SNFs had lower costs per day (31 percent lower costs than low-margin SNFs), 

after adjusting for wage and case-mix differences, and higher revenues per day (1.2 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 2018 117

Chart 8-7. Financial performance of relatively efficient SNFs in 

2016 reflects a combination of lower cost per day 

and higher payment per day 

 Relatively Other 

 efficient SNFs SNFs 

Performance in 2016

 Community discharge rate 49.1% 39.1% 

Readmission rate 8.9% 10.7% 

Standardized cost per day $291 $315 

Medicare revenue per day $512 $466 

 Medicare margin 18.2% 10.6% 

 Total margin 2.5% 1.1% 

Facility case-mix index 1.43 1.36 

Medicare average length of stay 32 days 39 days 

Occupancy rate 87% 85% 

Average daily census 99 80 

Share of ultra-high therapy days 65% 54% 

Share of medically complex days 4% 4% 

 

Medicaid share of facility days 56% 61% 

 Share urban 83% 68% 

Share for profit 79% 69% 

 

Note: SNF (skilled nursing facility). The analysis includes 11,545 freestanding facilities. SNFs were defined as “relatively 

efficient” by their cost per day measure (2013–2015) and two quality measures (community discharge and readmission 

rates) for the same period (2013–2015). Relatively efficient SNFs were those in the best third of the distribution of any one 

measure and not in the bottom third on any measure in each of three years. Eight percent of SNFs qualified as relatively 

efficient. Costs per day were standardized for differences in case mix (using the nursing component relative weights) and 

wages. Rates of risk-adjusted community discharge and readmission for patients with potentially avoidable conditions 

during the SNF stay are quality measures and were calculated for all facilities with at least 25 stays. “Ultra-high therapy 

days” include days with at least 720 minutes per week of therapy. “Medically complex days” are those assigned to 

clinically complex or special-care case-mix groups. 

Source: MedPAC analysis of quality measures and Medicare cost report data for 2013–2016. 

• “Relatively efficient SNFs” are defined as consistently providing relatively low-cost and highquality care compared with other SNFs. 

• Compared with other SNFs in 2016, relatively efficient SNFs furnished considerably higher 

quality (higher discharge to community rates and lower readmission rates) and had costs 

per day that were almost 8 percent lower. 

• Compared with other SNFs in 2016, relatively efficient SNFs treated a similar share of 

medically complex patients, had a higher share of ultra-high therapy days, were larger, had 

shorter stays, slightly higher occupancy rates, and had higher average daily censuses. 

 
118 Post-acute care

Chart 8-8. Spending on home health care, 2001–2016 

Source: CMS Office of the Actuary 2017. 

• In October 2000, the prospective payment system (PPS) replaced the previous Medicare 

payment system for home health care, which was a cost-based system that tied payment to 

the number of visits provided and per beneficiary spending limitations. 

• Home health care spending initially rose rapidly under the PPS, by about 10 percent per 

year between 2001 and 2009. Spending peaked in 2010 and has not changed significantly 

since 2012. 

 

9.1 9.7 10.3 

11.6 

13.0 

14.1 

15.7 

17.3 

19.0 19.6 

18.6 18.2 18.0 17.9 18.1 18.1 

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dollars (in billions)
A Data Book: Health care spending and the Medicare program, June 2018 119

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

 

 Cumulative 

 Percent change percent change 

 2002 2015 2016 2015‒2016 2002‒2016 

 

Number of users (in millions) 2.5 3.5 3.5 0.1% 37.5% 

Share of FFS beneficiaries 

who used home health care 7.2% 9.1% 9.0% –0.8 25.1 

Episodes (in millions) 4.1 6.6 6.5 –0.7 59.3 

Episodes per home 

health patient 1.6 1.9 1.9 ‒0.9 16.0 

Visits per home health 

episode 18.9 17.5 17.5 0.2 ‒7.4 

Visits per home health 

patient 30.8 33.3 33.1 ‒0.6 7.4 

Average payment per 

episode $2,645 $2,965 $2,988 0.8 13.0 

Note: FFS (fee-for-service). Yearly figures presented in the table are rounded, but the percent-change columns were calculated 

using unrounded data. Average payment per episode excludes low-use episodes with fewer than 5 visits. 

Source: MedPAC analysis of the home health standard analytic file. 

• The number of home health episodes has increased since 2002. The number of 

beneficiaries using home health care has also increased since 2002, albeit at a lower rate. 

In 2016, 3.5 million beneficiaries used the home health benefit. 

• The number of visits per episode has decreased since 2002. However, this decline was 

offset by an increase in the average number of episodes per patient, which increased from 

1.6 in 2002 to 1.9 in 2016. 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 about 31 

visits per home health user in 2002 to about 33 visits per home health user in 2016.

 
120 Post-acute care

Chart 8-10. Most home health episodes are not preceded by 

hospitalization or PAC stay 

 Number of episodes (in millions) Percent change 

 2001 2011 2016 2001‒2011 2011‒2016 

 

Episodes preceded by a 

 hospitalization or PAC stay 1.9 2.2 2.2 14.8% 2.4% 

 

Episodes not preceded by a 

 hospitalization or PAC stay 2.1 4.7 4.4 127.4 ‒7.7 

 

Total 3.9 6.9 6.5 74.0 ‒4.6 

 

Note: PAC (post-acute care). “Episodes preceded by a hospitalization or PAC stay” refers to episodes that occurred less than 

15 days after a stay in a hospital (including a long-term care hospital), skilled nursing facility, or inpatient rehabilitation

facility. “Episodes not preceded by a hospitalization or PAC stay” refers to episodes for which there was no hospitalization 

or PAC stay in the previous 15 days. Numbers may not sum due to rounding. 

Source: 2016 home health standard analytic file, 2016 Medicare Provider and Analysis Review file, and 2016 skilled nursing 

facility standard analytic file. 

• The rise in the average number of episodes per beneficiary since 2001 coincides with a 

relative shift away from using home health care as a PAC service. 

• Between 2001 and 2011, the number of episodes not preceded by a hospitalization or PAC 

stay increased by about 127 percent compared with an almost 15 percent increase in 

episodes that were preceded by a hospitalization or PAC stay. During that same period, the 

share of all episodes not preceded by a hospitalization or PAC stay rose from about 53 

percent to 67 percent (data not shown).

• Beneficiaries for whom the majority of home health episodes were preceded by a 

hospitalization or PAC stay had different characteristics from community-admitted 

beneficiaries (those who had no prior hospitalization or PAC). Community-admitted home 

health users were more likely to be dually eligible for Medicare and Medicaid, to have more 

home health episodes, and to have more episodes with a high share of home health aide 

services compared with those home health users coming from a hospitalization or other 

PAC stay (data not shown). Community-admitted users generally had fewer chronic 

conditions, tended to be older, and were more likely to have dementia or Alzheimer’s 

disease (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2018 121

Chart 8-11. Medicare margins for freestanding home health 

 agencies 

 Share of 

 agencies 

 2015 2016 2016 

 

All 15.6% 15.5% 100%

Geography 

 Mostly urban 16.0 15.8 84 

 Mostly rural 13.2 13.4 17 

Type of control 

 For profit 16.7 16.6 88

 Nonprofit 12.1 12.0 12

Volume quintile (lowest to highest) 

First 7.4 7.9 20 

 Second 9.6 10.1 20 

 Third 12.4 11.3 20 

 Fourth 13.8 14.1 20 

 Fifth 17.6 17.4 20

Note: Agencies are characterized as urban or rural based on the residence of the majority of their patients. Components may 

not sum to totals due to rounding. 

Source: MedPAC analysis of 2015–2016 Medicare Cost Report files from CMS. 

• In 2016, freestanding home health agencies (HHAs) (85 percent of all HHAs) had an 

aggregate margin of 15.5 percent. HHAs that served mostly urban patients in 2016 had an 

aggregate margin of 15.8 percent; HHAs that served mostly rural patients had an aggregate 

margin of 13.4 percent. The 2016 margin is consistent with the historically high margins the 

home health industry has experienced since the prospective payment system (PPS) was 

implemented in 2000. The margin from 2001 to 2015 averaged 16.5 percent (data not 

shown), indicating that most agencies have been paid well in excess of their costs under the 

PPS. 

• For-profit agencies in 2016 had an average margin of 16.6 percent, and nonprofit agencies 

had an average margin of 12.0 percent. 

• Agencies that serve more patients have higher margins. The agencies in the lowest volume 

quintile in 2015 had an aggregate margin of 7.9 percent, while those in the highest quintile 

had an aggregate margin of 17.4 percent. 
122 Post-acute care

Chart 8-12. Number of FFS IRF cases increased in 2016 

 Average 

 annual percent Percent 

 change change 

 2008 2013 2015 2016 2008–2015 2015–2016 

Number of IRF cases 356,000 373,000 381,000 391,000 1.0% 2.4% 

Cases per 10,000 100.4 99.1 101.0 101.7 0.0 1.4 

 FFS beneficiaries 

Payment per case $16,646 $18,258 $19,116 $19,714 2.0 3.1 

Average length of stay 

 (in days) 13.3 12.9 12.7 12.7 –0.6 0.0 

Note: FFS (fee-for-service), IRF (inpatient rehabilitation facility). Numbers of cases reflect Medicare FFS utilization only. Yearly 

figures presented in the table are rounded, but the percent-change columns were calculated using unrounded data. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• The number of Medicare FFS IRF cases grew rapidly throughout the 1990s and the early 

years of the IRF prospective payment system, reaching a peak of about 495,000 in 2004 

(data not shown). 

• In 2004, CMS renewed its enforcement of the compliance threshold, which requires that 60 

percent or more of an IRFs’ cases have at least one of 13 specified conditions, and IRF 

volume began to fall. Between 2004 and 2008, the number of IRF cases fell almost 8 

percent per year (data not shown). After 2008, volume began to increase slowly, rising 1 

percent per year, on average, from 2008 to 2015. Between 2015 and 2016, volume growth 

picked up, rising 2.4 percent. 

• In 2016, the number of IRF cases per 10,000 FFS beneficiaries was 101.7, up 1.4 percent 

from the previous year. Relatively few Medicare beneficiaries use IRF services because, to 

qualify for Medicare coverage, IRF patients must be able to both tolerate and benefit from 

intensive rehabilitation therapy, which typically consists of at least three hours of therapy a 

day for at least five days a week. Despite the growth in the number of IRF cases per FFS 

beneficiary, the aggregate Medicare FFS discharge share in IRFs was stable at about 60 

percent of total discharges (data not shown). 

• Medicare payments per IRF case rose, on average, 2.0 percent per year between 2008 and 

2015. Payments per case grew 3.1 percent between 2015 and 2016. 
A Data Book: Health care spending and the Medicare program, June 2018 123

Chart 8-13. Most common types of FFS inpatient rehabilitation 

facility cases, 2016 

Type of case Share of cases 

Stroke 20.1% 

Other neurological conditions 13.7 

Fracture of the lower extremity 10.8 

Debility 10.7 

Brain injury 9.9 

Other orthopedic conditions 8.2 

Cardiac conditions 6.1 

Major joint replacement of lower extremity 5.5 

Spinal cord injury 4.9 

All other 10.1 

Note: FFS (fee-for-service). “Other neurological conditions” includes multiple sclerosis, Parkinson’s disease, polyneuropathy, 

and neuromuscular disorders. “Fracture of the lower extremity” includes hip, pelvis, and femur fractures. Patients with 

debility have generalized deconditioning not attributable to other conditions. “Other orthopedic conditions” excludes 

fractures of the hip, pelvis, and femur and hip and knee replacements. “All other” includes conditions such as 

amputations, arthritis, and pain syndrome. All Medicare FFS inpatient rehabilitation facility (IRF) cases with valid patient 

assessment information were included in this analysis. Numbers may not sum to 100 percent due to rounding. 

Source: MedPAC analysis of Inpatient Rehabilitation Facility–Patient Assessment Instrument data from CMS. 

• In 2016, the most frequently occurring case type among FFS beneficiaries admitted to IRFs 

was stroke, which accounted for 20.1 percent of Medicare FFS cases. 

• The number and share of Medicare FFS cases with other neurological conditions has grown 

significantly. Between 2008 and 2015, the number of IRF discharges with other neurological 

conditions climbed 76 percent while the total number of Medicare IRF discharges increased 

9 percent (data not shown). 

• The distribution of case types differs by type of IRF. For example, in 2016, 15 percent of 

FFS cases in freestanding for-profit IRFs were admitted for rehabilitation following a stroke, 

compared with 25 percent of cases in hospital-based nonprofit IRFs (data not shown). 

Likewise, 19 percent of FFS cases in freestanding for-profit IRFs were admitted with other 

neurological conditions, roughly double the share admitted to hospital-based IRFs 

(regardless of ownership) (data not shown). 
124 Post-acute care

Chart 8-14. Inpatient rehabilitation facilities’ Medicare margins 

 by type of facility, 2006–2016 

 2006 2008 2010 2012 2014 2015 2016 

All IRFs 12.5% 9.4% 8.6% 11.2% 12.4% 13.8% 13.0% 

 

Hospital based 9.9 3.9 –0.5 0.7 0.9 1.9 1.2 

Freestanding 17.5 18.2 21.4 23.9 25.3 26.7 25.5 

Urban 12.8 9.6 9.0 11.6 12.8 14.2 13.2 

Rural 10.0 6.9 4.7 6.5 6.2 8.3 9.5 

Nonprofit 11.0 5.3 2.1 2.1 2.0 3.5 2.0 

For profit 16.3 16.9 19.6 22.9 23.8 24.8 23.9 

 

Note: IRF (inpatient rehabilitation facility). 

Source: MedPAC analysis of cost report data from CMS. 

• Following a period of steady growth, the aggregate IRF Medicare margin declined in 2016 but 

remained high at 13.0 percent. 

 

• Margins varied by ownership, with for-profit IRFs having substantially higher margins. At the 

same time, Medicare margins in freestanding IRFs far exceeded those of hospital-based 

facilities. Nevertheless, a quarter of hospital-based IRFs had Medicare margins greater than 11 

percent (data not shown), indicating that many hospitals can manage their IRF units profitably. 

Further, despite the comparatively low average margin in hospital-based IRFs, evidence 

suggests that these units make a positive financial contribution to their parent hospitals. 

Commission analysis found that, in 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). 

• Higher unit costs are a major driver of low margins in both hospital-based and nonprofit IRFs. 

However, the Commission has found that the mix of case types in IRFs is also correlated with 

profitability. IRFs with the highest margins have a higher share of neurological cases and a lower 

share of stroke cases. Further, we have observed differences in the types of stroke and 

neurological cases admitted to high- and low-margin IRFs. Stroke cases in the highest margin 

IRFs are much less likely to have paralysis than are stroke cases in the lowest margin IRFs. 

Neurological cases in the highest margin IRFs are much more likely to be neuromuscular 

disorders (such as amyotrophic lateral sclerosis) than are neurological cases in the lowest 

margin IRFs (data not shown). 

• The Commission has found that high-margin IRFs have patients who are, on average, less 

severely ill in the acute care hospital than patients admitted to low-margin IRFs. Once admitted 

to and assessed by the IRF, however, the average patient profile changes, with patients treated 

in high-margin IRFs appearing to be more disabled than those in low-margin IRFs. This finding 

suggests the possibility that assessment and coding practices may contribute to greater 

revenues in some IRFs (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2018 125

Chart 8-15. Low standardized costs led to high margins for both 

hospital-based and freestanding IRFs, 2016 

Characteristic Lowest cost quartile Highest cost quartile 

Median cost per discharge 

 All $11,490 $19,873 

 Hospital based 12,158 19,860 

 Freestanding 10,854 20,417 

Median Medicare margin 

 All 28.4% −22.1% 

 Hospital based 23.4 −22.1 

 Freestanding 31.0 −23.1 

Median 

 Number of beds 48 18 

 Occupancy rate 72% 53% 

Share of facilities in the quartile that are: 

 Hospital based 38% 94% 

 Freestanding 62 6 

 Nonprofit 31 62 

 For profit 66 20 

 Government 3 17 

 Urban 94 80 

 Rural 6 20 

Note: IRF (inpatient rehabilitation facility). Cost per discharge is standardized for differences in wages across geographic areas, 

differences in case mix across providers, and differences across providers in the prevalence of high-cost outliers, shortstay outliers, and transfer cases. 

Source: MedPAC analysis of Medicare cost report and Medicare Provider Analysis and Review data from CMS. 

• IRFs with the lowest standardized costs (those in the lowest cost quartile) had a median 

standardized cost per discharge that was 42 percent less than that of the IRFs with the 

highest standardized costs (those in the highest cost quartile). 

• IRFs with the lowest costs tended to be larger: The median number of beds was 48 

compared with 18 in the highest cost quartile. In addition, IRFs with the lowest costs had a 

higher median occupancy rate (72 percent vs. 53 percent, respectively). These results 

suggest that low-cost IRFs benefit from economies of scale. 

• Low-cost IRFs were disproportionately freestanding and for profit. Still, 38 percent of IRFs in 

the lowest cost quartile were hospital based and 31 percent were nonprofit. By contrast, in 

the highest cost quartile, 94 percent were hospital based and 62 percent were nonprofit. 
126 Post-acute care

Chart 8-16. The top 25 MS–LTC–DRGs made up two-thirds of 

LTCH discharges in 2016 

MS–LTC Share 

 –DRG Description Discharges of cases 

 

 189 Pulmonary edema and respiratory failure 17,539 14.0% 

 207 Respiratory system diagnosis with ventilator support 96+ hours 14,445 11.5 

 871 Septicemia without ventilator support 96+ hours with MCC 7,938 6.3 

 539 Osteomyelitis with MCC 3,418 2.7 

 592 Skin ulcers with MCC 3,351 2.7 

 177 Respiratory infections and inflammations with MCC 3,092 2.5 

 949 Aftercare with CC/MCC 2,960 2.4 

 208 Respiratory system diagnosis with ventilator support <96 hours 2,790 2.2 

 682 Renal failure with MCC 2,516 2.0 

 981 Extensive OR procedure unrelated to principal diagnosis with MCC 2,451 2.0 

 166 Other respiratory system OR procedures with MCC 1,959 1.6 

 559 Aftercare, musculoskeletal system and connective tissue with MCC 1,939 1.5 

 570 Skin debridement with MCC 1,746 1.4 

 853 Infectious and parasitic diseases with OR procedure with MCC 1,731 1.4 

 314 Other circulatory system diagnoses with MCC 1,679 1.3 

 919 Complications of treatment with MCC 1,640 1.3 

 862 Postoperative and post-traumatic infections with MCC 1,624 1.3 

 463 Wound debridement and skin graft except hand, for musculo- 

 connective tissue disorders with MCC 1,551 1.2 

 291 Heart failure and shock with MCC 1,535 1.2 

 4 Tracheostomy with ventilator support 96+ hours or primary diagnosis 1,534 1.2 

 except face, mouth, and neck without major OR 

 870 Septicemia with ventilator support 96+ hours 1,503 1.2 

 193 Simple pneumonia and pleurisy with MCC 1,437 1.1 

 190 Chronic obstructive pulmonary disease with MCC 1,353 1.1 

 603 Cellulitis without MCC 1,322 1.1 

 560 Aftercare, musculoskeletal system and connective tissue with CC 1,316 1.0 

 Top 20 MS–LTC–DRGs 84,369 67.2 

 Total 125,586 100.0 

Note: MS–LTC–DRG (Medicare severity long-term care diagnosis related group), LTCH (long-term care hospital), MCC (major 

complication or comorbidity), CC (complication or comorbidity), OR (operating room). MS–LTC–DRGs are the case-mix 

system for LTCHs. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• Cases in LTCHs are concentrated in a relatively small number of MS–LTC–DRGs. In 2016, 

the top 25 MS–LTC–DRGs accounted for two-thirds of LTCH cases. 

• As in 2015, the two most frequent diagnoses in LTCHs in 2016 were pulmonary edema and 

respiratory failure and a respiratory system diagnosis with ventilator support of more than 96 

hours. 

• Over 35 percent of all LTCH cases were respiratory conditions—a statistic that has been 

relatively stable since the 2008 implementation of the MS-LTC-DRGs. Nonprofit LTCHs care 

for a higher share of beneficiaries with a respiratory-related illness compared with for-profit 

LTCHs (data not shown). 

 
A Data Book: Health care spending and the Medicare program, June 2018 127

Chart 8-17. The number of Medicare LTCH cases and users 

 has decreased each year since peaking in 2012 

 Average annual change 

 2012– 2014– 2015– 

 2012 2013 2014 2015 2016 2014 2015 2016 

 

Cases 140,463 137,827 133,984 131,129 125,586 –2.3% –2.1% –4.2% 

Cases per 10,000 

FFS beneficiaries 37.7 36.6 35.4 34.5 32.7 –3.1 –2.6 –5.1 

Spending per 

FFS beneficiary $148.8 $146.6 $141.7 $140.3 $132.9 –2.5 –0.9 –5.3 

Payment per case $39,493 $40,070 $40,015 $40,719 $40,656 0.7 1.8 –0.2 

Length of stay (in days) 26.2 26.5 26.3 26.6 26.8 0.2 1.0 1.1 

Users 123,652 121,532 118,288 116,088 111,171 –2.2 –1.9 –4.2 

Note: LTCH (long-term care hospitals), FFS (fee-for-service). Yearly figures presented in the table are rounded, but the average 

annual changes were calculated using unrounded data. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• Controlling for the number of FFS beneficiaries, the number of LTCH cases declined by 

about 2 percent annually between 2012 and 2015. The number of cases declined more 

(−4.2 percent) between 2015 and 2016. 

• The average length of stay has increased from 26.2 days in 2012 to 26.8 in 2016, reflecting 

an average annual growth of 0.6 percent. 

• Reflecting the decline in the number of Medicare cases, the number of beneficiaries who 

had LTCH stays (“users”) also decreased by 4.2 percent from 2015 to 2016. 

 
128 Post-acute care

Chart 8-18. LTCH cost growth in 2016 was the slowest since 

2011 

Note: LTCH (long-term care hospital). Percentage changes are calculated based on consistent two-year cohorts of LTCHs. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• After implementation of the prospective payment system on October 1, 2002, costs per case 

increased rapidly, following a surge in payments per case. Between 2005 and 2007, growth 

in cost per case began to slow down as regulatory changes to Medicare’s payment policies 

for LTCHs slowed growth in payment per case to an average of 1.3 percent per year. 

• For most of the past decade, LTCHs held cost growth below the rate of market basket 

increases, likely because of ongoing concerns about possible changes to Medicare’s payment 

policies for LTCH services. The slowest growth in average cost per case occurred from 2009 

through 2011, when the average cost per case increased less than 1 percent per year. 

• From 2012 to 2015, the average cost per case increased by about 2 percent per year. From 

2015 to 2016, cost growth slowed to 1 percent, reflecting the lowest growth since 2011. 

4.4

7.5

13.4

26.5

36.0

40.0 38.6 40.0

45.7 47.5 48.1

50.3 51.2 51.5 53.1 53.0

3.6 4.9

5.6

14.3

20.3

26.3

30.4 32.1

34.8 35.4 35.8 37.2

39.2

41.2

43.4 44.4

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Cumulative percent change

Payments per case

Costs per case
A Data Book: Health care spending and the Medicare program, June 2018 129

Chart 8-19. The aggregate average LTCH Medicare margin fell 

each year since 2013 

Type of LTCH 

Share of 

discharges 

in 2016 

Medicare margin 

2011 2012 2013 2014 2015 2016 

 

All 100% 6.9% 7.6% 6.8% 5.2% 4.6% 4.1% 

Urban 96 7.1 7.7 7.0 5.2 4.7* 4.3 

Rural 4 2.7 3.1 2.5 4.1 2.9* −0.5 

Nonprofit 12 0.3 −0.3 −1.1 −2.2 −6.0 −4.7 

For profit 87 8.4 9.3 8.7 7.1 6.5 5.7 

Government 2 N/A N/A N/A N/A N/A N/A 

Note: LTCH (long-term care hospital), N/A (not applicable). Margins for government-owned providers are not shown. They 

operate in a different context from other providers, so their margins are not necessarily comparable. Totals may not sum 

to 100 percent due to rounding. 

 *CMS adopted new core-based statistical area codes for LTCHs beginning in fiscal year 2015; this change reclassified 

several facilities as urban that had previously been classified as rural, and therefore the margin across categories of urban 

and rural facilities between 2014 and 2015 should not be compared. 

Source: MedPAC analysis of cost report data from CMS. 

• After implementation of the prospective payment system on October 1, 2002, 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 (data not shown) through 2012, LTCH margins climbed as providers consistently 

held cost growth below that of payment growth. 

• In 2013, the aggregate LTCH margin fell to 6.8 percent, primarily due to policy changes that 

reduced payments, including the start of a three-year phase-in of a downward adjustment 

for budget neutrality and the effect of sequestration beginning on April 1, 2013. The 

aggregate LTCH margin has continued to decline since 2012, falling to 4.1 percent in 2016. 

• Financial performance in 2016 varied across LTCHs. The aggregate Medicare margin for 

for-profit LTCHs (which accounted for 87 percent of all Medicare discharges from LTCHs) 

decreased from 6.5 percent in 2015 to 5.7 percent in 2016. The aggregate margin for 

nonprofit LTCHs increased from –6.0 percent in 2014 to –4.7 percent in 2016. 

S E C T I O N 

Medicare Advantage 

A Data Book: Health care spending and the Medicare program, June 2018 133

Chart 9-1. Enrollment in MA plans, 2002–2018 

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 reached 20.0 

million enrollees (33 percent of all Medicare beneficiaries) in 2018. MA enrollment has 

grown steadily since 2003, increasing more than fourfold. The Medicare program paid MA 

plans about $210 billion in 2017 to cover Part A and Part B services for MA enrollees (data 

not shown). 

4.9 4.6 4.7 4.9

6.9

8.1

9.4

10.5 11.0 11.7

12.8

14.1

15.4

16.4

17.2

18.5

20.0

0

5

10

15

20

25

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Beneficiaries (in millions) 
134 Medicare Advantage 

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

beneficiaries 

 Share of Medicare beneficiaries living in counties with plans available 

 CCPs 

 HMO or Any Average plan 

 local PPO Regional Any MA offerings per 

 (local CCP) PPO CCP PFFS plan beneficiary 

 

2012 93% 76% 99% 60% 100% 19 

2013 95 71 99 59 100 19 

2014 95 71 99 53 100 18 

2015 95 70 98 47 99 17 

2016 96 73 99 47 99 18 

2017 95 74 98 45 99 18 

2018 96 74 98 41 99 20 

Note: MA (Medicare Advantage), CCP (coordinated care plan), HMO (health maintenance organization), PPO (preferred 

provider organization), PFFS (private fee-for-service). These data do not include plans that have restricted enrollment or 

are not paid based on the MA plan bidding process (special needs plans, cost plans, employer-only plans, and certain 

demonstration plans). 

Source: MedPAC analysis of plan bid data from CMS. 

• There are four types of MA plans, three of which are CCPs. Local CCPs include HMOs and 

local PPOs, which have comprehensive provider networks and limit or discourage use of outof-network providers. Local CCPs may choose which individual counties to serve. Regional 

PPOs cover entire state-based regions and have networks that may be looser than those 

required of local PPOs. Since 2011, PFFS plans (but 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 96 percent of Medicare beneficiaries in 2018, and regional 

PPOs are available to 74 percent of beneficiaries; the availability of both plan types is as 

high as or higher than in any year since 2013. Since 2006, almost all Medicare beneficiaries 

have had MA plans available; 99 percent have an MA plan available in 2018. 

• The number of plans from which beneficiaries may choose in 2018 is higher than any time 

since 2012. In 2018, beneficiaries can choose from an average of 20 plans operating in their 

counties. 
A Data Book: Health care spending and the Medicare program, June 2018 135

Chart 9-3. Average monthly rebate dollars, by plan type, 

2013–2018 

Note: HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private fee-for-service), MA 

(Medicare Advantage). Employer group waiver and special needs plans are excluded. 

Source: MedPAC analysis of bid and plan finder data from CMS. 

• Perhaps the best summary measure of plan benefit value is the average rebate, which plans 

receive to provide additional benefits. Plans are awarded rebates for bidding under their 

benchmarks. The rebates must be returned to the plan members in the form of extra 

benefits. The extra benefits may be supplemental benefits, lower cost sharing, or lower 

premiums. The average rebate for all non-employer, non-SNP plans rose to a high of $96 

per month for 2018.

• HMOs have had, by far, the highest rebates because they tend to bid lower than other types 

of plans. Average rebates for HMOs have risen sharply over the past three years and are at 

a high of $111 per month for 2018. 

• For both local and regional PPOs, the rebates declined through 2015 and then rose to levels 

higher than 2013 in 2018. 

• Rebates for PFFS plans have declined steadily since 2011 (2011 and 2012 not shown in 

chart). 

 

102

35

21

36

81

92

35

18

28

75

95

29

18

24

76

101

34

17

26

81

105

49

16

40

89

111

59

15

45

96

0

20

40

60

80

100

120

HMO Local PPO PFFS Regional PPO Any MA plan

Average monthly rebate dollars

2013 2014 2015 2016 2017 2018
136 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 2014 2015 2016 2017 2018 2017–2018 

Local CCPs 13,809 14,824 15,588 16,920 18,463 9% 

Regional PPOs 1,221 1,237 1,315 1,353 1,327 –2 

PFFS 309 260 238 190 154 –19 

Note: CCP (coordinated care plan), PPO (preferred provider organization), PFFS (private fee-for-service). Local CCPs include 

HMOs and local PPOs. 

Source: CMS health plan monthly summary reports. 

• Enrollment in local CCPs grew by 9 percent over the past year. Enrollment in regional PPOs 

declined by 2 percent, while enrollment in PFFS plans continued to decline. Combined 

enrollment in the three types of plans grew by 8 percent from February 2017 to February 

2018 (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2018 137

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

plan, 2018 

 Medicare eligibles Distribution (in percent) of enrollees by plan type 

State or territory (in thousands) HMO Local PPO Regional PPO PFFS Cost Total 

U.S. total 60,463 21% 9% 2% 0% 1% 34% 

Alabama 1,043 17 20 1 0 0 38 

Alaska 94 0 1 0 0 0 1 

Arizona 1,274 35 3 1 0 0 39 

Arkansas 644 10 4 7 2 0 23 

California 6,202 38 2 0 0 0 40 

Colorado 907 30 4 0 0 2 36 

Connecticut 677 23 11 1 0 0 35 

Delaware 201 7 6 0 0 0 13 

Florida 4,495 29 7 7 0 0 43 

Georgia 1,714 11 17 8 0 0 36 

Hawaii 268 17 27 2 0 0 45 

Idaho 322 18 13 0 0 0 31 

Illinois 2,233 10 11 0 0 0 23 

Indiana 1,251 9 16 3 0 0 29 

Iowa 622 6 11 0 0 2 19 

Kansas 532 7 8 0 1 0 16 

Kentucky 929 7 16 5 0 1 30 

Louisiana 865 29 3 2 0 0 34 

Maine 335 17 11 0 1 0 30 

Maryland 1,030 3 4 0 0 4 12 

Massachusetts 1,322 16 5 1 0 0 21 

Michigan 2,059 14 22 1 0 0 37 

Minnesota 1,014 12 5 0 0 40 57 

Mississippi 605 10 3 5 0 0 18 

Missouri 1,235 20 8 4 1 0 33 

Montana 226 6 11 0 1 0 18 

Nebraska 343 9 3 0 2 1 14 

Nevada 517 30 5 0 0 0 35 

New Hampshire 295 7 4 1 0 0 12 

New Jersey 1,618 12 10 0 0 0 22 

New Mexico 416 21 12 0 0 0 34 

New York 3,600 28 8 3 0 0 39 

North Carolina 1,959 14 17 2 0 0 33 

North Dakota 129 0 3 0 0 15 18 

Ohio 2,325 20 15 2 0 0 38 

Oklahoma 741 11 6 1 0 0 19 

Oregon 852 29 15 0 0 0 44 

Pennsylvania 2,718 26 15 0 0 0 41 

Puerto Rico 791 69 3 0 0 0 72 

Rhode Island 219 34 2 1 0 0 37 

South Carolina 1,048 7 5 13 0 0 26 

South Dakota 173 0 6 0 0 14 20 

Tennessee 1,347 24 12 1 0 0 37 

Texas 4,074 19 12 4 0 1 36 

Utah 388 29 6 0 0 0 36 

Vermont 145 2 3 4 1 0 10 

Virgin Islands 21 0 1 0 0 0 1 

Virginia 1,506 8 5 2 1 2 19 

Washington 1,340 27 4 0 0 0 31 

Washington, DC 95 2 8 0 0 6 16 

West Virginia 443 3 22 1 1 4 31 

Wisconsin 1,157 21 12 1 1 4 40 

Wyoming 107 0 1 0 1 1 4 

Note: MA (Medicare Advantage), HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private 

fee-for-service). Cost plans are not MA plans; they submit cost reports rather than bids to CMS. Component percentages 

may not sum to totals due to rounding. 

Source: CMS enrollment and population data February 2018. 
138 Medicare Advantage 

Chart 9-6. MA plan benchmarks, bids, and Medicare program 

 payments relative to FFS spending, 2018 

All plans HMOs Local PPOs Regional PPOs PFFS 

 

Benchmarks/FFS 107% 106% 110% 102% 107% 

Bids/FFS 90 88 99 94 105 

Payments/FFS 101 100 106 98 106 

 

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

organization), PFFS (private fee-for-service). 

Source: MedPAC analysis of plan bid data from CMS October 2017. 

• Since 2006, plan bids have partly determined the Medicare payments they receive. Plans bid to 

offer Part A and Part B coverage to Medicare beneficiaries (Part D coverage is bid separately). 

The bid includes plan administrative cost and profit. CMS bases the Medicare payment for a 

private plan on the relationship between its bid and its applicable benchmark. 

• The benchmark is an administratively determined bidding target. Benchmarks for each county are 

set by means of a statutory formula based on percentages (ranging from 95 percent to 115 

percent) of each county’s per capita Medicare spending. Plans with quality ratings of 4 or more 

stars may have their benchmarks raised by up to 10 percent of FFS spending in some counties. 

• If a plan’s bid is above the benchmark, then the plan receives the benchmark as payment from 

Medicare, and enrollees have to pay an additional premium that equals the difference. If a plan’s bid 

is below the benchmark, the plan receives its bid plus a “rebate,” defined by law as a percentage of 

the difference between the plan’s bid and its benchmark. The percentage is based on the plan’s 

quality rating, and it ranges from 50 percent to 70 percent. The plan must then return the rebate to its 

enrollees in the form of supplemental benefits, lower cost sharing, or lower premiums. 

• We estimate that MA benchmarks average 107 percent of FFS spending when weighted by MA 

enrollment. The ratio varies by plan type because different types of plans tend to draw 

enrollment from different types of geographical areas. 

• Plans’ enrollment-weighted bids (excluding employer plans, which no longer submit bids) 

average 90 percent of FFS spending in 2018. We estimate that HMOs bid an average of 88 

percent of FFS spending, while bids from other plan types average at least 94 percent of FFS 

spending. These numbers suggest that HMOs can provide the same services for less than FFS 

in the areas where they bid. 

• We project that 2018 MA payments will be 101 percent of FFS spending. This figure does not 

include employer plans and does not account for risk-coding differences between FFS and MA 

plans that have not been resolved through the coding intensity factor. 

• The ratio of payments relative to FFS spending varies by the type of MA plan. HMO and regional 

PPO payments are estimated to be 100 and 98 percent of FFS, respectively, while payments to 

PFFS and local PPOs average 106 percent of FFS. 
A Data Book: Health care spending and the Medicare program, June 2018 139

Chart 9-7. Enrollment in employer group MA plans, 2006–2018 

Note: MA (Medicare Advantage). Enrollment numbers are as of May for 2006, November for 2007, and February for 2008 

through 2018. 

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 2018, about 4.1 million enrollees were in employer group plans, or about 21 

percent of all MA enrollees. Employer plan enrollment grew by 12 percent from 2017 and 

has doubled since 2011. 

0.96

1.30 1.56 1.83 1.92 2.08 2.32 2.53

2.96 3.14 3.16

3.68

4.13

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Enrollment (in millions)
140 Medicare Advantage 

Chart 9-8. Number of special needs plan enrollees, 2009–2018 

Source: CMS special needs plans comprehensive reports, April 2009–2018. 

• 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, but SNP authority was extended several 

times. The Bipartisan Budget Act of 2018 made SNPs permanent. 

• CMS approves three types of SNPs: dual-eligible SNPs enroll only beneficiaries dually 

entitled to Medicare and Medicaid, chronic condition SNPs enroll only beneficiaries who 

have certain chronic or disabling conditions, and institutional SNPs enroll only beneficiaries 

who reside in institutions or are nursing-home certified. 

• Enrollment in dual-eligible SNPs has grown continuously and exceeds 2 million in 2018, 

doubling since 2011. 

• Enrollment in chronic condition SNPs has fluctuated as plan requirements have changed, 

but has risen annually since 2011. 

• Enrollment in institutional SNPs declined steadily through 2012 but stabilized, then 

increased beginning in 2016. 

918 967

1,069

1,188

1,380

1,576

1,678

1,790

1,959

2,210

265 214 170 201 266 288 313 332 335 349

119 98 80 47 49 50 50 58 63 74

0

500

1,000

1,500

2,000

2,500

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Number of special needs plan enrollees

(in thousands)

Dual Chronic Institutional
A Data Book: Health care spending and the Medicare program, June 2018 141

Chart 9-9. Number of SNPs and SNP enrollment rose from 2017 

to 2018 

Note: SNP (special needs plan). 

Source: CMS special needs plans comprehensive reports, April 2017 and 2018. 

• The number of SNPs increased by 10 percent from April 2017 to April 2018, and the number

of SNP enrollees increased by 12 percent. All three types of SNPs showed increases in the

number of plans and enrollment.

• In 2018, most SNPs (64 percent) are for dual-eligible beneficiaries, while 15 percent are for

beneficiaries who reside in institutions (or reside in the community but have a similar level of

need), and 21 percent are for beneficiaries with chronic conditions.

• Enrollment in SNPs has grown from 0.9 million in May 2007 (not shown) to 2.6 million in

April 2018.

• The availability of SNPs varies by type of special needs population served (data not shown).

In 2018, 86 percent of beneficiaries reside in areas where SNPs serve dual-eligible

beneficiaries (the same as in 2017), 56 percent live where SNPs serve institutionalized

beneficiaries (up from 52 percent in 2017), and 47 percent live where SNPs serve

beneficiaries with chronic conditions (up from 44 percent).

377 412

83

97

123

132

0

100

200

300

400

500

600

700

April 2017 April 2018

Number of SNPs

Chronic or disabling condition

Institutional

Dual eligible

1,959 2,210

63

335 74

349

0

500

1,000

1,500

2,000

2,500

3,000

April 2017 April 2018

SNP enrollment (in thousands)

Chronic or disabling condition

Institutional

Dual eligible
142 Medicare Advantage

Chart 9-10. Twenty most common condition categories among 

MA beneficiaries, as defined in the CMS–HCC model, 

2016 

Percent of

Percent of beneficiaries

beneficiaries with listed condition

Conditions (defined by HCC) with listed condition and no others 

Vascular disease 17.9% 2.1% 

Diabetes with chronic complications 17.3 3.1 

COPD 14.2 1.8

CHF 11.4 0.5

Specified heart arrhythmias 11.2 1.3 

Diabetes without complications 11.0 3.9 

Major depressive, bipolar, and paranoid disorders 10.2 1.7 

Morbid obesity 7.6 0.9 

Rheumatoid arthritis and inflammatory connective tissue disease 6.0 1.0 

Breast, prostate, colorectal, and other cancers and tumors 5.1 1.4 

Coagulation defects and other specified hematological disorders 4.3 0.4 

Angina pectoris 3.7 0.3 

Other significant endocrine and metabolic disorders 3.2 0.3 

Acute renal failure 3.2 0.1 

Ischemic or unspecified stroke 2.9 0.2 

Drug/alcohol dependence 2.5 0.2 

Seizure disorders and convulsions 2.5 0.3 

Cardio-respiratory failure and shock 2.4 0.0 

Septicemia, sepsis, systemic inflammatory response 

 syndrome/shock 1.7 0.0 

Chronic ulcer of skin, except pressure 1.7 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.

• Vascular disease is the most common HCC, but two diabetes HCCs combined are more

common than vascular disease. Over 28 percent of MA enrollees are in one of those two

diabetes HCCs.
A Data Book: Health care spending and the Medicare program, June 2018 143

Chart 9-11. Medicare private plan enrollment patterns, by age 

and Medicare–Medicaid dual-eligible status, 

December 2016

As percent of 

Medicare population 

Percent of 

category in FFS 

Percent of 

category in 

private plans 

All beneficiaries 100% 68% 32% 

Aged (65 or older) 84 67 33 

 Under 65 16 73 27 

Non–dual eligible 81 69 31 

Aged (65 or older) 74 68 32 

 Under 65 8 72 28 

Dual eligible 18 66 34 

Aged (65 or older) 11 61 39 

 Under 65 8 73 27

Dual-eligible beneficiaries by category (all ages) 

Full dual eligibility 13 70 30 

Beneficiaries with partial dual eligibility 

 QMB only 3 61 39 

 SLMB only 2 54 46 

 QI 1 51 49 

Note: FFS (fee-for-service), QMB (qualified Medicare beneficiary), SLMB (specified low-income beneficiary), QI (qualified 

individual). Dual-eligible beneficiaries are eligible for Medicare and Medicaid. See accompanying text for an explanation of 

the categories of dual-eligible beneficiaries. “Plans” include Medicare Advantage plans as well as cost-reimbursed plans. 

Data exclude Puerto Rico because of the inability to determine specific dual-eligible categories. As of December 2016, 

Puerto Rico had 568,000 Medicare Advantage enrollees. Dual-eligible special needs plans in Puerto Rico had 283,000 

enrollees in December 2016. Figures may not sum due to rounding. 

Source: MedPAC analysis of 2016 denominator and common Medicare environment files and CMS monthly MA reports. 

• Medicare plan enrollment among the dually eligible continues to increase. In 2016, 34 percent of

dual-eligible beneficiaries were in Medicare private plans, up from 23 percent in 2012.

• A substantial share of dual-eligible beneficiaries (42 percent (not shown in table)) are under the

age of 65 and entitled to Medicare on the basis of disability or end-stage renal disease.

Regardless of dual-eligibility status, beneficiaries under age 65 are less likely than aged

beneficiaries to enroll in Medicare private plans (27 percent vs. 33 percent, respectively).

• Dual-eligible beneficiaries who have full dual eligibility—that is, those who have coverage for

their Medicare out-of-pocket costs (premiums and cost sharing) as well as coverage for services

such as long-term care services and supports—are less likely to enroll in private Medicare plans

than beneficiaries with “partial” dual eligibility. Full dual-eligibility categories consist of

beneficiaries with coverage through state Medicaid programs as well as through certain QMBs

and SLMBs who also have Medicaid coverage for services. The latter two categories are

referred to as QMB-Plus and SLMB-Plus beneficiaries. Beneficiaries with partial dual eligibility

have coverage for Medicare premiums (through the QI or SLMB program) or premiums and

Medicare cost sharing, in the case of the QMB program. SLMB-only and QI beneficiaries have

higher rates of plan enrollment (46 percent and 49 percent, respectively) than any other category

shown in this chart, and the rates are higher than the average rate (32 percent) across all

Medicare beneficiaries.

 

S E C T I O N 

Prescription drugs

A Data Book: Health care spending and the Medicare program, June 2018 147

Chart 10-1. Medicare spending for Part B drugs furnished by 

physicians, hospital outpatient departments, and 

suppliers, 2005–2016 

Note: Data include Part B–covered drugs furnished by several provider types including physicians, suppliers, and hospital 

outpatient departments and exclude those furnished by critical access hospitals, Maryland hospitals, and dialysis facilities. 

“Medicare spending” includes program payments and beneficiary cost sharing. Data reflect all Part B drugs whether they 

were paid based on the average sales price plus 6 percent or another payment formula. Data exclude blood and blood 

products (other than clotting factor). Components may not sum to total due to rounding. 

Source: MedPAC and Acumen LLC analysis of Medicare claims data. 

• The Medicare program and beneficiaries spent about $29.1 billion on Part B drugs furnished by 

physicians, suppliers, and hospital outpatient departments (HOPDs) in 2016, an increase of 

about 12.9 percent from 2015. 

• Medicare’s average sales price (ASP) payment system for Part B drugs began in 2005. Between 

2005 and 2016, total spending grew at an average annual rate of 7.4 percent. Spending growth 

was slower from 2005 to 2009 (about 3.7 percent per year on average) and more rapid from 

2009 to 2016 (about 9.5 percent per year on average). 

• Of total 2016 Part B drug spending, physicians accounted for 57 percent ($16.6 billion), HOPDs 

accounted for 36 percent ($10.4 billion), and suppliers accounted for 7 percent ($2.1 billion). 

• Part B drug spending has been growing more rapidly for HOPDs than for physicians and 

suppliers. Between 2009 and 2016, Part B drug spending grew at an average annual rate of 16.5 

percent for HOPDs, 7.3 percent for physicians, and 3.2 percent for suppliers. 

• Not included in these data are critical access hospitals and Maryland hospitals, which are not paid 

under the ASP system, and end-stage renal disease facilities, which are paid for most Part B drugs 

through the dialysis bundled payment rate. Medicare and beneficiaries spent approximately $660 

million in critical access hospitals and $360 million in Maryland hospitals for Part B drugs in 2016. 

13.4 14.0 14.9 14.5 15.4 

16.6 

18.6 

20.3 

21.6 

22.8 

25.8

29.1

9.1 9.6 9.9 9.8 10.2 10.7 11.6 12.2 12.6 13.2 

15.0

16.6

2.8 2.9 3.2 3.1 3.6 4.2 

5.2 6.1 6.9 7.5 

8.7

10.4

1.4 1.5 1.8 1.6 1.7 1.7 1.8 2.0 2.1 2.2 2.1 2.1 0

3

6

9

12

15

18

21

24

27

30

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Medicare spending (dollars in billions)

Total

Physicians

Hospital outpatient

Suppliers
148 Prescription drugs

Chart 10-2. Change in Medicare payments and utilization for 

separately payable Part B drugs, 2009–2015 

 

2009 2015 

Average 

annual 

growth 

2009–2015 

Total payments: All Part B drugs (in billions) $13.2 $24.0 10.5% 

Total payments: All Part B drugs excluding vaccines (in billions) $13.0 $22.6 9.7 

Number of beneficiaries using a Part B drug (in millions) 2.9 3.5 3.5 

Average total payments per beneficiary who used a Part B drug $4,504 $6,392 6.0 

Average number of Part B drugs per beneficiary 1.41 1.37 –0.5 

 Average payment per Part B drug $3,191 $4,676 6.6 

Total payments: All Part B vaccines (in billions) $0.2 $1.4 35.8 

Number of beneficiaries using a Part B vaccine (in millions) 13.4 16.2 3.1 

 Average total payments per beneficiary who used a Part B vaccine $16 $84 31.7 

Average number of Part B vaccines per beneficiary 1.08 1.33 3.6 

Average payment per Part B vaccine $15 $63 27.2 

Note: This analysis includes all Part B drugs paid the average sales price plus 6 percent (ASP + 6 percent) as well as the small 

group of Part B drugs that are paid based on the average wholesale price or reasonable cost or that are contractor priced. 

“Vaccines” refers to the three Part B–covered preventive vaccines: influenza, pneumococcal, and hepatitis B. Data include 

Part B drugs furnished by physicians, hospitals paid under the outpatient prospective payment system, and suppliers. 

Excluded from the analysis were any Part B drugs that were bundled or packaged in 2009 and/or 2015 (i.e., drugs that 

were packaged under the outpatient prospective payment system, regardless of the setting where they were furnished, 

and drugs furnished by dialysis facilities), drugs billed under not-otherwise-classified billing codes, blood and blood 

products (other than clotting factor), and data for critical access hospitals and Maryland hospitals. The average annual 

growth rates displayed in the table may differ slightly from the average annual growth rates calculated using the 2009 and 

2015 values displayed in the table due to rounding. 

Source: MedPAC analysis of Medicare claims data for physicians, hospital outpatient departments, and suppliers. 

• Total payments by the Medicare program and beneficiaries for separately payable Part B 

drugs increased 10.5 percent per year, on average, between 2009 and 2015. 

• Excluding the three Part B–covered preventive vaccines, Medicare spending on separately 

payable Part B drugs grew at an average rate of 9.7 percent per year between 2009 and 2015. 

• The largest factor contributing to the growth in Part B drug spending (excluding vaccines) 

was the change in the price Medicare paid for drugs. Between 2009 and 2015, the average 

payment per drug increased by 6.6 percent per year. This increase in the average payment 

per drug reflects increases in the prices of existing drugs and shifts in the mix of drugs, 

including the adoption of new, higher priced drugs. 

(Chart continued next page) 
A Data Book: Health care spending and the Medicare program, June 2018 149

Chart 10-2. Change in Medicare payments and utilization for 

separately payable Part B drugs, 2009–2015 

(continued) 

• Growth in the number of beneficiaries using nonvaccine Part B drugs (about 3.5 percent per 

year on average) also contributed to increased spending. The number of Part B drugs 

received per user declined from about 1.41 in 2009 to 1.37 in 2015, which modestly offset 

spending growth. 

• Medicare covers three preventive vaccines: influenza, pneumococcal, and—for beneficiaries 

at high or medium risk—hepatitis B. Although a relatively small share of total Part B drug 

spending, spending on Part B vaccines grew at an average rate of about 36 percent per 

year between 2009 and 2015. 

• Increased spending on the pneumococcal vaccine Prevnar-13 accounts for a large portion 

of the growth in vaccine spending. Medicare Part B paid physicians and outpatient hospitals 

over $900 million for Prevnar-13 in 2015, up from about $100 million in 2014 (data not 

shown). A Centers for Disease Control and Prevention advisory committee recommended a 

one-time vaccination of Prevnar-13 for all adults ages 65 and older, which led to over 5 

million beneficiaries receiving the vaccine in hospital outpatient departments and physician 

offices in 2015. Because Prevnar-13 has a higher price than other Part B–covered 

preventive vaccines, its increased use drove the substantial growth in the average payment 

per vaccine between 2009 and 2015. 
150 Prescription drugs

Chart 10-3. Top 10 Part B drugs paid based on ASP, by type of 

provider (dollars in millions), 2015 and 2016 

Total Physician and supplier Hospital outpatient 

Part B drug spending Part B drug spending Part B drug spending 

2015 2016 2015 2016 2015 2016

Aflibercept $1,815 $2,211 $1,699 $2,073 $115 $138 

Rituximab 1,567 1,671 824 842 744 829

Pegfilgrastim 1,263 1,378 650 682 613 696

Infliximab 1,249 1,343 791 834 458 509

Nivolumab 136* 1,224 N/A* 581 136* 642

Bevacizumab 1,122 1,118 585 562 537 555

Denosumab 919 1,089 583 684 336 404

Ranibizumab 1,151 1,045 1,107 1,006 43 39

Trastuzumab 648 706 313 335 335 371

Abatacept 454 588 315 408 139 180

Total spending, 

top 10 drugs in 2016 10,329 12,373 6,866 8,009 3,462 4,363 

Total spending, 

all Part B drugs 25,819 29,149 17,138 18,716 8,682 10,434 

Note: ASP (average sales price), N/A (not available). The 10 drugs shown in the chart reflect the Part B drug billing codes paid 

under the ASP methodology with the highest Medicare expenditures in 2016. Data for 2015 are shown for comparison. 

Data include Part B–covered drugs furnished by several provider types including physicians, suppliers, and hospital 

outpatient departments, but exclude those furnished by critical access hospitals, Maryland hospitals, and dialysis facilities. 

“Drug spending” includes Medicare program payments and beneficiary cost sharing. “Total spending, all Part B drugs” 

reflects all products, whether paid based on the ASP plus 6 percent or another method. Data exclude blood and blood 

products (other than clotting factor). All products are referred to using their chemical name. “Infliximab” refers to the 

reference biologic Remicade. Components may not sum to totals due to rounding. 

*Estimated 2015 spending for nivolumab is underestimated for the hospital outpatient category and not available for the

physician and supplier category because the product was billed in a not-otherwise-classified billing code for part of the

year and all of the year, respectively.

Source: MedPAC and Acumen LLC analysis of Medicare claims data. 

• Part B drugs are billed under more than 700 billing codes, but spending is concentrated. Medicare spending

(including cost sharing) on the top 10 drugs paid under the ASP system totaled about $12.4 billion in 2016, about

42 percent of all Part B drug spending that year.

• As of 2016, all of the top 10 Part B drugs are biologics. Many of these products are used to treat cancer or its

side effects (rituximab, pegfilgrastim, nivolumab, bevacizumab, denosumab, and trastuzumab). Drugs used to

treat age-related macular degeneration (ranibizumab, aflibercept, and bevacizumab) and rheumatoid arthritis

(rituximab, infliximab, and abatacept) are also included in the top 10.

• Medicare spending on immune globulin (for which there are several products billed through separate billing

codes) amounted to more than $1.4 billion in 2016 (data not shown).

• Medicare Part B covers three preventive vaccines—influenza, pneumococcal, and for certain beneficiaries

hepatitis B—and pays for them at a rate of 95 percent of the average wholesale price or reasonable cost. In

2016, Medicare Part B spent approximately $790 million on pneumococcal vaccine, $470 million on influenza

vaccine, and $35 million on hepatitis B vaccine furnished by physicians, outpatient hospitals, suppliers, endstage renal dialysis facilities, and certain other types of providers (data not shown).
A Data Book: Health care spending and the Medicare program, June 2018 151

Chart 10-4. Growth in ASP for the 20 highest expenditure Part B 

drugs, 2005–2018 

Part B drug 

Total 

Medicare 

payments 

in 2016 

(in billions) 

Average annual ASP growth 

Earliest 

year of 

ASP data 

if not 2005 

2005–

2010 

2010–

2017 

2017–

2018 

2005–

2018 

Aflibercept $2.2 N/A 0.0%* –0.9% –0.2%* 2013

Rituximab $1.7 5.0 5.5 7.2 5.4

Pegfilgrastim $1.4 0.8 8.2 7.9 5.3

Infliximab $1.3 2.0 4.9 4.4 3.8

Nivolumab $1.2 N/A 2.7* 2.8 2.8* 2016

Bevacizumab $1.1 0.1 3.6 4.0 2.3

Denosumab $1.1 N/A 2.7* 7.5 3.5* 2012

Ranibizumab $1.0 –0.2* –0.9 1.7 –0.5* 2008 

Trastuzumab $0.7 4.1 5.5 6.5 5.1

Abatacept $0.6 1.4* 13.0 5.8 9.1* 2007

Pemetrexed $0.6 4.5 3.4 3.9 3.9

Bortezomib $0.5 6.1 2.8 1.5 3.9

Octreotide depot $0.5 4.9 7.1 9.3 6.4

Omalizumab $0.4 4.6 7.7 8.0 6.5

Pembrolizumab $0.3 N/A 1.9* 2.8 2.3* 2016

Natalizumab $0.3 6.6* 12.5 3.4 9.7* 2006 

Gamunex-C and Gammaked $0.3 7.0* –0.5 11.7 2.2* 2008

Onabotulinum toxin A $0.3 3.1 1.1 3.1 2.0

Epoetin $0.3 –2.1 3.7 –1.5 1.0

Darbepoetin $0.3 –4.4 4.5 1.3 0.7

Consumer price index 

for urban consumers 2.6 1.6 2.1 2.0 

Note: ASP (average sales price), N/A (not applicable). Growth rates for ASP are calculated from first quarter to first quarter of 

each year. “Medicare payments” includes Medicare program payments and beneficiary cost sharing for these drugs 

furnished by physicians, suppliers, and hospital outpatient departments, but excludes those furnished by critical access 

hospitals, Maryland hospitals, and dialysis facilities. Vaccines paid 95 percent of the average wholesale price are also 

excluded. With the exception of Gamunex-C and Gammaked, all products are referred to using their chemical names. 

“Infliximab” refers to the reference biologic Remicade. 

*Indicates that ASP payment rates were not available for the full period listed, and the average annual growth rate was

calculated based on the earliest year that a first quarter payment rate was available.

Source: MedPAC analysis of CMS ASP pricing files and consumer price index for all urban consumers data from the Bureau of 

Labor Statistics and MedPAC and Acumen LLC analysis of Medicare claims data. 

• Between 2017 and 2018, the ASP grew by more than 5 percent for 8 out of the 20 highest

expenditure Part B drugs. For 15 of the top 20 Part B drugs, ASP increased faster than the

consumer price index for urban consumers between 2017 and 2018.

• Twelve of the top 20 Part B drugs have been on the market since 2005 or earlier. Over the

13-year period from 2005 to 2018, 8 of these 12 products have experienced ASP growth of

3.8 percent per year or more. On a cumulative basis, each of these eight products’ ASPs

has grown 67 percent or more since 2005.
152 Prescription drugs

Chart 10-5. Trend in Medicare Part B payment rates for two 

reference biologics and their biosimilar products 

Medicare payment rate per 1 mcg Medicare payment rate per 10 mg 

Reference biologic Biosimilar Reference biologic Biosimilars 

Neupogen Zarxio Remicade Inflectra Renflexis 

2010 Q1 $0.72 N/A $58.64 N/A N/A 

2015 Q4 1.00 $0.97 78.76 N/A N/A 

2016 Q1 1.01 0.97 79.91 N/A N/A 

2016 Q2 1.01 0.97 81.60 N/A N/A 

2016 Q3 1.00 0.87 82.28 N/A N/A 

2016 Q4 1.00 0.83 82.87 N/A N/A 

2017 Q1 1.00 0.78 82.22 $100.31 N/A 

2017 Q2 1.01 0.76 85.59 100.31 N/A 

2017 Q3 1.01 0.73 85.74 80.19 $80.19 

2017 Q4 1.01 0.72 87.15 78.72 78.72 

2018 Q1 1.00 0.69 85.81 75.52 75.52 

2018 Q2 1.02 0.68 83.29 69.71 70.38 

Note: Q1 (first quarter), Q2 (second quarter), Q3 (third quarter), Q4 (fourth quarter), N/A (not available). A reference biologic is 

an originator drug product derived from a living organism. A biosimilar product is a follow-on product that is approved 

based on being highly similar to the reference biologic. Inflectra and Renflexis were paid in the same billing code through 

first quarter 2018 and consequently had the same payment rate. Beginning second quarter 2018, these products had 

separate billing codes. 

Source: MedPAC analysis of payment rates from CMS ASP pricing files. 

• A reference biologic is an originator drug product derived from a living organism. A biosimilar 

product is a follow-on product that is approved based on being highly similar to the reference 

biologic. 

• Under Part B, Medicare pays for a reference biologic at 106 percent of its own average sales 

price (ASP). For biosimilars, Medicare pays 100 percent of the biosimilar’s ASP plus 6 percent of 

the reference product’s ASP. 

• Medicare payment rates for biosimilars have generally been lower than those of the 

corresponding reference biologics due to biosimilars’ lower ASP. In the second quarter of 2018, 

the biosimilar Zarxio’s payment rate was 33 percent less than that of the reference product 

Neupogen. The biosimilars Inflectra and Renflexis had payment rates that were roughly 16 

percent below the reference biologic Remicade’s payment rate that quarter. 

• Medicare paid more for the biosimilar Inflectra for the first two quarters it was on the market than 

for the reference biologic, Remicade. A new biosimilar is paid 106 percent of wholesale 

acquisition cost (a list price set by the manufacturer that does not reflect discounts) for the first 

two to three quarters on the market until ASP data are available. 

• Despite lower prices for biosimilars, reference biologics’ prices have not declined significantly. 

For example, the reference biologic Neupogen’s payment rate has increased slightly since the 

biosimilar Zarxio launched in the fourth quarter of 2015. Following biosimilar entry by Inflectra, 

Remicade’s payment rate initially increased. Although it fell in the first two quarters of 2018, 

Remicade’s payment rate remains higher than it was in the first quarter of 2017, when Inflectra 

became available. 
A Data Book: Health care spending and the Medicare program, June 2018 153

Chart 10-6. Price indices for Medicare Part B drugs, 2005–2016 

Note: Q1 (first quarter), Q4 (fourth quarter). The Part B price indices reflect growth in the average sales price of Part B–covered 

drugs over time, measured for individual drugs at the Healthcare Common Procedure Coding System billing code level. 

These measures of price growth reflect growth in the price of individual products but do not reflect changes in price due to the 

introduction of new products or the changes in the mix of products used. The Part B biologics price index numbers in this 

chart and in Chart 10-27 are different due to the different time periods of analysis. 

Source: Acumen LLC analysis for MedPAC. 

• The Part B price indices reflect growth in the average sales price (ASP) at the individual 

product level and do not reflect changes in price that occur as a result of shifts in the mix of 

drugs used or the introduction of new, higher priced drugs. 

• Measured by the change in the ASP of individual Part B–covered drugs, the prices of Part 

B–covered drugs rose by an average of about 12 percent cumulatively between 2005 and 

2016 (an index of 1.12). 

• Underlying this overall trend in the price index are different patterns by type of product. The 

price index for Part B–covered biologics increased by 36 percent between 2005 and 2016 

(an index of 1.36). In contrast, the price index for nonbiologics declined by 18 percent (an 

index of 0.82) over this period. The nonbiologic group includes single-source drugs and 

drugs with generic competition. The downward price trend for nonbiologics in part reflects 

patent expiration and generic entry for some of these products. 

1.12

1.36

0.82

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2005

Q1

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

2016

Q1

2016

Q4

Chain-weighted Fisher price index

Biologics

Nonbiologics

All Part B drugs
154 Prescription drugs

Chart 10-7. In 2016, 88 percent of Medicare beneficiaries were 

enrolled in Part D plans or had other sources of 

creditable drug coverage 

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), 

RDS (retiree drug subsidy). “Creditable coverage” means the value of drug benefits is equal to or greater than that of the 

basic Part D benefit. 

Source: MedPAC analysis of the Medicare denominator file 2016. 

• In 2016, more than three-quarters of Medicare beneficiaries either signed up for Part D 

plans or had prescription drug coverage through employer-sponsored plans under 

Medicare’s RDS. (If an employer agrees to provide primary drug coverage to its retirees with 

a benefit value that is equal to or greater than that of Part D (called “creditable coverage”), 

Medicare provides the employer with a tax-free subsidy for 28 percent of each eligible 

individual’s drug costs that fall within a specified range of spending.) 

• The share of Medicare beneficiaries with primary coverage through employers that received 

the RDS (3 percent of beneficiaries) was substantially smaller than in 2012 (12 percent; data 

not shown) because of a shift of enrollees into Part D employer group waiver plans. That 

shift reflects changes made by the Patient Protection and Affordable Care Act of 2010 that 

increased the generosity of the Part D benefit by phasing out the coverage gap and by 

altering the tax treatment of drug expenses covered by the RDS. 

• Nearly 23 percent of Medicare beneficiaries received Part D’s LIS in 2015. Of all LIS 

beneficiaries, two-thirds of them (15 percent of all Medicare beneficiaries) were enrolled in 

stand-alone PDPs, and the remaining beneficiaries (8 percent) were in MA–PD plans. 

(Chart continued next page) 

Non-LIS enrollees 

in PDPs

29%

LIS enrollees in 

PDPs

Non-LIS enrollees 15%

in MA–PDs

21%

LIS enrollees in 

MA–PDs

8%

Primary coverage 

through employers that 

received RDS

3%

Other sources of 

creditable coverage

12%

No creditable 

coverage

12%

PDPs

44%

MA‒PDs 29%
A Data Book: Health care spending and the Medicare program, June 2018 155

Chart 10-7. In 2016, 88 percent of Medicare beneficiaries were 

enrolled in Part D plans or had other sources of 

creditable drug coverage (continued) 

• Other enrollees in stand-alone PDPs accounted for 29 percent of all Medicare beneficiaries. 

Another 21 percent of non-LIS enrollees were in MA–PD plans. 

• Twelve percent of 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. 

• Another 12 percent of Medicare beneficiaries had no drug coverage or coverage that was 

less generous than Part D’s defined standard benefit. 
156 Prescription drugs

Chart 10-8. Changes in parameters of the Part D defined 

standard benefit over time 

 Cumulative 

 change 

 2006 2016 2017 2018 2006–2018 

 

Deductible $250.00 $360.00 $400.00 $405.00 62% 

Initial coverage limit 2,250.00 3,310.00 3,700.00 3,750.00 67% 

Annual out-of-pocket threshold 3,600.00 4,850.00 4,950.00 5,000.00 39% 

Total covered drug spending at annual 

 out-of-pocket threshold 5,100.00 7,515.22 8,071.16 8,417.60 65% 

Minimum cost sharing above the annual 

 out-of-pocket threshold 

 Copay for generic/preferred 

 multisource drugs 2.00 2.95 3.30 3.35 68% 

 Copay for other prescription drugs 5.00 7.40 8.25 8.35 67% 

 

Note: Under Part D’s defined standard benefit, the enrollee pays the deductible and then 25 percent of covered drug spending 

(75 percent is paid by the plan) until total covered drug spending reaches the initial coverage limit (ICL). Before 2011, 

enrollees exceeding the ICL were responsible for 100 percent of covered drug spending up to the annual out-of-pocket 

threshold. Beginning in 2011, enrollees pay reduced cost sharing in the coverage gap. For 2011 and later years, the 

amount of total covered drug spending at the annual out-of-pocket threshold depended on the mix of brand-name and 

generic drugs filled during the coverage gap. The amounts shown are for individuals not receiving Part D’s low-income 

subsidy who have no source of supplemental coverage. Cost sharing paid by most sources of supplemental coverage 

does not count toward this threshold. Above the out-of-pocket limit, the enrollee pays 5 percent coinsurance or the 

respective copay shown above, whichever is greater. 

Source: CMS Office of the Actuary. 

• The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 specified a 

defined standard benefit structure for Part D. In 2018, the standard benefit has a $405 

deductible, 25 percent coinsurance on covered drugs until the enrollee reaches $3,750 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 drugs filled during the coverage gap. Because of changes made by the Patient 

Protection and Affordable Care Act (PPACA) of 2010, enrollees pay reduced cost sharing 

for drugs filled in the coverage gap. In 2018, the cost sharing for drugs filled during the gap 

phase is about 35 percent for brand-name drugs and 44 percent for generic drugs. Enrollees 

with drug spending that exceeds the annual threshold pay the greater of $3.35 to $8.35 per 

prescription or 5 percent coinsurance. 

• Most parameters of this defined standard benefit structure have changed over time at the 

same rate as the annual change in average total drug expenses of Medicare beneficiaries 

enrolled in Part D, with cumulative changes of more than 60 percent between 2006 and 

2018. By comparison, Part D’s annual out-of-pocket threshold grew by 39 percent over the 

same period, reflecting changes in PPACA that aimed to reduce the coverage gap. 

 (Chart continued next page) 
A Data Book: Health care spending and the Medicare program, June 2018 157

Chart 10-8. 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. Defined standard benefit 

plans and plans that are actuarially equivalent to the defined standard benefit are both 

known as “basic benefits.” 

• Once a sponsoring organization offers one plan with basic benefits within a prescription drug 

plan region, it may also offer a plan with enhanced benefits—basic and supplemental 

coverage combined. 

• The Bipartisan Budget Act signed into law in 2018 closes Part D’s coverage gap one year 

earlier than the previously scheduled 2020 time frame. In 2019, the standard benefit will 

include 25 percent cost sharing in the coverage-gap phase for brand-name drugs and 37 

percent for generics. Under the law, manufacturers of brand-name drugs must provide a 70 

percent discount in the coverage gap, and plan sponsors will only be responsible for 

covering 5 percent of the cost of brand-name drugs in that same phase of the benefit. 
158 Prescription drugs

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

 2017 2018 

 Enrollees as of Enrollees as of 

 Plans February 2017 Plans February 2018 

 

 Number Number 

 Number Percent (in millions) Percent Number Percent (in millions) Percent 

 

Total 746 100% 20.5 100% 782 100% 20.8 100% 

Type of organization 

 National 643 86 19.1 93 677 87 19.4 93 

 Other 103 14 1.5 7 105 13 1.4 7 

Type of benefit 

 Defined standard 0 0 0.0 0 0 0 0.0 0 

 Actuarially equivalent 359 48 12.2 59 361 46 12.4 60 

 Enhanced 387 52 8.4 41 421 54 8.4 40 

Type of deductible 

 Zero 280 38 9.7 47 291 37 9.4 45 

 Reduced 110 15 1.5 7 88 11 1.9 9 

 Defined standard* 356 48 9.4 46 403 52 9.5 46 

Drugs covered in the gap 

 Some coverage 208 28 2.9 14 274 35 5.0 24 

 None 538 72 17.6 86 508 65 15.8 76 

Note: PDP (prescription drug plan). The PDPs and enrollment described here exclude employer-only plans and plans offered in 

U.S. territories. “National” data reflect the total number of plans for organizations with at least 1 PDP in each of the 34 

PDP regions. Components may not sum to totals due to rounding. “Actuarially equivalent” includes both actuarially 

equivalent standard and basic alternative benefits. “Enhanced” refers to plans with basic plus supplemental coverage. 

 *The defined standard benefit’s deductible was $400 in 2017 and is $405 in 2018. 

Source: MedPAC analysis of CMS landscape, premium, and enrollment data. 

• Between 2017 and 2018, the number of stand-alone PDPs increased by nearly 5 percent. 

Plan sponsors are offering 782 PDPs in 2018 compared with 746 in 2017. 

• In 2018, 87 percent of all PDPs are offered by sponsoring organizations that have at least 1 

PDP in each of the 34 PDP regions (shown as “national” organizations in the table). Plans 

offered by those national sponsors account for 93 percent of all PDP enrollment. 

• For 2018, the share of PDP offerings that include enhanced benefits (basic plus supplemental 

coverage) is higher than the share in 2017. 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 from 48 percent to 46 percent. Sponsors are offering no 

PDPs with the defined standard benefit in 2018. Actuarially equivalent plans continue to attract 

the largest share of PDP enrollees (60 percent), and the share of enrollees choosing to enroll 

in enhanced benefit plans remains fairly constant at 40 percent in 2018 compared with 41 

percent in 2017. 

• A larger share of PDPs includes gap coverage for some drugs (usually generics) in 2018 than 

in 2017, but in 2018, the majority of PDP enrollees (76 percent) continue to enroll in plans that 

offer no additional benefits in the coverage gap. 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. 
A Data Book: Health care spending and the Medicare program, June 2018 159

Chart 10-10. Characteristics of MA–PDs 

 2017 2018 

 Enrollees as of Enrollees as of 

 Plans February 2017 Plans February 2018 

 

 Number Number 

 Number Percent (in millions) Percent Number Percent (in millions) Percent 

 

Totals 1,734 100% 11.9 100% 2,003 100% 12.7 100% 

Type of organization 

 Local HMO 1,241 72 8.5 72 1,422 71 9.1 72 

 Local PPO 429 25 2.3 19 519 26 2.6 20 

 PFFS 32 2 0.1 1 30 1 0.1 1 

 Regional PPO 32 2 1.0 8 32 2 0.9 7 

Type of benefit 

 Defined standard 24 1 0.1 1 22 1 0.1 <0.5 

 Actuarially equivalent 148 9 1.3 11 101 5 0.5 4 

 Enhanced 1,562 90 10.5 89 1,880 94 12.1 96 

Type of deductible 

 Zero 852 49 5.5 46 908 45 5.4 43 

 Reduced 711 41 5.5 46 988 49 6.9 54 

 Defined standard* 171 10 1.0 8 107 5 0.4 3 

Drugs covered in the gap 

 Some coverage 914 53 6.3 53 703 35 4.7 37 

 None 820 47 5.6 47 1,300 65 8.0 63 

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. Components may not sum to totals due to rounding. “Actuarially equivalent” includes both actuarially 

equivalent standard and basic alternative benefits. “Enhanced” refers to plans with basic plus supplemental coverage. 

 *The defined standard benefit’s deductible was $400 in 2017 and is $405 in 2018. 

Source: MedPAC analysis of CMS landscape, premium, and enrollment data. 

• There are almost 16 percent more MA–PD plans in 2018 than in 2017. Sponsors are offering 

2,003 MA–PD plans in 2018 compared with 1,734 the year before. HMOs remain the 

dominant type of MA–PD plan, making up 71 percent of all (unweighted) offerings in 2018. 

The number of PFFS plans decreased slightly from 32 in 2017 to 30 in 2018. Between 2017 

and 2018, the number of drug plans offered by local PPOs increased from 429 plans to 519 

plans, and the number of drug plans offered by regional PPOs remained the same at 32 

plans. 

• A larger share of MA–PD plans than stand-alone prescription drug plans (PDPs) offer 

enhanced benefits (compare Chart 10-10 with Chart 10-9). In 2018, 54 percent of all PDPs 

have enhanced benefits compared with 94 percent of MA–PD plans. In 2018, enhanced 

MA–PD plans attracted 96 percent of total MA–PD enrollment. 

• Forty-five percent of MA–PD plans have no deductible in 2018. These plans attracted 43 

percent of total MA–PD enrollees in 2018. 

• MA–PD plans and PDPs are equally likely to provide some additional benefits in the 

coverage gap. In 2018, about 35 percent of MA–PD plans include some gap coverage—

much lower than the year before. Those plans account for 37 percent of MA–PD enrollment. 
160 Prescription drugs

Chart 10-11. Change in average Part D premiums, 2014–2018

Average monthly premium weighted by enrollment Cumulative change 

in weighted 

average 

premium, 

2014–2018 2014 2015 2016 2017 2018 

All plans $29 $30 $31 $32 $32 8 %

 Basic plans 29 26 28 30 30 5 

 Enhanced plans 

 Basic benefits 24 27 27 27 26 7

 Supplemental benefits 6 6 7 6 7 21

 Total premium 30 33 33 33 33 10

 All basic coverage 26 27 27 29 28 6

 

PDPs 38 37 39 41 41 10

 Basic coverage 30 28 29 31 31 4

 Enhanced coverage 

 Basic benefits 39 39 41 43 42 8

 Supplemental benefits 10 9 12 11 15 56

 Total premium 49 48 53 54 57 17

All basic coverage 34 33 34 36 35 5

 

MA–PDs, including SNPs 16 18 18 19 18 16

 Basic coverage 25 21 22 26 28 12

 Enhanced coverage 

 Basic benefits 11 14 15 16 15 33

 Supplemental benefits 2 2 2 2 1 –35

 Total premium 13 17 17 18 17 23

 All basic coverage 14 17 16 18 17 21

 

 MA–PD buy-down of basic 

premium 13 14 15 16 16 20

 MA–PD buy-down of 

supplemental benefits 13 13 14 15 16 22

 

Base beneficiary premium 32.42 33.13 34.10 35.63 35.02 8

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), SNP (special needs plan). All 

calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PD plans exclude Part B–

only plans, demonstrations, and 1876 cost plans. The MA–PD data reflect the portion of Medicare Advantage plans’ total 

monthly premium attributable to Part D benefits for plans that offer Part D coverage, as well as Part C rebate dollars that were 

used to offset Part D premium costs. The fact that average premiums for enhanced MA–PD plans are lower than for basic 

MA–PD plans could reflect several factors such as changes in enrollment among plan sponsors and counties of operation 

and differences in the average health status of plan enrollees. Cumulative changes were calculated from unrounded data. 

Source: MedPAC analysis of CMS landscape, plan report, enrollment data, and bid data. 

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2018 161

Chart 10-11. Change in average Part D premiums, 2014–2018 

(continued)

• Part D enrollees can select between plans with basic or enhanced benefits (which combine 

basic and supplemental coverage). Medicare subsidizes 74.5 percent of the average cost of 

basic benefits; enrollees pay premiums for the remaining 25.5 percent and all of the cost of 

any supplemental benefits. (For more about how plan premiums are determined, see Part D 

Payment Basics at http://medpac.gov/docs/default-source/paymentbasics/medpac_payment_basics_17_partd_final86a411adfa9c665e80adff00009edf9c.pdf?s

fvrsn=0.) 

• The overall average premium paid by enrollees for any type of Part D coverage grew slowly 

from $29 per month in 2014 to $32 per month in 2018. However, year-to-year changes have 

varied by type of benefit (basic vs. enhanced) and type of plan (PDP vs. MA−PD), and they 

have not necessarily corresponded to changes observed in the base beneficiary premium. 

• Across all basic plans and the basic portion of enhanced plans, the average premium for 

basic benefits grew slowly from $26 in 2014 to $28 per month in 2018, a cumulative change 

of just 6 percent. This slow growth occurred despite very rapid growth in spending for Part 

D’s catastrophic phase of the benefit (data not shown). In the catastrophic phase, Medicare 

subsidizes 80 percent of enrollees’ drug spending, so most of the growth in catastrophic 

spending is not reflected in higher premiums. (For more information about Medicare’s Part D 

spending, see Chapter 14 of the Commission’s March 2018 report to the Congress at 

http://medpac.gov/docs/default-source/reports/mar18_medpac_ch14_sec.pdf?sfvrsn=0.) 

• Over the five-year period, the average enrollee premium for basic coverage in PDPs ranged 

between a low of $28 in 2015 and a high of $31 per month in 2017 and 2018, increasing by a 

cumulative 5 percent from 2014 to 2018. Among enhanced plans offered by PDPs, the average 

enrollee premium has ranged between $48 in 2015 to $57 in 2018, increasing by a cumulative 

17 percent from 2014 to 2018. Of the $57 average premium in 2018 among enhanced PDPs, 

$42 was for basic benefits, $15 for supplemental benefits. The portion of enhanced premiums 

attributable to supplemental benefits has grown more quickly than the portion for basic benefits. 

• Between 2014 and 2018, the average Part D premium paid by beneficiaries enrolled in 

MA−PD plans with basic coverage ranged between a low of $21 in 2015 and a high of $28 

per month in 2018, increasing by a cumulative 12 percent. The average premium paid by 

beneficiaries enrolled in MA−PD plans offering enhanced coverage has increased from $13 

in 2014 to $17 in 2018, a cumulative 23 percent increase. MA−PD plan sponsors typically 

use a portion of Medicare’s Part C (Medicare Advantage) payments to “buy down” the 

premiums that plan enrollees would otherwise have to pay for Part D basic premiums and 

supplemental benefits. Because of those Part C payment “rebates,” in 2018, MA−PD 

enrollees avoided having to pay $16 per month in basic premiums and an additional $16 per 

month for supplemental coverage, on average. 
162 Prescription drugs

Chart 10-12. More premium-free (for LIS enrollees) PDPs in 2018 

Number of PDPs 

Number of PDPs that have zero 

premium for LIS enrollees 

PDP region State(s) 2017* 2018* Difference 2017* 2018 Difference 

1 ME, NH 23 24 1 8 7 –1 

2 CT, MA, RI, VT 21 22 1 7 7 0 

3 NY 19 20 1 8 8 0 

4 NJ 21 22 1 8 7 –1 

5 DC, DE, MD 20 21 1 10 10 0 

6 PA, WV 24 26 2 9 9 0 

7 VA 23 24 1 7 6 –1 

8 NC 22 24 2 7 7 0 

9 SC 21 22 1 6 4 –2 

10 GA 23 24 1 4 5 1 

11 FL 20 21 1 3 2 –1 

12 AL, TN 24 25 1 7 6 –1 

13 MI 23 24 1 8 9 1 

14 OH 22 23 1 6 6 0 

15 IN, KY 23 24 1 7 7 0 

16 WI 24 25 1 7 8 1 

17 IL 23 24 1 9 8 –1 

18 MO 23 24 1 4 4 0 

19 AR 22 23 1 5 4 –1 

20 MS 19 20 1 7 6 –1 

21 LA 20 21 1 7 6 –1 

22 TX 23 24 1 6 7 1 

23 OK 22 23 1 7 7 0 

24 KS 22 23 1 5 4 –1 

25 IA, MN, MT, ND, 

 NE, SD, WY 22 23 1 6 5 –1 

26 NM 23 24 1 9 7 –2 

27 CO 23 24 1 7 6 –1 

28 AZ 22 23 1 10 10 0 

29 NV 23 24 1 4 3 –1 

30 OR, WA 21 22 1 8 7 –1 

31 ID, UT 24 25 1 9 8 –1 

32 CA 24 25 1 6 5 –1 

33 HI 19 20 1 5 4 –1 

34 AK 18 19 1 5 7 2 

 Total 746 782 36 231 216 –15 

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan). 

*These figures include 25 plans in 2017 and 2 in 2018 that did not accept new enrollees because of CMS sanctions. 

Source: MedPAC based on 2017 and 2018 PDP landscape file provided by CMS. 

• The total number of stand-alone PDPs increased by 5 percent, from 746 in 2017 to 782 in 2018. The 

median number of plans offered in PDP regions increased to 24 plans from 22 in 2017 (data not 

shown). In 2018, AK has the fewest stand-alone PDPs, with 19, and Region 6 (PA, WV) has the 

most, with 26. 

• In 2018, 216 PDPs qualify as premium free to LIS enrollees. With the exception of FL, which has 

only two plans with no premium for LIS enrollees, at least three premium-free PDPs are available 

in any given region.
A Data Book: Health care spending and the Medicare program, June 2018 163

Chart 10-13. In 2018, most Part D enrollees are in plans that use a 

five-tier formulary structure 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). Calculations are weighted by 

enrollment. All calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PDs 

exclude demonstration programs, special needs plans, and 1876 cost plans. Components may not sum to totals due to 

rounding. Over 99 percent of stand-alone PDPs and MA−PDs have a specialty tier in addition to the tiers listed above. 

The algorithm used to classify formularies was modified beginning with 2016 data but does not materially affect results. 

Source: MedPAC analysis of formularies submitted to CMS. 

• Most Part D enrollees choose plans that distinguish between preferred and nonpreferred brand-name 

drugs and preferred and nonpreferred generic drugs. In 2018, nearly all PDP enrollees continue to 

enroll in plans with a five-tier structure: two generic and two brand-name tiers plus a specialty tier. 

Eighty percent of MA–PD enrollees are in such plans in 2018, a slight increase from 79 percent in 

2017. 

• For enrollees in PDPs with a five-tier structure, the median copay in 2018 is $37 for a preferred 

brand-name drug and 40 percent coinsurance for a nonpreferred brand-name drug (data not shown). 

The median copay for generic drugs is $1 for generic drugs on the lower tier and $6 for the higher 

tier. For MA–PD enrollees, in 2018, the median copay is $47 for a preferred brand and $99 for a 

nonpreferred brand, and $2 and $10 for a generic drug on the two generic tiers, respectively. 

• Most plans also use a specialty tier for drugs that have a negotiated price of $670 per month or more. 

In 2018, median cost sharing for a specialty-tier drug is 27 percent among PDPs and 30 percent 

among MA–PD plans (data not shown). 

19%

98% 80%

<1%

<1%

2%

<1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2015 2016 2017 2018 2007 2015 2016 2017 2018

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

In addition to the tiers listed above, most formularies also include a specialty tier.

PDP enrollees MA–PD enrollees 
164 Prescription drugs

Chart 10-14. In 2018, PDPs and MA–PDs apply some utilization 

management to more than 45 percent of listed drugs 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). Calculations are weighted by 

enrollment. All calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–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. The algorithm used to classify 

formularies was modified beginning with 2016 data but does not materially affect results. 

Source: MedPAC analysis of formularies submitted to CMS. 

• In addition to the number of drugs listed on a plan’s formulary, plans’ processes for nonformulary 

exceptions and use of utilization management tools—prior authorization (preapproval for 

coverage), quantity limits (limitations on the number of doses of a particular drug covered in a 

given period), and step therapy requirements (enrollees must try specified drugs before being 

prescribed other drugs in the same therapeutic category)—can affect access to certain drugs. 

• In 2018, the average enrollee in a stand-alone PDP faces some form of utilization management 

for about 46 percent of drugs listed on a plan’s formulary, an increase from 44 percent in 2017. 

The average MA–PD enrollee faces some form of utilization management for 45 percent of drugs 

listed on a plan’s formulary, an increase from 43 percent in 2017. Part D plans typically use 

quantity limits or prior authorization to manage enrollees’ prescription drug use. 

• Among the drugs listed on plan formularies for stand-alone PDPs, the share that requires prior 

authorization in 2018 increased to 27 percent from 26 percent in 2017. The share with quantity 

limits increased from 27 percent in 2017 to 29 percent in 2018. Among MA–PDs, both the use of 

prior authorization and the use of quantity limits increased between 2017 and 2018, from 25 

percent to 27 percent for prior authorization and from 26 percent to 27 percent for quantity limits. 

The share of drugs listed on plan formularies that requires the use of step therapy remained very 

low for both stand-alone PDPs and MA–PDs. 

0

5

10

15

20

25

30

35

40

45

50

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

Percent of listed drugs

2007 2015 2016 2017 2018

PDPs

0

5

10

15

20

25

30

35

40

45

50

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

2007 2015 2016 2017 2018

MA–PDs
A Data Book: Health care spending and the Medicare program, June 2018 165

Chart 10-15. Characteristics of Part D enrollees, 2015 

All 

Medicare Part D 

 Plan type Subsidy status 

 PDP MA–PD LIS Non-LIS 

Beneficiariesa (in millions) 58.2 41.9 25.8 16.1 13.1 28.8 

Percent of all Medicare 100% 72% 44% 28% 23% 49% 

Gender 

 Male 46% 43% 42% 43% 40% 44% 

 Female 54 57 58 57 60 56 

Race/ethnicity 

 White, non-Hispanic 75 74 78 67 55 82 

 African American, 

 non-Hispanic 10 11 10 12 20 7 

 Hispanic 9 10 6 15 16 7 

 Asian 3 3 3 4 6 2 

 Other 3 2 2 2 2 2 

Age (years)b 

 <65 18 19 21 16 42 8 

 65–69 27 25 24 26 17 28 

 70–74 20 20 19 22 13 24 

 75–79 14 15 14 15 10 17 

 80+ 21 22 22 21 19 23 

Urbanicityc 

 Metropolitan 81 82 78 89 81 83 

 Micropolitan 10 10 12 7 11 10 

 Rural 7 7 9 4 8 7 

 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). 

Percentages may not sum to 100 due to rounding. 

a

Figures for “All Medicare” and “Part D” include all beneficiaries with at least one month of enrollment in the respective 

program. A beneficiary was classified as “LIS” if that individual received Part D’s LIS at some point during the year. For 

individuals who switched plan types during the year, classification into plan types was based on the greater number of 

months of enrollment. 

b

Age as of July 2015. 

c

Urbanicity is based on the Office of Management and Budget’s core-based statistical areas as of July 2015. A 

metropolitan area contains a core urban area of 50,000 or more people, and a micropolitan area contains an urban core of 

at least 10,000 (but fewer than 50,000) people. About 1 percent of Medicare beneficiaries were excluded because of an 

unidentifiable core-based statistical area designation. 

 

Source: MedPAC analysis of Medicare Part D denominator file from CMS. 

• In 2015, nearly 42 million Medicare beneficiaries (72 percent) were enrolled in Part D at some 

point in the year. Most of them (25.8 million) were in stand-alone PDPs, with 16.1 million in MA–

PD plans. About 13 million enrollees received Part D’s LIS. 

• Compared with the overall Medicare population, Part D enrollees are more likely to be female 

and minority. 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, minority, and disabled beneficiaries under age 65 compared with non-LIS enrollees. 

• Patterns of enrollment by urbanicity for Part D enrollees were similar to the overall Medicare 

population: 82 percent in metropolitan areas, 10 percent in micropolitan areas, and 7 percent in 

rural areas. (About 1 percent of Medicare beneficiaries were excluded because of an 

unidentifiable core-based statistical area designation.) 
166 Prescription drugs

Chart 10-16. Part D enrollment trends, 2007–2015 

 Average annual growth rate 

 2007 2010 2015 2007−2010 2010−2015 2007−2015 

Part D enrollment (in millions)* 

 Total 26.1 29.7 41.9 4.4% 7.1 % 6.1% 

 By plan type 

 PDP 18.3 18.9 25.8 1.1 6.4 4.3 

 MA–PD 7.8 10.6 16.1 10.9 8.7 9.5 

 By subsidy status 

 LIS 10.4 11.3 13.1 2.7 3.0 2.9 

 Non-LIS 15.7 18.4 28.8 5.5 9.3 7.9 

 By race/ethnicity 

 White, non-Hispanic 19.4 22.0 30.9 4.3 7.0 6.0 

 African American, non-Hispanic 2.9 3.3 4.6 4.1 6.7 5.7 

 Hispanic 2.5 3.0 4.1 5.8 6.4 6.2 

 Other 1.3 1.4 2.3 3.9 10.3 7.8 

 By age (years)** 

 <65 5.5 6.3 7.9 4.7 4.8 4.8 

 65–69 5.4 6.6 10.3 6.5 9.4 8.3 

 70–79 8.8 9.9 14.6 3.8 8.1 6.5 

 80+ 6.4 7.1 9.1 3.2 5.2 4.4 

Part D enrollment (in percent) 

 Total 100% 100% 100% 

 By plan type 

 PDP 70 64 62 

 MA–PD 30 36 38 

 By subsidy status 

 LIS 40 38 31 

 Non-LIS 60 62 69 

 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 19 

 65–69 21 22 25 

 70–79 34 33 35 

 80+ 25 24 22 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). A 

beneficiary was classified as “LIS” if that individual received Part D’s LIS at some point during the year. If a beneficiary was 

enrolled in both a PDP and an MA–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 figures are 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 2018 167

Chart 10-16. Part D enrollment trends, 2007–2015 (continued) 

• Part D enrollment grew faster between 2010 and 2015 (average annual growth rate (AAGR) 

of 7.1 percent) than between 2007 and 2010 (AAGR of 4.4 percent). Between 2010 and 

2015, the largest growth in enrollment was observed for beneficiaries ages 65 to 69 (9.4 

percent annually, on average), followed by beneficiaries ages 70 to 79 (8.1 percent 

annually, on average). 

• While MA–PD plan enrollment grew faster than PDP enrollment between 2007 and 2010 

(nearly 11 percent annually compared with about 1 percent annually, on average, 

respectively), the growth rates were more comparable between MA–PDs and PDPs 

between 2010 and 2015 (AAGR of 8.7 percent and 6.4 percent, respectively). 

• The number of enrollees receiving the LIS grew modestly between 2007 and 2010 at 2.7 

percent per year. Higher growth rates (3.0 percent on average) were observed between 

2010 and 2015. The AAGR in the number of non-LIS enrollees was also greater between 

2010 and 2015 (9.3 percent) than it was between 2007 and 2010 (5.5 percent). 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 10-7 for 

information on the RDS). 

 
168 Prescription drugs

Chart 10-17. Part D enrollment by region, 2015 

 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 67% 3% 79% 21% 36% 64% 

2 CT, MA, RI, VT 71 7 70 30 38 62

3 NY 77 5 55 45 37 63

4 NJ 72 5 83 17 26 74

5 DE, DC, MD 62 5 87 13 33 67

6 PA, WV 75 4 58 42 29 71

7 VA 63 3 74 26 30 70

8 NC 73 4 62 38 32 68

9 SC 71 2 70 30 32 68

10 GA 72 3 58 42 36 64

11 FL 74 4 49 51 31 69

12 AL, TN 73 3 61 39 36 64

13 MI 78 4 75 25 26 74

14 OH 77 4 64 36 26 74

15 IN, KY 73 4 73 27 32 68

16 WI 70 3 59 41 26 74

17 IL 70 7 74 26 31 69

18 MO 74 3 64 36 28 72

19 AR 69 4 74 26 39 61

20 MS 71 2 81 19 46 54

21 LA 73 5 60 40 40 60

22 TX 69 4 64 36 35 65

23 OK 66 2 78 22 32 68

24 KS 70 2 83 17 24 76

25 IA, MN, MT, NE, 

 ND, SD, WY 73 3 74 26 23 77

26 NM 70 3 57 43 38 62

27 CO 71 3 52 48 25 75

28 AZ 72 3 49 51 28 72

29 NV 67 4 52 48 26 74

30 OR, WA 67 6 53 47 28 72

31 ID, UT 68 3 55 45 23 77

32 CA 77 3 49 51 36 64

33 HI 71 2 37 63 26 74

34 AK 41 24 98 2 54 46

 

 Mean 72 4 62 38 31 69

 Minimum 41 2 37 2 23 46

 Maximum 78 24 98 63 54 77

Note: PDP (prescription drug plan), RDS (retiree drug subsidy), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS 

(low-income [drug] subsidy). Definition of regions is based on PDP regions used in Part D. 

 

Source: MedPAC analysis of Part D enrollment data from CMS. 

• Among Part D regions in 2015, all but one region (Region 34 (AK)) had over 60 percent of 

all Medicare beneficiaries enrolled in Part D. Beneficiaries were less likely to enroll in Part D 

in regions where employer-sponsored drug coverage continued to be available. For 

example, in Region 34, the share of Medicare beneficiaries enrolled in Part D was 41 

percent, while the share of beneficiaries enrolled in employer-sponsored plans that received 

the RDS was 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 2018 169

Chart 10-17. Part D enrollment by region, 2015 (continued) 

• In 2015, all regions except Region 34 experienced a decrease in the number of 

beneficiaries who received the RDS (data not shown). In some of the regions, the 

decreases in RDS recipients were accompanied by larger than average increases in Part 

D enrollment (e.g., Region 1, Region 2, Region 5, and Region 31). The continued trend is 

likely motivated by changes made by the Patient Protection and Affordable Care Act of 

2010 that increased the generosity of Part D coverage and altered the tax treatment of 

drug expenses covered by the RDS. 

• Wide variation was seen in the shares of Part D beneficiaries who enrolled in PDPs and 

MA–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 23 percent in Region 25 (IA, 

MN, MT, NE, ND, SD, and WY) to 54 percent in Region 34 (AK). In 19 of the 34 PDP 

regions, LIS enrollees accounted for 30 percent to 50 percent of enrollment. 
170 Prescription drugs

Chart 10-18. Components of Part D spending growth 

2009 2015 

Average 

annual growth 

2009–2015 

Total gross spending (in billions) $73.7 $137.7 10.9% 

 High-cost beneficiaries 29.2 78.9 18.0% 

 Lower cost beneficiaries 44.6 58.5 4.6% 

Number of beneficiaries using a Part D drug (in millions) 26.5 38.9 6.6% 

 High-cost beneficiaries 2.4 3.6 7.4% 

 Lower cost beneficiaries 24.1 35.3 6.5% 

Amount per beneficiary who used Part D drugs 

 Gross drug spending per year $2,781 $3,531 4.1% 

 Average price per 30-day prescription $55 $65 2.7% 

 Number of 30-day prescriptions 50.4 54.5 1.3% 

Amount per high-cost beneficiary who used Part D drugs 

 Gross drug spending per year $12,294 $21,642 9.9% 

 Average price per 30-day prescription $110 $193 9.8% 

 Number of 30-day prescriptions 111.4 112.1 0.1% 

Amount per lower cost beneficiary who used Part D drugs 

 Gross drug spending per year $1,846 $1,658 –1.8% 

 Average price per 30-day prescription $42 $34 –3.2% 

 Number of 30-day prescriptions 44.5 48.5 1.5% 

Note: “High-cost beneficiaries” refers to individuals who incurred spending high enough to reach the catastrophic phase of the 

benefit. “Gross spending” reflects payments to pharmacies from all payers, including beneficiary cost sharing, but does 

not include rebates and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. 

Changes in the average price per prescription reflect both price inflation and changes in the mix of drugs used. 

Components may not sum to totals due to rounding. 

Source: MedPAC analysis of Part D prescription drug event data and denominator files from CMS. 

• Between 2009 and 2015, gross spending on drugs under the Part D program grew by an annual average 

rate of 10.9 percent. The annual growth in spending was considerably higher (18.0 percent) among highcost beneficiaries (individuals who incurred spending high enough to reach the catastrophic phase of the 

benefit) compared with less than 5 percent for lower cost beneficiaries. 

• During the 2009 through 2015 period, the number of beneficiaries who used Part D drugs grew by an 

annual average rate of 6.6 percent, with faster growth observed among high-cost beneficiaries (7.4 

percent) than lower cost beneficiaries (6.5 percent). 

• Overall, between 2009 and 2015, the growth in prices per 30-day prescription accounted for nearly twothirds (2.7 percent) of the 4.1 percent average annual growth in spending per beneficiary among 

beneficiaries who used Part D drugs. 

• The average annual growth rate in overall spending per beneficiary reflects two distinct patterns of price 

and spending growth for high-cost beneficiaries and lower cost beneficiaries. Among high-cost 

beneficiaries, annual growth in prices (9.8 percent) accounted for nearly all of the spending growth (9.9 

percent) during this period. In contrast, among lower cost beneficiaries, the average annual decrease in 

prices (–3.2 percent) resulted in an overall decrease in spending (–1.8 percent annually), despite an 

increase in the number of prescriptions filled during the same period. 
A Data Book: Health care spending and the Medicare program, June 2018 171

Chart 10-19. The majority of Part D spending was incurred by 

slightly over one-quarter of all Part D enrollees, 2015 

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 

categories used for this analysis generally correspond to the parameters of the defined standard benefit. In 2015, an 

individual without Part D’s low-income subsidy or other sources of supplemental coverage would have reached the 

catastrophic phase of the benefit at $7,061.76 in total drug spending, assuming that expenses for brand-name drugs 

accounted for 85.9 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 2015, about 26 percent 

of Part D enrollees had annual spending of $2,960 or more (at which point enrollees were 

responsible for a higher proportion of the cost of the drugs until their spending reached 

$7,061.76 under the defined standard benefit). These beneficiaries accounted for 83 percent of 

total Part D spending. 

• The costliest 10 percent of beneficiaries, those with drug spending above the catastrophic 

threshold under the defined standard benefit, accounted for 61 percent of total Part D spending. 

Sixty-one percent of beneficiaries with the highest spending received Part D’s low-income [drug] 

subsidy (data not shown; see Chart 10-20). Spending on prescription drugs is less concentrated 

than Medicare Part A and Part B spending. In 2013, the costliest 5 percent of beneficiaries 

accounted for 42 percent of annual Medicare fee-for-service (FFS) spending, and the costliest 

quartile accounted for 84 percent of Medicare FFS spending (see Chart 1-11). 

• In 2015, the share of Part D enrollees with annual gross spending at or above $10,000 remained 

unchanged from 2014 at 6 percent. Those costliest 6 percent of enrollees accounted for 52 

percent of spending in 2015, up from 46 percent in 2014 (2014 data not shown). 

31

1

44

16

16

22

4

9

6

52

0

10

20

30

40

50

60

70

80

90

100

Percent of enrollees Percent of spending

Percent

≥$10,000

$7,062–$9,999

$2,960–$7,061

$320–$2,959

$0–$319

83

Annual spending on 

prescription drugs
172 Prescription drugs

Chart 10-20. Characteristics of Part D enrollees, by spending 

levels, 2015 

 Annual drug spending 

 <$2,960 $2,960–$7,061 ≥$7,062 

Sex 

 Male 43% 41% 43%

 Female 57 59 57

Race/ethnicity 

 White, non-Hispanic 74 75 70

 African American, non-Hispanic 11 11 14

 Hispanic 10 9 11

 Other 6 5 6

Age (years) 

 <65 17 19 37

 65–69 26 20 18

 70–74 21 20 16

 75–80 15 16 12

 80+ 22 25 17

LIS status* 

 LIS 26 38 61

 Non-LIS 74 62 39

Plan type** 

 PDP 59 66 72

 MA–PD 41 34 28

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan), MA−PD (Medicare Advantage−Prescription Drug [plan]). 

“Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. 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 2015, Part D enrollees with annual spending at or above $7,062 were more likely to be minority, disabled 

and under age 65, and receiving the LIS compared with those with annual spending below $2,960. 

• Part D enrollees entered the catastrophic phase of the benefit at about $7,062 in total drug spending in 

2015. While LIS enrollees are more likely to reach the catastrophic phase of the benefit, their share has 

been declining, from more than three-quarters in 2010 and earlier years to 65 percent in 2013 (not shown 

in chart) and 61 percent in 2015. This decline reflects more rapid growth in enrollment of individuals who 

do not receive the LIS as well as the growth in average prices of drugs taken by those individuals. 

• The majority of Part D enrollees with spending at or above $7,062 were enrolled in stand-alone PDPs (72 

percent). In contrast, beneficiaries with annual spending below $2,960 were more likely to be in MA–PDs 

compared with those with higher annual spending (41 percent compared with 28 percent). This contrast 

reflects the facts that LIS enrollees are more costly on average and are more likely to be in PDPs. 
A Data Book: Health care spending and the Medicare program, June 2018 173

Chart 10-21. Part D spending and use per enrollee, 2015 

Part D 

 Plan type LIS status 

 PDP MA–PD LIS Non-LIS 

Total gross spending (billions)* $137.4 $93.8 $43.6 $67.8 $69.6

 

Total number of prescriptions 

(millions) 2,119 1,336 783 792 1,328

 

Average spending per prescription $65 $70 $56 $86 $52

 

Per enrollee per month 

 Total spending $290 $324 $236 $469 $211

 OOP spending 33 35 30 6 45

 Manufacturer gap discount 12 14 9 N/A 18

 Plan liability 183 201 153 310 127

 Low-income cost-sharing subsidy 47 55 34 153 N/A

 Other** 15 19 9 <1 22

 Number of prescriptions 4.5 4.6 4.2 5.5 4.0

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy), OOP 

(out-of-pocket), N/A (not applicable). “Total gross spending” reflects payments from all payers, including beneficiaries (cost 

sharing), but does not include rebates and discounts from pharmacies and manufacturers that are not reflected in prices at 

the pharmacies. Total spending does not necessarily equal the sum of OOP spending, manufacturer gap discount, plan 

liability, and low-income cost-sharing subsidy because other smaller sources of payment are not shown. 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. “OOP spending” includes all 

payments (other than manufacturer gap discount) that count toward the annual OOP spending threshold. “Plan liability” 

includes plan payments for drugs covered by both basic and supplemental (enhanced) benefits. In addition to the major 

categories shown in the chart, total spending includes amounts paid by other relatively minor payers such as group health 

plans, workers’ compensation, and charities. “Number of prescriptions” is standardized to a 30-day supply. 

 *”Total gross spending” includes about $5.8 billion in manufacturer discounts for brand-name drugs filled by non-LIS enrollees

during the coverage gap. 

 **”Other” amount includes payments by patient assistance organizations and third-party payers other than Part D plans that 

reduce the patient cost-sharing liability. 

 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

• In 2015, gross spending on drugs for the Part D program totaled $137.4 billion, with more than two-thirds ($93.8 

billion) accounted for by Medicare beneficiaries enrolled in stand-alone PDPs. Part D enrollees receiving the LIS 

accounted for nearly 50 percent ($67.8 billion) of the total. Manufacturer discounts for brand-name drugs filled by 

non-LIS enrollees while they were in the coverage gap accounted for 4.2 percent of the total, or 8.3 percent of the 

gross spending by non-LIS enrollees (data not shown). 

• The number of prescriptions filled by Part D enrollees totaled over 2.1 billion, with over 60 percent (more than 1.3 

billion) accounted for by PDP enrollees. The 31 percent of enrollees who received the LIS accounted for about 37 

percent (792 million) of the total number of prescriptions filled. 

• In 2015, Part D enrollees filled 4.5 prescriptions at $290 per month on average, an increase from $268 per month 

(for 4.5 prescriptions) in 2014 (2014 data not shown). The average monthly plan liability for PDP enrollees ($201) 

was considerably higher than that of MA–PD enrollees ($153), while the difference in average monthly OOP 

spending was smaller between the two types of plans ($35 vs. $30, respectively). The average monthly low-income 

cost-sharing subsidy was much higher for PDP enrollees ($55) compared with MA–PD enrollees ($34). 

• Average monthly spending per LIS enrollee ($469) was more than double that of a non-LIS enrollee ($211), while 

the average number of prescriptions filled per month by an LIS enrollee was 5.5 compared with 4.0 for a non-LIS 

enrollee. LIS enrollees had much lower OOP spending, on average, than non-LIS enrollees ($6 vs. $45, 

respectively). Part D’s LIS pays for most of the cost sharing for LIS enrollees, averaging $153 per month in 2015.
174 Prescription drugs

Chart 10-22. Trends in Part D spending and use per enrollee, 

2007–2015 

 Average spending and number of prescriptions Average annual growth 

rate, 2007–2015 

 2007 2011 2012 2013 2014 2015 Number Percent 

Average spending per month 

 All Part D $212 $239 $235 $242 $268 $290 $10 4.0% 

 By LIS status 

 LIS 301 364 362 377 427 469 21 5.7 

 Non-LIS 156 167 167 179 196 211 7 3.9 

 By plan type 

 PDP 239 274 270 275 303 324 11 3.9 

 MA−PD 151 178 178 185 211 236 11 5.7 

Average number of prescriptions per month* 

 All Part D 3.9 4.3 4.3 4.5 4.5 4.5 0.1 1.7 

 By LIS status 

 LIS 4.6 5.1 5.2 5.4 5.5 5.5 0.1 2.2 

 Non-LIS 3.4 3.8 3.8 4.0 4.0 4.0 0.1 2.1 

 By plan type 

 PDP 4.1 4.5 4.5 4.6 4.6 4.6 0.1 1.4 

 MA−PD 3.4 3.9 4.0 4.1 4.2 4.2 0.1 2.6 

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). 

“Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. 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. 

*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 2015, average per capita spending for Part D–covered drugs grew at an average 

annual rate of 4 percent, or by over 36 percent cumulatively. Growth in average per capita spending has 

fluctuated over the years, ranging from –1.5 percent between 2011 and 2012 to nearly 11 percent 

between 2013 and 2014. 

• Spending growth for non-LIS enrollees was lower than that for LIS enrollees (average annual growth 

rate of 3.9 percent compared with 5.7 percent) during the 2007 to 2015 period. 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 2015 period (5.7 percent compared with 3.9 percent), but the average growth was 

the same for both PDP and MA−PD enrollees in terms of the dollar increase ($11), and the average per 

capita spending for MA−PD enrollees continued to be below that of PDP enrollees by about $90. 
A Data Book: Health care spending and the Medicare program, June 2018 175

Chart 10-23. Top 15 therapeutic classes of drugs covered under 

Part D, by spending and volume, 2015 

Top 15 therapeutic classes by spending Top 15 therapeutic classes by volume 

 Dollars Prescriptions 

 Billions Percent Millions Percent 

 

Diabetic therapy $17.5 12.7% Antihypertensive therapy 

agents 

219.4 10.4% 

Antivirals 13.6 9.9 

Asthma/COPD therapy agents 9.0 6.6 Antihyperlipidemics 213.9 10.1 

Antihyperlipidemics 7.8 5.6 Diabetic therapy 135.4 6.4 

Antipsychotics 6.2 4.5 Beta-adrenergic blockers 132.4 6.2 

Antineoplastic enzyme 

inhibitors 

5.0 3.7 Antidepressants 124.4 5.9 

Antihypertensive therapy 

 agents 

4.9 3.6 Peptic ulcer therapy 109.4 5.2 

Diuretics 103.4 4.9 

Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic) 

4.7 3.4 Calcium channel blockers 92.4 4.4 

Anticonvulsant 4.4 3.2 Thyroid therapy 82.3 3.9 

Analgesics (narcotic) 4.2 3.1 Analgesics (narcotic) 82.0 3.9 

Peptic ulcer therapy 4.0 2.9 Anticonvulsant 79.2 3.7 

Anticoagulants 3.7 2.7 Asthma/COPD therapy agents 58.3 2.8 

Antidepressants 2.6 1.9 Antibacterial agents 54.8 2.6 

Cognitive disorder therapy 

 (antidementia) 

2.6 1.9 Antianxiety agents 39.0 1.8 

Antineoplastic 

 (immunomodulators) 

2.5 1.8 Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic) 

38.9 1.8 

 

Subtotal, top 15 classes 92.6 67.4 Subtotal, top 15 classes 1,565.3 73.9 

Total, all classes 137.4 100.0 Total, all classes 2,119.2 100.0 

Note: COPD (chronic obstructive pulmonary disease). “Spending” (gross) reflects payments from all payers, including 

beneficiaries (cost sharing), but does not include rebates and discounts from pharmacies and manufacturers that are not 

reflected in prices at the pharmacies. “Volume” is the number of prescriptions, standardized to a 30-day supply. 

Therapeutic classification is based on the First DataBank Enhanced Therapeutic Classification System 1.0. Components 

may not sum to totals due to rounding. 

 

Source: MedPAC analysis of Medicare Part D prescription drug event data from CMS. 

• In 2015, the top 15 therapeutic classes by spending accounted for slightly over two-thirds of the 

$137.4 billion spent on prescription drugs covered by Part D plans. The top 15 therapeutic classes by 

volume accounted for nearly three-quarters of the roughly 2.1 billion prescriptions dispensed in 2015. 

• While many of the same therapeutic classes on the top-15 list appear year after year, the ranking has 

changed from time to time. For example, market entries of new hepatitis C therapies more than 

doubled Part D spending on antivirals between 2013 and 2014 (data not shown). In 2015, antivirals 

accounted for $13.6 billion, up from $4.3 billion in 2013. The growth in spending for drugs to treat 

cancer has resulted in two classes of antineoplastic therapies (enzyme inhibitors and 

immunomodulators) appearing on the top-15 list for the first time in 2015, compared with just one 

class between 2012 and 2014 and none before 2012. 

• In 2015, spending on drugs to treat diabetes totaled $17.5 billion, an increase of about 24 percent 

from $14.1 billion in 2014 (2014 data not shown), continuing the double-digit growth trend we have 

observed during the last few years. The number of prescriptions filled for diabetic therapy totaled 

135.4 million, an increase of 7.4 percent from 126.1 million in 2014 (2014 data not shown). 

(Chart continued next page)
176 Prescription drugs

Chart 10-23. Top 15 therapeutic classes of drugs covered under 

 Part D, by spending and volume, 2015 (continued) 

• Antianxiety agents appeared on the top-15 list by volume for the first time in 2013. The number of 

prescriptions for antianxiety agents totaled 39 million in 2015, an increase of about 11 percent from 

35.2 million in 2013 (2013 data not shown). Before 2013, the use of antianxiety drugs was relatively 

low (8.5 million in 2012; data not shown). The increase in the use of antianxiety agents since 2012 

reflects the addition of benzodiazepines to the list of Part D–covered drugs beginning in 2013. 

• Nine therapeutic classes are among the top 15 in both spending and volume. Diabetic therapy 

dominates the list by spending, accounting for more than 19 percent of spending for the top 15 

therapeutic classes, followed by central nervous system agents (antipsychotics, anticonvulsants, and 

antidepressants) and cardiovascular agents (antihyperlipidemics and antihypertensive therapy 

agents), each accounting for about 14 percent of spending. 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 2018 177

Chart 10-24. Part D patterns of prescribing by provider type, 2015 

Part D 

 Provider type 

 Primary care* Specialty/others 

Number of individual prescribers (thousands) 1,102 462 640 

 Percent of all individual prescribers 42% 58% 

 

Average beneficiary (patient) count 153 195 122 

Average per beneficiary 

 Gross spending $723 $771 $687 

 Number of prescriptions 6.3 8.9 4.3 

Top 1 percent of prescribers based on 

number of prescriptions filled per beneficiary 

 

Number of individual prescribers 9,680 7,940 1,740 

 Percent of all individual prescribers 82% 18% 

 

Total gross spending (billions) $9.3 $7.9 $1.4 

 Percent of total gross spending (by column) 7% 11% 2% 

 

Total number of prescriptions (millions) 138 121 17 

 Percent of all prescriptions filled 10% 12% 4% 

 

Average per beneficiary 

 Gross spending $3,764 $3,424 $5,319 

 Number of prescriptions 43 43 43 

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. “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 2015 prescription counts 

shown in Chart 10-18 and Chart 10-21 through Chart 10-23. 

 *The definition of “primary care” used here is based on the definition 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 2015, about 1.1 million individual providers wrote prescriptions for Medicare beneficiaries 

that were filled under Part D. Of those, about 42 percent were primary care providers and 58 

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—195 beneficiaries versus 122 

beneficiaries. 

(Chart continued next page) 
178 Prescription drugs

Chart 10-24. Part D patterns of prescribing by provider type, 2015 

(continued) 

• On a per beneficiary basis, average gross spending for Part D prescriptions was higher for 

prescriptions written by primary care providers ($771) compared with the average for specialty 

and other providers ($687). Primary care providers also wrote more prescriptions per 

beneficiary, on average, than specialty and other providers: 8.9 compared with 4.3. 

• Nearly 9,700 prescribers were among the top 1 percent of all prescribers, as ranked by the 

average number of Part D prescriptions filled per beneficiary in 2015. Of those prescribers, 82 

percent were primary care providers and 18 percent were specialty and other providers. 

• The top 1 percent of prescribers accounted for 7 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 in the top 1 percent of all prescribers 

in 2015, per beneficiary Part D spending averaged $3,764 for 43 prescriptions filled. 

 
A Data Book: Health care spending and the Medicare program, June 2018 179

Chart 10-25. Part D patterns of prescribing for selected 

specialties, 2015 

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 1,102.2 100% $723 6.3 

All specialty/others 640.0 58 687 4.3 

 

Selected specialties: 

Psychiatry 25.7 4 1,373 13.3 

Cardiology 20.8 3 686 8.8 

Ophthalmology 19.7 3 414 4.1 

Psychiatry & neurology 13.9 2 1,243 11.0 

Neurology 13.4 2 2,800 7.7 

Gastroenterology 13.1 2 2,559 3.8 

Urology 10.7 2 404 4.0 

Pulmonary disease 9.2 1 2,297 7.0 

Nephrology 8.3 1 1,610 9.3 

Hematology & oncology 8.1 1 6,041 6.3 

Endocrinology 5.6 1 1,996 8.5 

Infectious disease 5.1 1 6,687 9.6 

Rheumatology 4.6 1 2,584 8.3 

Medical oncology 3.0 <0.5 5,570 5.9 

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 2015 prescription counts shown in Chart 10-18 and Chart 

10-21 through Chart 10-23. 

 

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

• Of specialty care prescribers, psychiatrists were among the most numerous, making up 4 

percent of all Part D prescribers in 2015. Cardiologists, ophthalmologists, 

psychiatrist/neurologists, neurologists, gastroenterologists, and urologists each made up 

another 2 percent to 3 percent of Part D prescribers. 

• Psychiatrists wrote an average of 13.3 prescriptions per beneficiary, with an average of 

$1,373 in gross spending per patient. Those are higher than the overall Part D averages of 

6.3 prescriptions and $723 in average gross spending per beneficiary. Other specialties with 

comparatively high average gross spending per beneficiary include psychiatry/neurology, 

neurology, gastroenterology, pulmonary disease, nephrology, hematology/oncology, 

endocrinology, infectious disease, rheumatology, and medical oncology. 

(Chart continued next page) 
180 Prescription drugs

Chart 10-25. Part D patterns of prescribing for selected 

specialties, 2015 (continued) 

• Other specialties such as ophthalmology and urology had lower average gross spending per 

beneficiary. Cardiologists had average gross spending per beneficiary similar to that of all 

Part D specialty prescribers ($686 vs. $687, respectively), but wrote an average of 8.8 

prescriptions per beneficiary—considerably more than the average of 4.3 per beneficiary for 

all Part D specialty prescribers. This distinction reflects the widespread availability of generic 

cardiology medications.
A Data Book: Health care spending and the Medicare program, June 2018 181

Chart 10-26. Price growth for Part D–covered drugs, 2006–2015 

Note: Part D indexes reflect total amounts paid to pharmacies and do not reflect retrospective rebates or discounts from 

manufacturers and pharmacies. These measures of price growth reflect growth in the price of individual products, but do 

not reflect changes in price due to the introduction of new products or the changes in the mix of products used. 

Source: Acumen LLC analysis for MedPAC. 

• Measured by individual national drug codes, prices of drugs and biologics covered under 

Part D rose 67 percent cumulatively between 2006 and 2015 (an index of 1.67) (prices 

reflect total amounts paid to pharmacies and do not reflect retrospective rebates or 

discounts from manufacturers and pharmacies). 

• As measured by a price index that takes generic substitution into account, Part D prices 

increased by just 10 percent cumulatively over the nine-year period. Before 2013, increased 

generic use kept overall prices stable by offsetting increases in prices of brand-name drugs. 

From 2013 to 2015, however, the introduction of new generics slowed, and prices for brandname drugs grew more rapidly—as reflected by an uptick in the price index. 

• Overall, between 2006 and 2015, prices of generic drugs covered under Part D decreased 

to 31 percent of the average price observed at the beginning of 2006. In comparison, prices 

of single-source, brand-name drugs (drugs with no generic substitutes) grew by a 

cumulative 173 percent during the same period. 

All Part D-covered 

drugs

1.67

Single-source 

brand-name drugs

2.73

Generic drugs 0.31

All Part D–covered drugs 

accounting for generic substitution

1.10

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

Chain-weighted Fisher price index

2015 

Q4
182 Prescription drugs

Chart 10-27. Comparison of price growth for Part B and Part D 

biologics, 2006–2015

Note: Part D indexes reflect total amounts paid to pharmacies and do not reflect retrospective rebates or discounts from 

manufacturers and pharmacies. The Part B index reflects growth in the average sales price of Part B–covered biologics over 

time, measured for individual biologics at the Healthcare Common Procedure Coding System billing code level. These 

measures of price growth reflect growth in the price of individual products but do not reflect changes in price due to the 

introduction of new products or the changes in the mix of products used. The Part B biologics price index numbers in this 

chart and in Chart 10-6 are different due to the different time periods of analysis. 

Source: Acumen LLC analysis for MedPAC. 

• Measured by the change in the average sales price of individual Part B–covered biologics, the 

prices of Part B–covered biologics rose by an average of 38 percent cumulatively between 2006 

and 2015 (an index of 1.38). Measured by individual national drug codes, prices of biologics 

covered under Part D rose 195 percent cumulatively during the same period (an index of 2.95) 

(prices reflect total amounts paid to pharmacies and do not reflect retrospective rebates or 

discounts from manufacturers and pharmacies). 

• Prices of noninsulin biologics covered under Part D grew less rapidly (by an average of 148 

percent cumulatively) compared with the growth in prices of all Part D biologics (a cumulative 

195 percent) during the same period. 

• These measures of price growth reflect growth in price at the individual product level and do not 

reflect changes in price that occur as a result of shifts in the mix of biologics used or the 

introduction of new, higher priced biologics. 

• Currently, biologics that may be covered under either Part B or Part D are limited to a subset of 

drugs within therapeutic classes such as therapies to treat inflammatory conditions (e.g., 

rheumatoid arthritis) and certain types of cancer. 

Part B biologics

1.38

Part D biologics

2.95

Part D biologics 

excluding insulin

2.48

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2006

Q1

2007

Q1

2008

Q1

2009

Q1

2010

Q1

2011

Q1

2012

Q1

2013

Q1

2014

Q1

2015

Q1

Chain-weighted Fisher price index

2015 

Q4
 

S E C T I O N 

Other services

Dialysis 

Hospice 

Clinical laboratory 

A Data Book: Health care spending and the Medicare program, June 2018 185

Chart 11-1. Number of dialysis facilities is growing, and most 

facilities are for profit and freestanding 

Average annual 

percent change

 2017 2012–2017 2016–2017 

Total number of: 

Dialysis facilities 7,014 4% 4% 

Hemodialysis stations 120,928 3 3 

 

Mean number of 

 hemodialysis stations per facility 17 –0.6 –0.8 

 Share of total 

Hospital based 6% –3 –2 

Freestanding 94 4 5 

Urban 82 4 5 

Rural, micropolitan 11 2 1 

Rural, adjacent to urban 4 2 2 

Rural, not adjacent to urban 2 2 0 

Frontier 0.5 3 3 

For profit 88 5 5 

Nonprofit 12 −1 −2 

 

Note: “Nonprofit” includes facilities designated as either nonprofit or government. “Average annual percent change” is based on

comparing 2012, 2016, and 2017 end-of-year files. Components may not sum to totals due to rounding. 

 

Source: Compiled by MedPAC from the 2012, 2016, and 2017 CMS Dialysis Compare end-of-year files. 

 

• Between 2012 and 2017, the number of facilities has increased, on average, 4 percent per 

year. The average size of a facility has remained relatively constant, averaging about 17 

dialysis treatment stations per facility (17.7 stations in 2012, 17.4 stations in 2016, and 17.2 

stations in 2017). 

• Since 2012, facilities’ capacity to provide care—as measured by hemodialysis treatment 

stations—grew 3 percent annually. Capacity at urban facilities grew by 4 percent per year, 

while capacity at rural facilities grew at a rate of 2 percent per year (data not shown). 

• Since 2012, the number of freestanding and for-profit facilities increased, while hospitalbased and nonprofit facilities decreased. Freestanding facilities increased from 91 percent to 

94 percent of all facilities, and for-profit facilities increased from 85 percent to 88 percent of 

all facilities. 
186 Other services

Chart 11-2. Medicare spending for outpatient dialysis services 

furnished by freestanding and hospital-based 

dialysis facilities, 2015 and 2016 

Note: ESRD (end-stage renal disease). 

Source: Compiled by MedPAC from the 2015 and 2016 institutional outpatient files from CMS. 

• In 2016, total spending for dialysis, dialysis drugs, and ESRD-related clinical laboratory tests 

was $11.4 billion. Medicare paid all facilities under a modernized prospective payment 

system that includes in the payment bundle certain dialysis drugs and ESRD-related clinical 

laboratory tests that were separately paid before 2011. 

• Between 2015 and 2016, total ESRD expenditures increased by 2 percent. 

• Freestanding dialysis facilities treated most dialysis beneficiaries and accounted for 94 

percent of expenditures in 2016. 

0

2

4

6

8

10

12

14

2015 2016

Spending on dialysis, dialysis drugs, 

and other ESRD-related services 

(in billions of dollars)

Freestanding Hospital based

$11.2 $11.4

94% 94%

6% 6%
A Data Book: Health care spending and the Medicare program, June 2018 187

Chart 11-3. The ESRD population is growing, and most ESRD 

patients undergo dialysis 

 2005 2011 2015 

 Patients Patients Patients 

 (thousands) Percent (thousands) Percent (thousands) Percent 

Total 485.90 100% 612.4 100% 703.2 100% 

Dialysis 343.0 71 427.7 70 495.4 70 

 In-center hemodialysis 311.3 64 382.9 63 435.7 62 

 Home hemodialysis* 2.1 0.4 7.0 1 8.6 1 

 Peritoneal dialysis* 28.3 6 36.1 6 49.3 7 

 Unknown 1.3 0.3 1.9 0.3 1.8 0.3 

 

Functioning graft and 

kidney transplants 142.9 29 184.5 30 207.8 30 

 

Note: ESRD (end-stage renal disease). Totals may not equal sum of components due to rounding. Data include both Medicare 

and non-Medicare patients. 

 *Home dialysis methods. 

Source: Compiled by MedPAC from the United States Renal Data System. 

• Persons with ESRD require either dialysis or a kidney transplant to maintain life. The total 

number of ESRD patients increased by 4 percent annually between 2005 and 2015. 

• 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 2005 and 2015, the total number of in-center hemodialysis patients grew by 

3 percent annually, while the total number of peritoneal dialysis patients increased by about 

6 percent annually. Although a smaller proportion of all dialysis patients undergo home 

hemodialysis, the number of these patients grew 15 percent per year during this period. 

• Functioning graft patients are patients who have had a successful kidney transplant. 

Patients undergoing kidney transplant may receive either a living kidney or a cadaveric 

kidney donation. In 2015, 30 percent of transplanted kidneys were from living donors and 

the remainder were from cadaver donors (data not shown). 
188 Other services

Chart 11-4. Asian Americans and Hispanics are among the 

 fastest growing segments of the ESRD population 

 Share Average annual 

 of total percent change 

 in 2015 2010–2015 

Total (N = 703,243) 100% 3% 

Age (years) 

 0–17 1 0.4 

 18–44 15 1 

 45–64 44 3 

 65–79 31 6 

 80+ 9 3 

Sex 

 Male 58 4 

 Female 42 3 

Race/ethnicity 

 White 61 3 

 African American 31 3 

 Native American 1 2 

 Asian American 6 6 

 

 Hispanic 17 5 

 Non-Hispanic 80 3 

 Unknown 2 0 

Underlying cause of ESRD 

 Diabetes 38 4 

 Hypertension 26 4 

 Glomerulonephritis 16 2 

 Other causes 20 3 

 

Note: ESRD (end-stage renal disease). Totals may not equal sum of the components due to rounding. ESRD patients include 

those who undergo maintenance dialysis and those who have a functioning kidney transplant. 

Source: Compiled by MedPAC from the United States Renal Data System. 

 

• Among ESRD patients, 40 percent are over age 65. About 60 percent are White. 

• Diabetes is the most common cause of renal failure. 

• The number of ESRD patients increased by 3 percent annually between 2010 and 2015. 

Among the fastest growing groups of patients are patients between the ages of 65 and 79, 

Asian Americans, and Hispanics. 
A Data Book: Health care spending and the Medicare program, June 2018 189

Chart 11-5. Characteristics of Medicare fee-for-service dialysis 

patients, 2016 

 Share of all FFS dialysis patients 

Age (years) 

 Under 45 11% 

45–64 38 

65–74 27 

75–84 18 

85+ 6 

Sex 

 Male 56 

 Female 45 

Race 

 White 48 

 African American 36 

 All other 17 

Residence 

 Urban county 84 

 Rural county, micropolitan 10 

 Rural county, adjacent to urban 5 

 Rural county, not adjacent to urban 2 

 Frontier county 1 

Prescription drug coverage status 

 Enrolled in Part D plan or other source of creditable drug coverage 89 

 LIS 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 fewer than 50,000 people, rural counties 

adjacent to urban areas do not have a city of 10,000 people in the county, and rural counties not adjacent to urban areas 

do not have a city of 10,000 people. Frontier counties are counties with six or fewer people per square mile. Totals may 

not sum to 100 percent due to rounding. 

 

Source: MedPAC analysis of dialysis claims files and denominator files from CMS. 

• Compared with all Medicare patients, FFS dialysis patients are disproportionately younger 

and African American (see Chart 2-5). 

• In 2016, about 17 percent of FFS dialysis patients resided in a rural county. 

• Nearly half of all dialysis patients were dually eligible for Medicare and Medicaid services. 

• Nearly 90 percent of FFS dialysis patients were enrolled in Part D plans or had other 

sources of creditable drug coverage. 
190 Other services

Chart 11-6. Aggregate margins varied by type of freestanding 

dialysis facility, 2016 

 Share of freestanding 

Type of facility dialysis treatments Aggregate margin 

All facilities 100% 0.5% 

Urban 88 1.3 

Rural 12 −4.9 

Treatment volume (quintile) 

 Lowest 20 −17.1 

 Second 20 −7.9 

 Third 20 −2.6 

 Fourth 20 1.9 

 Highest 20 6.7 

 

Note: Margins include payments and costs for composite rate services, injectable drugs, and other end-stage renal disease–

related services. 

Source: Compiled by MedPAC from 2016 cost reports and the 2016 institutional outpatient file from CMS. 

• For 2016, the aggregate Medicare margin for composite rate services and injectable drugs 

was 0.5 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 2018 191

Chart 11-7. Hospice spending and use increased in 2016 

Average annual 

change, Change, 

 2000 2015 2016 2000–2015 2015–2016 

Medicare payments (in billions) $2.9 $15.9 $16.8 11.9% 6.0% 

Beneficiaries in hospice 0.534 1.381 1.427 6.5% 3.3% 

(in millions) 

Number of hospice days for all 25.8 95.9 101.2 9.1% 5.5% 

hospice beneficiaries (in millions) 

Average length of stay 53.5 86.7 87.8 3.3% 1.3% 

among decedents (in days) 

Median length of stay 17 17 18 0 days* 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 percentage change displayed in the chart may not equal the percentage change calculated using the yearly data 

displayed in the chart. 

 *This figure reflects the raw change rather than the percentage change. 

 

Source: MedPAC analysis of the denominator file, the Medicare Beneficiary Database, and the 100 percent hospice claims standard

analytic file from CMS. 

• Total Medicare payments to hospices were about $16.8 billion in 2016, 6 percent higher 

than the prior year. 

• The number of Medicare beneficiaries receiving hospice services and total number of days 

of hospice care continued to grow in 2016. 

• Average and median length of stay among decedents increased slightly between 2015 and 

2016. 
192 Other services

Chart 11-8. Hospice use increased across beneficiary groups 

from 2000 to 2016 

 Average annual 

 Share of decedents using hospice percentage Percentage 

point change point change 

 2000 2015 2016 2000–2015 2015–2016 

All 22.9% 48.6% 49.7% 1.7 1.1% 

FFS beneficiaries 21.5 47.6 48.7 1.7 1.1 

MA beneficiaries 30.9 51.1 51.9 1.3 0.8 

Dual eligibles 17.5 43.1 44.1 1.7 1.0 

Non–dual eligibles 24.5 50.3 51.4 1.7 1.1 

Age (years) 

 <65 17.0 29.9 30.1 0.9 0.2 

 65–84 24.7 46.1 46.8 1.4 0.7 

 85+ 21.4 57.1 59.1 2.4 2.0 

Race/ethnicity 

 White 23.8 50.5 51.8 1.8 1.3 

 Minority 17.3 38.4 39.1 1.4 0.7 

Gender 

 Male 22.4 44.5 45.4 1.5 0.9 

 Female 23.3 52.3 53.7 1.9 1.4 

Beneficiary location 

 Urban 24.2 49.7 50.7 1.7 1.0 

 Micropolitan 18.3 44.9 46.3 1.8 1.4 

 Rural, adjacent to urban 17.5 44.5 45.7 1.8 1.2 

 Rural, nonadjacent to urban 15.0 38.9 40.2 1.6 1.3 

 Frontier 13.1 33.6 33.8 1.4 0.2 

 

Note: FFS (fee-for-service), MA (Medicare Advantage). “Beneficiary location” refers to the beneficiary’s county of residence. 

Urban, micropolitan, and rural designations are based on the urban influence codes. This chart uses the 2013 urban 

influence code definition. The frontier category is defined as population density equal to or less than six persons per 

square mile. 

Source: MedPAC analysis of data from the denominator file and the Medicare Beneficiary Database from CMS. 

• Hospice use grew in all beneficiary groups in 2016, 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 respective 

counterparts. 

 
A Data Book: Health care spending and the Medicare program, June 2018 193

Chart 11-9. Number of Medicare-participating hospices has 

 increased due to growth in for-profit hospices 

 2000 2014 2015 2016 

All hospices 2,255 4,092 4,199 4,382 

For profit 672 2,588 2,730 2,938 

Nonprofit 1,324 1,305 1,294 1,273 

Government 257 199 175 171 

Freestanding 1,069 3,024 3,163 3,369 

Hospital based 785 535 517 501 

Home health based 378 510 494 487 

SNF based 22 23 25 25 

Urban 1,455 3,102 3,235 3,449 

Rural 757 944 920 904 

Note: SNF (skilled nursing facility). Numbers may not sum to totals because of missing data for a small number of providers. 

The rural and urban definitions in this chart are based on updated definitions of the core-based statistical areas (which 

rely on data from the 2010 census). 

Source: MedPAC analysis of Medicare cost reports, Provider of Services file, and the standard analytic file of hospice claims from 

CMS. 

• There were 4,382 Medicare-participating hospices in 2016. Most of them were for-profit 

hospices. 

• Between 2000 and 2016, the number of Medicare-participating hospices grew by more than 

2,000 providers. For-profit hospices accounted entirely for the net growth. 

• Growth in the number of providers has occurred predominantly among freestanding 

providers. The number of hospital-based providers has declined. The number of home 

health–based providers has declined modestly since 2014. The number of SNF-based 

providers is small and has changed little over the years. (A hospice’s status as freestanding 

versus hospital based, home health based, or SNF based reflects the type of cost report 

submitted by the provider and does not necessarily reflect the location of care.) 

 

• The number of hospices located in rural areas has declined in the last several years, 

decreasing about 4 percent between 2014 and 2016. The number of providers located in 

rural areas is not necessarily an indicator of access to care. The share of rural decedents 

using hospice has been increasing since 2000 (see Chart 11-8). 

 
194 Other services

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

 2016 

 Share of cases with 

 Share length of stay 

Diagnosis of total cases greater than 180 days 

 

Cancer 27% 9% 

Alzheimer’s, nervous system disorders, 

 organic psychosis 23 34 

Circulatory, except heart failure 18 25 

Heart failure 10 22 

Respiratory disease 6 15 

Other 6 15 

Chronic airway obstruction, NOS 5 28 

Genitourinary disease 3 9 

Digestive disease 2 9 

All 100 21 

Note: NOS (not otherwise specified). Cases include all patients who received hospice care in 2016, not just decedents. 

“Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim. The share of cases with length of stay 

greater than 180 days reflects the share of hospice patients who received hospice care in 2016 whose lifetime length of 

hospice stay exceeded 180 days at the end of 2016 (or at the time of death or discharge in 2016 if the beneficiary was not 

enrolled in hospice at the end of 2016). 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file from CMS and the Medicare Beneficiary Database. 

• In 2016, the most common primary diagnoses among Medicare hospice patients were 

cancer (27 percent), neurological conditions (Alzheimer’s disease, nervous system 

disorders, and organic psychosis) (23 percent of cases), circulatory conditions other than 

heart failure (18 percent), and heart failure (10 percent). 

• Length of stay varies by diagnosis. One-quarter or more of hospice patients in 2016 with 

Alzheimer’s disease and other nervous system disorders, chronic airway obstruction, and 

circulatory conditions (other than heart failure) had lengths of stay exceeding 180 days. 

Long hospice stays were least common among beneficiaries with cancer, genitourinary 

disease, and digestive disease. 
A Data Book: Health care spending and the Medicare program, June 2018 195

Chart 11-11. Hospice average and median length of stay among 

decedents increased slightly in 2016 

 

Average 

length 

of stay Percentiles of length of stay (in days) 

Year (in days) 10th 25th 50th 75th 90th 

 

2000 53.5 3 6 17 56 141 

2001 54.9 3 6 17 57 146 

2002 58.2 3 6 17 59 157 

2003 62.2 3 6 17 62 170 

2004 66.0 3 5 17 63 180 

2005 71.3 3 5 17 67 194 

2006 75.6 3 5 17 70 208 

2007 79.7 3 5 17 73 222 

2008 83.4 2 5 17 75 235 

2009 84.4 3 5 17 76 237 

2010 86.1 3 5 17 77 240 

2011 86.3 2 5 17 78 240 

2012 88.0 2 5 18 80 246 

2013 87.8 2 5 17 79 246 

2014 88.2 2 5 17 79 247 

2015 86.7 2 5 17 80 240 

2016 87.8 2 5 18 82 244 

 

Note: Data reflect hospice length of stay for Medicare decedents who used hospice at the time of death or before death. “Length 

of stay” reflects the total number of days the decedent was enrolled in the Medicare hospice benefit during his or her 

lifetime. 

Source: MedPAC analysis of the denominator file and the Medicare Beneficiary Database from CMS. 

• Average length of stay among decedents was 87.8 days in 2016, a slight increase from 

2015. Average length of stay grew substantially between 2000 (53.5 days) and 2012 (88.0 

days) and has oscillated modestly since then. 

• There is wide variation in hospice length of stay. In 2016, hospice length of stay among 

decedents ranged from 2 days at the 10th percentile to 244 days at the 90th percentile. 

• Since 2000, growth in average length of stay among decedents has largely been the result 

of increases in length of stay for patients with the longest stays. Length of stay at the 90th 

percentile was about 100 days greater in 2016 than in 2000. 

• Short stays in hospice have changed little since 2000. Among decedents, median length of 

stay was 18 days in 2016 and has been 17 or 18 days since 2000. Hospice length of stay at 

the 10th percentile (two days) and 25th percentile (five days) has been unchanged for at 

least five years. 
196 Other services

Chart 11-12. Hospice length of stay among decedents, by 

 beneficiary and hospice characteristics, 2016 

 Average length Length of stay percentiles (in days) 

 of stay (in days) 10th 50th 90th 

 

Beneficiary 

 Diagnosis 

 Cancer 53 3 17 129 

 Neurological 148 4 35 435 

 Heart/circulatory 94 2 16 280 

 COPD 118 2 27 348 

 Other 53 2 8 146 

 Site of service 

 Home 90 4 26 239 

 Nursing facility 106 3 20 309 

 Assisted living facility 152 5 51 430 

Hospice 

 For profit 106 3 22 308 

 Nonprofit 66 2 13 180 

 Freestanding 91 2 18 255 

 Home health based 69 2 15 186 

 Hospital based 55 2 12 147 

Note: COPD (chronic obstructive pulmonary disease). Average length of stay is calculated for Medicare beneficiaries who died 

in 2016 and used hospice that year, and it reflects the total number of days the decedent was enrolled in the Medicare 

hospice benefit during his or her lifetime. “Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim. 

 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data, Medicare Beneficiary Database, Medicare 

hospice cost reports, and Provider of Services file data from CMS. 

• Hospice average length of stay among decedents varies by both beneficiary and provider 

characteristics. Most of this variation reflects differences in length of stay among patients 

with the longest stays (i.e., at the 90th percentile). Length of stay varies much less for 

patients with shorter stays (i.e., at the 10th or 50th percentile). 

• Beneficiaries with neurological conditions and COPD have the longest stays while 

beneficiaries with cancer have the shortest stays, on average. 

• Beneficiaries who receive hospice services in assisted living facilities have longer stays on 

average than beneficiaries who receive care at home or in a nursing facility. 

• For-profit and freestanding hospices have longer average lengths of stay than nonprofit and 

provider-based (home health− and hospital-based) hospices. 
A Data Book: Health care spending and the Medicare program, June 2018 197

Chart 11-13. More than half of Medicare hospice spending in 

 2016 was for patients with stays exceeding 180 

 days 

 Medicare hospice spending, 2016 

 (in billions) 

All hospice users in 2016 $16.8 

Beneficiaries with LOS > 180 days 9.5 

 Days 1–180 3.2 

 Days 181–365 3.0 

 Days 366+ 3.3 

Beneficiaries with LOS ≤ 180 days 7.4 

 

Note: LOS (length of stay). LOS reflects the beneficiary’s lifetime LOS as of the end of 2016 (or at the time of death or discharge 

in 2016 if the beneficiary was not enrolled in hospice at the end of 2016). All spending reflected in the chart occurred only 

in 2016. Break-out groups do not sum to total because of rounding. 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data and the common Medicare enrollment file from 

CMS. 

• In 2016, Medicare hospice spending on patients with stays exceeding 180 days was about 

$9.5 billion, more than half (57 percent) of all Medicare hospice spending that year. 

• About $3.3 billion, or about 20 percent, of Medicare hospice spending in 2016 was on 

hospice care for patients who had already received at least one year of hospice. 

 
198 Other services

Chart 11-14. Hospice aggregate Medicare margins, 2009–2015 

 Share of Medicare margin 

 hospices 

 (2015) 2009 2012 2013 2014 2015 

 

All 100% 7.4% 10.0% 8.5% 8.2% 10.0% 

Freestanding 75 10.2 13.3 12.0 11.6 13.8 

Home health based 12 6.2 5.5 2.5 3.7 3.3 

Hospital based 12 –12.4 –17.1 –17.4 –20.8 –22.9 

For profit 65 11.8 15.4 14.7 14.6 16.4 

Nonprofit 31 3.6 3.6 0.9 –0.9 0.1 

Government 4 N/A N/A N/A N/A N/A 

Urban 79 7.9 10.3 8.8 8.7 10.5 

Rural 21 3.2 7.3 5.9 3.3 4.9 

Below cap 87.7 7.9 10.3 8.6 8.4 10.0 

Above cap 12.3 1.5 5.2 7.0 6.0 9.9 

Above cap (including 

 cap overpayments) 12.3 18.4 21.3 20.1 18.8 21.4 

 

Note: N/A (not available). Margins for all provider categories exclude overpayments to above-cap hospices except where 

specifically indicated. Margins are calculated based on Medicare-allowable, reimbursable costs. The percentages of 

freestanding and provider-based (home health–based and hospital-based) hospices do not sum to 100 percent because 

skilled nursing facility–based hospices are not broken out separately. 

Source: MedPAC analysis of Medicare hospice cost reports, 100 percent hospice claims standard analytic file, and Medicare 

Provider of Services data from CMS. 

• The aggregate Medicare margin was 10.0 percent in 2015, up from 8.2 percent in 2014. 

• In 2015, freestanding hospices had higher margins (13.8 percent) than home health–based 

(3.3 percent) and hospital-based hospices (–22.9 percent). 

• The 2015 margin among for-profit hospices was high at 16.4 percent. Nonprofit hospices as 

a group had a margin of 0.1 percent in 2015, but the subset of nonprofit hospices that were 

freestanding had a higher margin, 5.0 percent (latter figure not shown in chart). 

• The aggregate 2015 margin was higher for urban hospices (10.5 percent) than rural 

hospices (4.9 percent). 

• Hospices that exceeded the cap (Medicare’s aggregate average per beneficiary payment 

limit) had a 2015 margin of more than 21 percent before the return of the cap overpayments. 
A Data Book: Health care spending and the Medicare program, June 2018 199

Chart 11-15. Medicare margins were higher among hospices with 

 more long stays, 2015 

Note: Margins exclude overpayments to hospices that exceeded the cap on the average annual Medicare payment per 

beneficiary. Margins are calculated based on Medicare-allowable, reimbursable costs. For hospice providers in the lowest 

(first) quintile, the share of stays greater than 180 days was less than 12.6 percent; it was between 12.6 percent and 19.7 

percent in the second quintile; it was between 19.7 percent and 26.4 percent in the third quintile; it was between 26.4 

percent and 34.1 percent in the fourth quintile; and it was greater than 34.1 percent in the highest (fifth) quintile. 

Source: MedPAC analysis of Medicare hospice cost reports and 100 percent hospice claims standard analytic file from CMS. 

• Medicare’s per diem payment system for hospice has provided an incentive for longer 

lengths of stay. 

• Hospices with more patients who had stays greater than 180 days generally had higher 

margins in 2015. Hospices in the lowest length-of-stay quintile had a margin of –8.9 percent 

compared with a 20.4 percent margin for hospices in the second highest length-of-stay 

quintile. 

• Margins were somewhat lower in the highest length-of-stay quintile (16.7 percent) compared 

with the second highest quintile (20.4 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). 

-8.9

3.6

14.5

20.4

16.7

-15

-10

-5

0

5

10

15

20

25

12345

Margin (in percent)

Share of providers' patients with stays greater than 180 days, by quintiles
200 Other services

Chart 11-16. Hospices that exceeded Medicare’s annual 

 payment cap, selected years 

 

 2002 2012 2013 2014 2015 

Share of hospices 

 exceeding the cap 2.6% 11.0% 10.7% 12.2% 12.3% 

Average payments over 

 the cap per hospice 

 exceeding the cap 

 (in thousands) $470 $510 $460 $370 $320 

Payments over the cap 

 as a share of overall 

 Medicare hospice spending 0.6% 1.4% 1.3% 1.2% 1.0% 

 

Note: The cap year is defined as the period beginning November 1 and ending October 31 of the following year. These 

estimates of hospices that exceeded the aggregate cap are based on the Commission’s analyses. While the estimates 

are intended to approximate those of the Medicare claims-processing contractors, they are not necessarily identical to the 

contractors’ estimates because of differences in available data and methodology. 

 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data, Medicare hospice cost reports, Provider of 

Services file data from CMS, and CMS Providing Data Quickly system. Data on total spending for each fiscal year are 

from the CMS Office of the Actuary. 

• The share of hospices exceeding the aggregate cap was just over 12 percent in 2015, 

similar to 2014. 

• Medicare payments over the cap represented 1.0 percent of total Medicare hospice 

spending in 2015. 

• On average, above-cap hospices exceeded the cap by about $320,000 per provider in 2015, 

down from about $370,000 per provider in 2014. 
A Data Book: Health care spending and the Medicare program, June 2018 201

Chart 11-17. Hospice live-discharge rates, 2013–2016 

 2013 2014 2015 2016 

Live discharge as a share of 

all discharges, by reason for 

live discharge 

 All live discharges 18.4% 17.2% 16.7% 16.9% 

No longer terminally ill 7.8 7.3 6.9 6.8 

 Beneficiary revocation 7.3 6.6 6.3 6.4 

 Transfer hospice providers 2.0 2.0 2.1 2.1 

 Move out of service area 0.9 0.9 1.0 1.2 

Discharge for cause 0.4 0.3 0.3 0.3 

Providers’ overall rate of live discharge as a 

share of all discharges, by percentile 

 10th percentile 9.3 8.5 8.4 8.3 

 25th percentile 13.2 12.3 12.0 12.2 

 50th percentile 19.4 18.7 18.4 19.1 

 75th percentile 30.2 30.2 29.6 31.3 

 90th percentile 47.2 50.0 50.0 53.3 

Note: Percentages may not sum to totals due to rounding. “All discharges” includes patients discharged alive or deceased. 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file. 

• Between 2015 and 2016, the overall live-discharge rate increased slightly from 16.7 percent 

to 16.9 percent. This slight increase in the live-discharge rate follows a several-year period 

when the live-discharge rate was declining. 

• Between 2015 and 2016, the rate of live discharge by the reported reason for discharge 

changed modestly. Live discharges due to the beneficiary moving out of the service area or 

revoking the hospice benefit increased slightly, while live discharges due to the beneficiary 

no longer being terminally ill decreased slightly. 

• Live discharges accounted for half or more of total discharges among the 10 percent of 

hospices with the highest live-discharge rates (i.e., the 90th percentile) in 2016. 

 
202 Other services

Chart 11-18. Margins were higher among hospices with a greater 

 share of their patients in nursing facilities, 2015 

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. 

2.4

8.6

11.4

15.7

0

2

4

6

8

10

12

14

16

18

1234

Medicare margin (in percent)

Share of providers' patients in nursing facilities, by quartiles
A Data Book: Health care spending and the Medicare program, June 2018 203

Chart 11-19. Medicare spending for clinical laboratory services, 

 2005–2016 

 

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 components of each bar may not sum to 

the total at the top of each bar due to rounding. The spending data include only program payments; there is no beneficiary 

cost sharing for clinical lab services. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2017. 

 

• Medicare spending for clinical laboratory services in all settings grew by an average of 3.4 

percent per year between 2005 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 declined by 9.1 percent in 2014 because, beginning in 2014, 

many lab tests provided in hospital outpatient departments are no longer paid separately under 

the clinical lab fee schedule. Instead, many of these tests are packaged with their associated 

visits or procedures under the hospital outpatient prospective payment system. 

• Medicare spending for lab services increased by an average of 0.9 percent per year from 

2014 to 2016. In 2016, independent and physician-office labs accounted for 66 percent of 

Medicare spending for all lab services; hospital-based labs accounted for the remaining 34 

percent. 

3.6 3.8 4.1 4.3 4.7 4.8 4.6 5.1 5.2 5.6 5.8 5.6

3.4 3.5

3.6 3.7

3.5 3.6 3.8

4.0 4.0 2.7 2.8 2.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dollars (in billions)

Calendar year

Independent and physician office Hospital based

8.6 8.5

7.0 7.3 

7.6 

8.0 8.2 8.4 8.5 

9.2 9.2 

8.3 

425 I Street, NW • Suite 701 • Washington, DC 20001

(202) 220-3700 • Fax: (202) 220-3759 • www.medpac.gov