A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2016

A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2016

iii

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

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

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

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

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

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

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

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

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

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

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

through tables and figures with brief discussions. 

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

the MedPAC website: www.medpac.gov. 

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

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

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

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

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

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

prepared, the trustees’ report had not yet been released for 2016. Charts that use data from the 

trustees’ report reflect data from the 2015 report and are flagged accordingly. The reader is 

advised to consult the 2016 trustees’ report directly, when available, for the most current data.

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

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

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

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

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

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

v 

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

1-1 Medicare was the largest single purchaser of personal health care, 2014 ..................................................

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

1-3 Aggregate Medicare spending for FFS beneficiaries, by sector, 2005–2014 ............................................

1-4 Per capita Medicare spending for FFS beneficiaries, by sector, 2005–2014 ................................................

1-5 Medicare’s share of spending on personal health care varied by type of service, 2014 ..............................

1-6 Historically, health care spending has risen as a share of GDP; recently, its growth has slowed ...............

1-7 Trustees project Medicare spending to continue to increase as a share of GDP ..........................................

1-8 Changes in spending per enrollee, Medicare and private health insurance ...............................................

1-9 Trustees and CBO project Medicare spending to exceed $1 trillion by the early part of 

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

1-10 FFS program spending was highly concentrated in a small group of beneficiaries, 2012 .......................

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

Trustees’ intermediate assumptions.............................................................................................................

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

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

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

 

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

program spending, 2012 ................................................................................................................................

2-2 Medicare enrollment and spending by age group, 2012 .............................................................................

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

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

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

2-5 Characteristics of the Medicare population, 2012 .......................................................................................

3-1 Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 2012 ...............

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

by beneficiaries’ characteristics, 2012..........................................................................................................

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

by source of payment, 2012 ..........................................................................................................................

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

by source of payment, 2012 ..........................................................................................................................
vi

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

by type of supplemental coverage, 2012......................................................................................................

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

by insurance and health status, 2012............................................................................................................

4-1 Dual-eligible beneficiaries accounted for a disproportionate share of Medicare spending, 2012 ...........

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

age 65 and disabled, 2012.............................................................................................................................

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

health status, 2012..........................................................................................................................................

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

beneficiaries, 2012.........................................................................................................................................

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

and non-dual-eligible beneficiaries, 2012....................................................................................................

4-6 Both Medicare and total spending were concentrated among dual-eligible beneficiaries, 2012.............

5-1 SNFs slightly improved on some measures but not others from 2011 to 2014 ........................................

5-2 Risk-adjusted home health quality measures held steady or improved slightly from 2008 to 2014 .......

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

avoidable rehospitalizations..........................................................................................................................

5-4 Dialysis quality of care: Some measures show progress, others need improvement, 2009–2013...........

5-5 Medicare Advantage quality measures were generally stable between 2013 and 2015...........................

5-6 Use and spending for selected services detected by measures of low-value care in 

fee-for-service Medicare, 2013.....................................................................................................................

5-7 Use of services detected by selected measures of low-value care, by category, 2013..............................

5-8 Spending on services detected by selected measures of low-value care, by category, 2013....................

6-1 Growth in Medicare’s FFS payments for hospital inpatient and outpatient services, 2000–2014...........

6-2 Annual changes in number of acute care hospitals participating in the 

Medicare program, 2000–2014 ....................................................................................................................

6-3 Percent change in hospital employment overall and for selected occupations, 2010–2014.....................

6-4 Share of Medicare acute care hospital inpatient discharges by hospital group, 2014...............................

6-5 Change in share of discharges by major diagnostic categories, 2006–2014 .............................................

6-6 Cumulative change in total all-payer inpatient admissions and outpatient visits, 2000–2014.................

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

per FFS beneficiary, 2006–2014 ..................................................................................................................
vii

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

by length of stay, 2006–2014........................................................................................................................

6-9 Trends in Medicare and non-Medicare inpatient lengths of stay, 2006–2014 ..........................................

6-10 Share of Medicare Part A fee-for-service beneficiaries with at least one hospitalization, 2006–2014...

6-11 Share of inpatient admissions preceded by emergency department visit, by location, 2006–2014.........

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

observation care per 1,000 beneficiaries increased from 2006 to 2014.....................................................

6-13 Potentially preventable readmission rates for selected conditions, 20102014........................................

6-14 Hospital occupancy rates, 2006–2014..........................................................................................................

6-15 Medicare inpatient payments, by source and PPS hospital group, 2014 ...................................................

6-16 Medicare inpatient disproportionate share and uncompensated care payments, 2012–2017...................

6-17 Discharge destination of Medicare fee-for-service beneficiaries, 2006–2014..........................................

6-18 Overall Medicare margin, 2002–2014.........................................................................................................

6-19 Overall Medicare margin, by urban and rural location, 2002–2014..........................................................

6-20 Hospital total all-payer margin, 2002–2014 ................................................................................................

6-21 Hospital total all-payer margin, by urban and rural location and critical access hospitals, 2002–2014 ..

6-22 Hospital total all-payer margin, by teaching status, 2002–2014.................................................................

6-23 Medicare margins, by teaching and disproportionate share status, 2014...................................................

6-24 Financial pressure leads to lower costs ........................................................................................................

6-25 Change in the private payer payment-to-cost ratio for hospital services, 19872014..............................

6-26 Markup of hospital charges above costs for Medicare services, 2002–2014............................................

6-27 Medicare payments to inpatient psychiatric facilities, 2003–2015 ............................................................

6-28 Inpatient psychiatric facilities, 2004–2014 ..................................................................................................

6-29 Number of inpatient psychiatric facility cases declined between 2013 and 2014.....................................

6-30 One diagnosis accounted for almost three-quarters of IPF cases in 2014 .................................................

6-31 Characteristics of IPF users, 2014 ................................................................................................................

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

and other health professionals, 2004–2014..................................................................................................

7-2 Volume growth has caused physician spending to increase faster than input prices 

and payment updates, 2000–2014................................................................................................................

7-3 Growth in volume per beneficiary of physician and other health professional services, 2000–2014 .....

7-4 Medicare beneficiaries reported better ability to get timely appointments with physicians 

compared with privately insured individuals, 2012–2015..........................................................................

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

reported more difficulty finding one in primary care, 2012–2015.............................................................

7-6 Access to physician care was better for Medicare beneficiaries than privately insured individuals, 

but minorities in both groups reported unwanted delays more frequently, 2015......................................

7-7 Minorities in Medicare were less likely to report a big problem in finding a new 

specialist than White beneficiaries, 2015.....................................................................................................

7-8 Changes in physicians’ professional liability insurance premiums, 2008–2015.......................................
viii

7-9 Spending on hospital outpatient services covered under the outpatient PPS, 2005–2015 .......................

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

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

by type of service, 2014 ...............................................................................................................................

7-12 Hospital outpatient services with the highest Medicare expenditures, 2014...........................................

7-13 Medicare coinsurance rates, by type of hospital outpatient service, 2014...............................................

7-14 Effects of hold-harmless and SCH transfer payments on hospitals’ outpatient revenue, 2012–2014...

7-15 Number of observation hours increased, 2006–2014................................................................................

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

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

professionals, by type of service, 2014 ......................................................................................................

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

2000–2014 ..................................................................................................................................................

8-1 Number of post-acute care providers remained stable in 2015 ................................................................

8-2 Growth in Medicare’s post-acute care expenditures has slowed since 2012...........................................

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

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

8-4 SNF service use declined between 2013 and 2014 ...................................................................................

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

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

SNFs in 2014 ...............................................................................................................................................

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

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

8-8 Spending on home health care, 2001–2014...............................................................................................

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

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

services in 2013............................................................................................................................................

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

8-12 Number of IRF FFS patients was stable in 2014.......................................................................................

8-13 Most common types of inpatient rehabilitation facility cases, 2014........................................................

8-14 Inpatient rehabilitation facilities’ Medicare margin by type of facility, 2004–2014...............................

8-15 Low standardized costs led to high margins for both hospital-based and freestanding IRFs, 2014 ......
ix

8-16 The top 25 MS–LTC–DRGs made up two-thirds of LTCH discharges in 2014....................................

8-17 The number of Medicare LTCH cases and users continued to decrease between 2013 and 2014........

8-18 LTCHs’ per case costs increased more than payments in 2014...............................................................

8-19 The aggregate average LTCH Medicare margin fell in 2013 and 2014..................................................

9-1 Enrollment in MA plans, 1996–2016 ..............................................................................................

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

9-3 Average monthly rebate dollars, by plan type, 2010–2016............................................................

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

9-5 MA and cost plan enrollment by state and type of plan, 2016........................................................

9-6 MA plan benchmarks, bids, and Medicare program payments relative to FFS spending, 2016 ......

9-7 Enrollment in employer group MA plans, 2006–2016 ...................................................................

9-8 Number of special needs plan enrollees, 2007–2016......................................................................

9-9 Number of SNPs and SNP enrollment rose from 2015 to 2016 .....................................................

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

CMS–HCC model, 2014..................................................................................................................

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

status, December 2014 .....................................................................................................................

9-12 Distribution of MA plans and enrollment by CMS overall star ratings, March 2016....................

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

outpatient departments................................................................................................................................

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

departments (dollars in millions), 2013 and 2014.....................................................................................

10-3 In 2013, 88 percent of Medicare beneficiaries were enrolled in Part D plans or had 

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

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

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

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

10-7 Change in average Part D premiums, 2012–2016.....................................................................................

10-8 Fewer premium-free (for LIS enrollees) PDPs in 2016............................................................................

10-9 In 2016, most Part D enrollees are in plans that use a five-tier formulary structure ...............................

10-10 In 2016, PDPs and MA–PDs apply some utilization management to about 40 percent 

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

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

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

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

10-14 The majority of Part D spending was incurred by only one-quarter of all Part D enrollees, 2013........

10-15 Characteristics of Part D enrollees, by spending levels, 2013..................................................................

10-16 Part D spending and use per enrollee, 2013...............................................................................................

10-17 Trends in Part D spending and use per enrollee, 2007–2013 ...................................................................
x

10-18 Top 15 therapeutic classes of drugs covered under Part D, by spending and volume, 2013 .................

10-19 Generic dispensing rate for selected therapeutic classes, by plan type, 2007–2013...............................

10-20 Generic dispensing rate for selected therapeutic classes, by LIS status, 2013 ........................................

10-21 Drug spending and use and the characteristics of beneficiaries filling the most prescriptions, 2013....

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

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

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

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

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

dialysis facilities, 2013 and 2014.........................................................................................................

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

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

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

11-5 Characteristics of Medicare fee-for-service dialysis patients, 2014....................................................

11-6 Aggregate margins varied by type of freestanding dialysis facility, 2014..........................................

11-7 Medicare hospice spending and average length of stay were virtually unchanged in 2014 ..............

11-8 Hospice use increased across beneficiary groups from 2000 to 2014 ................................................

11-9 Number of Medicare-participating hospices has increased due to growth 

in for-profit hospices............................................................................................................................

11-10 Hospice cases and length of stay, by diagnosis, 2014.........................................................................

11-11 Hospice length of stay has changed little since 2012, after a more than decade-long 

period of growth in the longest stays...................................................................................................

11-12 Hospice length of stay among decedents, by beneficiary and hospice characteristics, 2014.............

11-13 More than half of Medicare hospice spending in 2014 was for patients with stays 

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

11-14 Hospice aggregate Medicare margins, 2007–2013 .............................................................................

11-15 Medicare margins were higher among hospices with more long stays, 2013....................................

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

11-17 Hospice live-discharge rates, 2012–2014............................................................................................

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

nursing facilities, 2013 .........................................................................................................................

11-19 Medicare spending for clinical laboratory services, 2005–2014 ........................................................
1

A Data Book: Health care spending and the Medicare program, June 2016 3

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

personal health care, 2014

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

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

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

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

health insurance) rather than in the share of the out-of-pocket category. “Other health insurance programs” includes the 

Children’s Health Insurance Program, Department of Defense, and Department of Veterans Affairs. “Other third-party 

payers” includes worksite health care, other private revenues, Indian Health Service, workers’ compensation, general 

assistance, maternal and child health, vocational rehabilitation, other federal programs, Substance Abuse and Mental 

Health Services Administration, other state and local programs, and school health. 

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

Percent Change and Percent Distribution, by Source of Funds: Selected Calendar Years 1970–2014,” released December 

2015.

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

spending accounted for by private health insurance (34 percent in 2014) is greater than 

Medicare’s share (23 percent in 2014). 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 $2.6 trillion spent on 

personal health care in 2014, Medicare accounted for 23 percent, or $580 billion (as noted 

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

administrative and business costs).

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

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

 Medicare and private health insurance spending includes premium contributions from 

enrollees. 

Medicare

23%

Medicaid

17%

Other third-party 

payers

9%

Private health 

insurance 

34%

Out of pocket

13%

Other health 

insurance 

programs

4%

Total = $2.6 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 2006 = $402 billion Total spending 2014 = $610 billion

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

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

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

ambulatory surgical center facilities, and ambulance. Totals may not sum to 100 percent due to rounding.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

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

 In 2014, Medicare spending totaled $610 billion for benefit expenses. Managed care was

the largest spending category (26 percent), followed by inpatient hospital services (23 

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

the physician fee schedule (11 percent), and services provided in other settings (8 percent).

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

2014 than it was in 2006, falling from 31 percent to 23 percent. Spending on beneficiaries 

enrolled in managed care plans grew from 16 percent to 26 percent over the same period. 

Medicare managed care enrollment increased 129 percent over the same period (data not 

shown).

Inpatient 

hospital

31%

Home 

health

4%

Hospice

2%

Managed care

16%

Physician fee 

schedule

15%

DME

2%

Outpatient 

hospital

5%

Other

9%

Prescription 

drugs provided 

under Part D

11%

SNF

5%

Inpatient 

hospital

23%

Home 

health

3%

Hospice

3%

Managed care

26%

Physician fee 

schedule

11%

DME

1%

Outpatient 

hospital

7%

Other

8%

Prescription 

drugs provided 

under Part D

14%

SNF

5%
A Data Book: Health care spending and the Medicare program, June 2016 5

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

by sector, 2005–2014

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 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 Medicare spending among FFS beneficiaries has increased significantly since 2005 across all 

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

partly attributable to a decline in the growth of FFS enrollment since the number of Medicare 

Advantage enrollees has increased.

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

averaged 1.5 percent per year from 2005 to 2013. Spending then declined by 1.7 percent

between 2013 and 2014 (calculated on unrounded numbers). The decline in the last year is 

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

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

conditions. Despite the slowdown, spending on inpatient hospital services increased, on 

aggregate, 11 percent from 2005 to 2014.

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

averaging 9 percent per year from 2005 to 2014. Aggregate spending on outpatient hospital 

services increased 110 percent from 2005 to 2014.

125 125 126 130 131 134 137 139 140 138

58 58 58 60 61 65 68 69 69 70

32 35 38 42 45 48 50 47 47 47

20 21 22 24 26 29 31 34 36

41

0

20

40

60

80

100

120

140

160

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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, 2005–2014

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 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 Medicare spending per beneficiary in FFS Medicare has increased substantially since 2005

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 3 percent per year from 2005 to 2008 and 1 percent per year 

from 2008 to 2011. It declined by an average of 1 percent per year from 2011 to 2014.

Despite the slowdown in recent years, spending per beneficiary for inpatient hospital 

services increased, on aggregate, 8 percent from 2005 to 2014.

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

throughout the period, averaging 9 percent per year from 2005 to 2014. Spending per 

beneficiary for outpatient hospital services increased, on aggregate, 115 percent from 2005 

to 2014.

3,426 3,502 3,586 3,686 3,736 3,757 3,775 3,753 3,766 3,709

1,694 1,768 1,800 1,867 1,933 2,010 2,084 2,108 2,084 2,121

878 972 1,078 1,186 1,275 1,319 1,364 1,248 1,249 1,255

577 630 628 754 828 888 956 1,031 1,096

1,241

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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 2016 7

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

care varied by type of service, 2014

Note: 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. 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 2014,” released December 2015.

 While Medicare’s share of total personal health care spending was 23 percent in 2014 (see 

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

spending on hospital care (26 percent) and prescription drugs (29 percent) and a much 

higher share of spending on home health and hospice services (42 percent).

 Medicare’s share of spending on nursing homes was smaller than Medicaid’s share 

because Medicare pays for nursing home services only for Medicare beneficiaries who 

require skilled nursing or rehabilitation services, whereas Medicaid pays for custodial care 

(assistance with activities of daily living) provided in nursing homes for people with limited 

income and assets.

 In 2014, Medicare accounted for 26 percent of spending on hospital care, 23 percent of 

physician and clinical services, 42 percent of home health and hospice services, 23 percent

of nursing home care, 17 percent of durable medical equipment, and 29 percent of

prescription drugs.

26 23

42

23 17

29

18

11

36

32

13

10

57

66

23

45

70

61

0

10

20

30

40

50

60

70

80

90

100

Hospital Physician and

clinical

services

Home health

and hospice

Nursing home Durable

medical

equipment

Prescription

drugs

Share of spending (in percent)

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

Chart 1-6. Historically, health care spending has risen as a 

share of GDP; recently, its growth has slowed

Note: GDP (gross domestic product). 

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2014.

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

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

well as by Medicare.

 As a share of GDP, total health care spending more than doubled from 1974 to 2014, 

increasing from 7.5 percent to 17.5 percent. As a share of GDP, private health insurance 

spending more than tripled over that same time period, increasing from 1.7 percent to 5.7 

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

increasing from 0.9 percent to 3.6 percent.

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

remained relatively constant since 2009.

0

2

4

6

8

10

12

14

16

18

20

1974 1979 1984 1989 1994 1999 2004 2009 2014

Share of GDP (in percent)

Calendar year

Total health care spending

Private health insurance spending

Medicare spending

Recent slowdown 

in health care 

spending growth
A Data Book: Health care spending and the Medicare program, June 2016 9

Chart 1-7. Trustees project Medicare spending to continue to 

increase as a share of GDP

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

set of assumptions.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

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

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

 The Medicare Trustees project that spending will rise from 3.5 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 6.0 percent of GDP in 2075, with growth in spending per beneficiary becoming the 

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

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

reach age 65 and become eligible to receive benefits.

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

than in the past. Nominal Medicare spending grew on average 9.7 percent per year over the 

period from 1975 to 2014, considerably faster than nominal growth in the economy, which 

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

projected to continue growing faster than GDP, averaging 5.3 percent per year between 2014 

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

whole. 

1.0

1.6

2.4

2.6

3.5

4.5

5.4

5.6 5.7 5.8 6.0 6.0

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
10 National health care and Medicare spending

Chart 1-8. Changes in spending per enrollee, Medicare and 

private health insurance

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

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2013 and 2014.

 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 slowed for both Medicare and private health insurance;

however, rates are beginning to increase. 

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

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

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

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

of benefits offered by private insurers and to a decline in cost-sharing requirements. More 

recently, cost-sharing requirements have increased, coinciding with a decline in the growth 

of per capita spending for private payers.

 Comparisons are problematic 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 

and changes in enrollees’ out-of-pocket spending.

-5

0

5

10

15

20

25

30

35

1970 1975 1980 1985 1990 1995 2000 2005 2010

Change in spending per enrollee (percent)

Calendar year

Medicare PHI

Medicare PHI

1970–1979 13.1 14.9

1980–1989 10.0 13.3

1990–1999 6.0 5.7

2000–2009 7.3 7.4

2010–2014 1.2 2.9

1970–2014 8.2 9.6

Average annual percent change by period
A Data Book: Health care spending and the Medicare program, June 2016 11

Chart 1-9. Trustees and CBO project Medicare spending to 

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

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

administrative expenses) by fiscal year.

Source: CBO 2015 Baseline; the annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 Medicare spending has nearly doubled since 2005, increasing from $337 billion to $635 

billion by 2015 (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 2015 and 

2025 will grow at an average annual rate of 7.2 percent or 6.6 percent, respectively.

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

2005 2010 2015 2020 2025

Dollars (in billions)

Fiscal year

Trustees

CBO

Actual Projected
12 National health care and Medicare spending

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

small group of beneficiaries, 2012

Note: FFS (fee-for-service). All data are for calendar year 2012. Analysis excludes beneficiaries with any group health 

enrollment during the year. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use files 2012. 

 Medicare FFS spending is concentrated among a small number of beneficiaries. In 2012, 

the costliest 5 percent of beneficiaries accounted for 41 percent of annual Medicare FFS 

spending, and the costliest 25 percent accounted for 83 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%

26

Most 

costly 1% 15

0

10

20

30

40

50

60

70

80

90

100

Percent of beneficiaries Percent of program spending

Percent

83
A Data Book: Health care spending and the Medicare program, June 2016 13

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

in 2030 under Trustees’ intermediate assumptions

Cost assumptions

Years costs

exceed income

Years costs 

remain

below income

Year HI trust

fund assets exhausted

High 20082022 —— 2022

Intermediate 20082014 

20242030

, 20152023 2030

Low 20082014 20152089* Never**

Note: HI (Hospital Insurance). All years represent calendar years. The primary source of income for HI is the payroll tax on 

covered earnings. Other HI income sources include (a) a portion of the federal income taxes that Social Security 

recipients with incomes above certain thresholds pay on their benefits and (b) interest paid on the U.S. Treasury securities 

held in the HI trust fund.

*75-year projection period

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

the projection period.

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 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). 

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

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

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

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

high-cost assumptions, the HI trust fund could be exhausted as early as 2022. Under lowcost assumptions, it would remain able to pay full benefits indefinitely.

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

current rate of 2.9 percent to 3.6 percent to balance the HI trust fund over the next 75 years. 

Alternatively, Part A spending would immediately need to be reduced by 15 percent.
14 National health care and Medicare spending

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

Medicare spending 

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

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

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

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

primary responsibility for prescription drug spending. The “drug fee” is the fee imposed in the Patient Protection and 

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

in the Part B account of the Supplementary Medical Insurance trust fund. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015. 

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 The Medicare Trustees project that Medicare’s share of GDP will rise to 5.5 percent by 2040 

and to 6.0 percent by 2085. 

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

income. They are expected to remain level as a share of Medicare financing, about 44 

percent, through 2023 and then grow to about 48 percent by 2037. 

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

available to invest in growing the economic output of the future or in other national priorities. 

0

1

2

3

4

5

6

7

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

Percent of GDP

Calendar year

Historical Projected

Total Medicare spending

General revenue transfers

State 

transfers and 

drug fees

Premiums

Payroll taxes

Tax on 

benefits

Deficit

Dedicated 

revenues
A Data Book: Health care spending and the Medicare program, June 2016 15

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

workers per HI beneficiary is declining

 Medicare enrollment Workers per HI beneficiary

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

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

years, Medicare is projected to have over 80 million beneficiaries—up from 57 million 

beneficiaries today.

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

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

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

years of the program to 3.1 today and is projected by the Medicare Trustees to fall to 2.4 by 

2030.

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

0

20

40

60

80

100

1970 1990 2010 2030

Enrollment (in millions)

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1970 1990 2010 2030

Workers per HI beneficiary
16 National health care and Medicare spending

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

per FFS beneficiary

Average benefit in 2014

(in dollars)

Average cost sharing in 2012*

(in dollars)

HI $4,927 $422

SMI 5,334 1,278

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

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

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

coinsurance, and balance billing paid for covered services per FFS beneficiary.

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

Source: CMS Office of the Actuary, 2015 annual report of the Boards of Trustees of the Medicare trust funds, Medicare and 

Medicaid Statistical Supplement 2013, CMS Office of Information Services.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 In calendar year 2014, the Medicare program made $4,927 in HI (Part A) benefit payments 

and $5,334 in SMI (Part B) benefit payments on average per fee-for-service beneficiary. 

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

SMI in calendar year 2012 (the latest year for which such data are available). 

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

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

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

coverage.
2

A Data Book: Health care spending and the Medicare program, June 2016 19

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

of the Medicare population and program spending, 

2012

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 and exclusion of an “other” category.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2012.

 In 2012, beneficiaries ages 65 and older without ESRD composed 82.7 percent of the 

beneficiary population and accounted for 76.4 percent of Medicare spending. Beneficiaries 

under 65 with a disability and beneficiaries with ESRD accounted for the majority of the 

remaining population and spending.

 In 2012, average Medicare spending per beneficiary was $10,567 (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 six 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 2012, $76,185 was spent per 

ESRD beneficiary versus $9,756 per aged beneficiary and $10,841 per beneficiary under 

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

Disabled

16.3%

ESRD

0.8%

Aged

82.7%

Disabled

16.8%

ESRD

6.5%

Aged

76.4%
20 Medicare beneficiary demographics

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

2012

Percent of beneficiaries Percent of spending

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

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2012.

 For the aged population (65 and older), per capita expenditures increase with age. In 2012, 

per capita expenditures were $7,868 for beneficiaries 65 to 74 years old, $12,819 for those 

75 to 84 years old, and $13,738 for those 85 or older (data not shown).

 In 2012, per capita expenditures for Medicare beneficiaries under age 65 who were enrolled 

because of end-stage renal disease or disability were $12,105 (data not shown).

Under 

65

16.7%

65-74

45.4%

75-84

25.4%

85+

12.5% Under 

65

19.2%

65-74

33.8%

75-84

30.8%

85+

16.2%

Average per capita = $10,567
A Data Book: Health care spending and the Medicare program, June 2016 21

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

accounted for a disproportionate share of 

Medicare spending, 2012

Percent of beneficiaries Percent of spending

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

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

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2012. 

 In 2012, 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 2012, per 

capita expenditures were $6,478 for those who reported excellent or very good health, 

$12,634 for those who reported good or fair health, and $20,756 for those who reported

poor health (data not shown).

Poor 

health

8.3%

Good or 

fair 

health

46.4%

Excellent 

or very 

good 

health

44.8%

Poor 

health

16.3%

Good or 

fair 

health

55.4%

Excellent 

or very 

good 

health

27.4%

Average per capita = $10,567
22 Medicare beneficiary demographics

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

grow rapidly in the next 20 years

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

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

million in 2012 to about 82 million in 2030.

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

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

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

20.1

28.0

33.7

39.3

47.4

64.1

81.7

89.3

93.0

99.5

107.0

113.7

0

20

40

60

80

100

120

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

Beneficiaries (in millions)

Historic Projected
A Data Book: Health care spending and the Medicare program, June 2016 23

Chart 2-5. Characteristics of the Medicare population, 2012

Percent of the Percent of the

Medicare Medicare

Characteristic population Characteristic population

Total (52,079,014) 100% Living arrangement

Institution 4%

Sex Alone 28

Male 45 With spouse 48

Female 55 Other 20

Race/ethnicity Education

White, non-Hispanic 76 No high school diploma 21

African American, High school diploma only 28

non-Hispanic 9 Some college or more 51

Hispanic 10

Other 5 Income status

Below poverty 16

Age 100–125% of poverty 9

<65 17 125–200% of poverty 19

65–74 45 200–400% of poverty 31

75–84 25 Over 400% of poverty 24

85+ 12

Supplemental insurance status

Health status Medicare only 16

Excellent or very good 45 Managed care 29

Good or fair 46 Employer-sponsored insurance 26

Poor 8 Medigap 14

Medigap with employerResidence sponsored insurance 1

Urban 77 Medicaid 13

Rural 23 Other 1

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

MSAs. In 2012, poverty was defined as income of $11,011 for people living alone and $13,892 for married couples. Totals 

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

the U.S. Census Bureau (https://www.census.gov/hhes/www/poverty/data/threshold/). Some beneficiaries may have more 

than one type of supplemental insurance.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2012.

 Most Medicare beneficiaries are female and White. 

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

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

 About 20 percent of beneficiaries have no high school diploma.

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

plans are the most common source of supplemental coverage.

3

A Data Book: Health care spending and the Medicare program, June 2016 27

Chart 3-1. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, 2012

Note: Beneficiaries are assigned to the supplemental coverage category they were in for the most time in 2012. They could 

have had coverage in other categories during 2012. “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 2012 or who had Medicare 

as a secondary payer. Percentages may not sum to 100 because of rounding.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2012.

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

or replaces the Medicare benefit package. In 2012, about 86 percent of beneficiaries had

supplemental coverage or participated in Medicare managed care.

 About 41 percent of beneficiaries had private sector supplemental coverage such as medigap 

(about 17 percent) or employer-sponsored retiree coverage (about 25 percent).

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

 About 32 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, Chart 2-5 and Chart 4-4 include all Medicare beneficiaries, and Chart 

4-1 excludes beneficiaries in Medicare Advantage. 

Medigap

16.5%

Employersponsored 

insurance

24.9%

Medicaid

11.8%

Other public sector

0.9%

Medicare managed 

care

32.5%

No supplemental 

coverage

13.5%
28 Medicare beneficiary and other payer financial liability

Chart 3-2. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, by 

beneficiaries’ characteristics, 2012

Number of Employer- Medicare Other

beneficiaries sponsored Medigap managed public Medicare

(thousands) insurance insurance Medicaid care sector only

All beneficiaries 44,025 25% 16% 12% 32% 1% 13%

Age

<65 7,148 10 3 35 28 1 23

65–69 10,704 25 17 8 32 1 18

70–74 8,894 28 19 6 37 0 10

75–79 6,813 28 20 8 35 1 8

80–84 5,314 31 20 7 32 1 9

85+ 5,152 31 22 8 29 1 9

Income category

<$10,000 5,563 6 8 49 25 1 12

$10,000–$19,999 11,875 12 14 18 37 2 17

$20,000–$29,999 8,535 25 19 3 37 1 15

$30,000–$39,999 5,235 34 16 0 35 1 13

$40,000–$59,999 5,812 35 21 1 31 0 12

$60,000–$79,999 2,898 48 21 0 22 0 9

≥$80,000 4,107 44 23 0 25 0 8

Eligibility status

Aged 36,650 28 19 7 33 1 12

Disabled 6,987 9 3 36 28 1 23

ESRD 346 22 11 24 28 6 10

Residence

Urban 33,575 26 14 11 37 1 12

Rural 10,450 23 24 16 19 1 18

Sex

Male 19,543 26 15 10 32 1 16

Female 24,482 24 18 13 33 1 12

Health status

Excellent/very good 19,992 28 19 5 34 0 13

Good/fair 20,341 24 15 15 32 1 13

Poor 3,455 12 11 30 25 1 21

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

most time in 2012. They could have had coverage in other categories during 2012. “Medicare managed care” includes 

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

not included in other categories. Married people have joint income reported on the data file. We divided their income by 

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

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

It excludes beneficiaries who were not in both Part A and Part B throughout their enrollment in 2012 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 2012.

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

or older, have income over $20,000, 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 of $20,000 or more, 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 below $20,000, 

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, have income below $60,000, are eligible because of disability, are rural dwelling, are 

male, and report poor health.
A Data Book: Health care spending and the Medicare program, June 2016 29

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

noninstitutionalized FFS Medicare beneficiaries, by 

source of payment, 2012

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

“Public supplements” includes Medicaid, Department of Veterans Affairs, and other public coverage. “Direct spending” is 

on Medicare cost sharing and noncovered services but not supplemental premiums. Analysis includes only FFS 

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2012.

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

care services (defined as beneficiaries’ direct spending as well as expenditures by Medicare, 

other public sector sources, and all private sector sources on all health care goods and services) 

averaged about $14,800 in 2012. Medicare was the largest source of payment: It paid 62

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

$9,151 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 17 percent of beneficiaries’ costs, an average of $2,554 per beneficiary.

 Beneficiaries paid 14 percent of their health care costs out of pocket, an average of $2,058 per 

beneficiary.

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

health care costs, an average of $1,030 per beneficiary.

Medicare

62%

Beneficiaries' 

direct spending

14%

Private 

supplements

17%

Public 

supplements

7%

Per capita total spending = $14,794
30 Medicare beneficiary and other payer financial liability

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

among noninstitutionalized FFS beneficiaries, by 

source of payment, 2012

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

nursing homes. “Out-of-pocket" spending includes Medicare cost sharing and noncovered services.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2012.

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

the community in 2012. Per capita spending for the 10 percent of beneficiaries with the 

highest total spending averaged $71,853. Per capita spending for the 10 percent of 

beneficiaries with the lowest total spending averaged $312.

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

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

percentage as total spending increased. For example, Medicare paid 62 percent of total 

spending for all beneficiaries, but paid 70 percent of total spending for the 10 percent of 

beneficiaries with the highest total spending. Beneficiaries’ out-of-pocket spending covered

14 percent of total spending for all beneficiaries, but only 9 percent of total spending for the 

10 percent of beneficiaries with the highest total spending.

312 1,667

4,443

10,470

23,961

71,853

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
A Data Book: Health care spending and the Medicare program, June 2016 31

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

among noninstitutionalized FFS beneficiaries, by 

type of supplemental coverage, 2012

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

2012. They could have had coverage in other categories during 2012. “Other public sector” includes federal and state 

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

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

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

beneficiaries who were not in both Part A and Part B throughout their enrollment in 2012 or had Medicare as a second payer. 

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2012.

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

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

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

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

beneficiaries with no supplemental coverage than for those beneficiaries who had

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

spending—83 percent higher than those with no supplemental coverage in 2012.

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

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

employer-sponsored, medigap with employer-sponsored, or Medicaid supplemental 

coverage, combined public and private supplemental coverage was the second largest 

source of payment. Among those who were covered by medigap or only by Medicare, 

beneficiaries’ out-of-pocket spending was the second largest source of payment.

9,005

10,529

9,030

16,501

7,408

13,136

4,325 1,756 3,489

90

652

230 843

730 474

2,001

784

1,985

2,209

2,733 2,167

966

1,852

2,502

0

5,000

10,000

15,000

20,000

25,000

EmployersponsoredMedigap Medigap and

employer

Medicaid No supplemental

coverage

Other

public sector

Dollars

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

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

services per beneficiary, by insurance and health 

status, 2012

Note: ESI (employer-sponsored supplemental insurance).

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2012.

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

insurance and health status in 2012. For example, beneficiaries who had only traditional Medicare 

coverage (“Medicare only”) and reported fair or poor health averaged $1,338 in out-of-pocket spending on 

premiums and $2,226 on services in 2012. Those who had Medicare-only coverage and reported good, 

very good, or excellent health averaged $1,508 in out-of-pocket spending on premiums and $1,677 on 

services.

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

Beneficiaries who reported being in fair or poor health spent more out of pocket for health services than 

those reporting good, very good, or excellent health, regardless of the type of coverage they had to 

supplement Medicare.

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

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

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

have stronger preferences for health care.

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

medigap, out-of-pocket spending generally reflects the premiums and costs of services not covered by 

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

those with medigap but may pay more in Medicare deductibles and cost sharing.

1,338

1,508

2,857

3,126

4,490

4,662

4,609 4,623

74 119

1,809 1,626

2,226 1,677

3,262

1,974

3,898

2,499 2,623

2,094

1,147 793

3,179

1,964

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Medicare only ESI Medigap Medigap

& ESI

Medicaid Other

Dollars

Beneficiaries’ out-of-pocket 

spending on services

Beneficiaries’ out-of-pocket 

spending on premiums

 +

 Beneficiaries who report they are in fair or poor health

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

 +  +  +  +  +
4

A Data Book: Health care spending and the Medicare program, June 2016 35

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

disproportionate share of Medicare spending, 2012

Percent of FFS beneficiaries Percent of FFS spending

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

exceeded the months they were enrolled in supplemental insurance.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2012.

 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 2012, they 

represented 31 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 2012, $17,847 was spent per 

dual-eligible beneficiary, and $8,568 was spent per non-dual-eligible beneficiary (data not 

shown).

 In 2012, average total spendingwhich includes Medicare, Medicaid, supplemental 

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

$30,619 per beneficiary, about twice the amount for other Medicare beneficiaries (data not 

shown).

Dual 

eligible

18%

Non-dual 

eligible

82%

Dual 

eligible

31%

Non-dual 

eligible

69%
36 Dual-eligible beneficiaries

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

non-dual-eligible beneficiaries to be under age 65 

and disabled, 2012

Dual-eligible beneficiaries Non-dual-eligible beneficiaries

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

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

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

percent due to rounding.

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2012.

 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 2012, 43 percent of dual-eligible beneficiaries were under age 65 

and disabled compared with 13 percent of the non-dual-eligible population. 

Under 65 

(disabled)

43%

65-74

25%

75-84

19%

85+

13%

Under 65 

(disabled)

13%

65-74

48%

75-84

26%

85+

12%
A Data Book: Health care spending and the Medicare program, June 2016 37

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

non-dual-eligible beneficiaries to report poorer 

health status, 2012

Dual-eligible beneficiaries Non-dual-eligible beneficiaries

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

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

question.

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2012.

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

poorer health status. In 2012, 19 percent of dual-eligible beneficiaries reported being in poor 

health compared with 7 percent of non-dual-eligible beneficiaries. 

 Almost half of non-dual-eligible beneficiaries (48 percent) reported being in excellent or very 

good health in 2012. In comparison, only one-fifth (20 percent) of dual-eligible beneficiaries 

reported being in excellent or very good health.

Poor 

health

19%

Good or 

fair health

60%

Excellent 

or very 

good 

health

20%

Poor 

health

7%

Good or 

fair health

44%

Excellent 

or very 

good 

health

48%
38 Dual-eligible beneficiaries

Chart 4-4. Demographic differences between dual-eligible

beneficiaries and non-dual-eligible beneficiaries, 2012

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

Sex

Male 39% 46%

Female 61 54

Race/ethnicity

White, non-Hispanic 58 78

African American, non-Hispanic 18 8

Hispanic 16 9

Other 8 5

Limitations in ADLs

No limitations in ADLs 38 65

Limitations in 1–2 ADLs 27 23

Limitations in 3–6 ADLs 35 12

Residence

Urban 70 78

Rural 30 22

Living arrangement

Institution 17 2

Alone 31 28

With spouse 14 53

Children, nonrelatives, others 39 17

Education

No high school diploma 45 17

High school diploma only 28 28

Some college or more 25 54

Income status

Below poverty 61 9

100–125% of poverty 18 7

125–200% of poverty 15 20

200–400% of poverty 5 35

Over 400% of poverty 1 28

Supplemental insurance status

Medicare or Medicare/Medicaid only 92 19

Medicare managed care 4 33

Employer-sponsored insurance <1 30

Medigap <1 16

Medigap/employer 0 1

Other* 4 1

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

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

(MSAs). “Rural” indicates beneficiaries living outside of MSAs. In 2012, poverty was defined as income of $11,011 for people living 

alone and $13,892 for married couples. Totals may not sum to 100 percent due to rounding and exclusion of an “other” category. 

Poverty thresholds are calculated by the U.S. Census Bureau (https://www.census.gov/hhes/www/poverty/data/threshld/). 

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2012.

 Dual-eligible beneficiaries qualify for Medicaid due in part to low incomes. In 2012, 61 percent of dualeligible beneficiaries lived below the federal poverty level, and 94 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 2016 39

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

between dual-eligible beneficiaries and non-dualeligible beneficiaries, 2012

Dual-eligible Non-dual-eligible

Service beneficiaries beneficiaries

Average FFS Medicare payment for all beneficiaries

Total Medicare FFS payments $17,847 $8,568

Inpatient hospital 5,041 2,690

Physiciana3,377 2,414

Outpatient hospital 2,412 1,167

Home health 681 386

Skilled nursing facilityb1,335 521

Hospice 546 254

Prescribed medicationc4,439 1,130

Share of FFS beneficiaries using service

Share using any type of service 97.4% 85.5%

Inpatient hospital 25.8 14.8

Physiciana92.8 80.1

Outpatient hospital 80.0 59.4

Home health 11.5 7.8

Skilled nursing facilityb8.5 3.9

Hospice 4.4 1.8

Prescribed medicationc77.2 49.2

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: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2012.

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

twice that for non-dual-eligible beneficiaries$17,847 compared with $8,568. 

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

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

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

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

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

among dual-eligible beneficiaries, 2012

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

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

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

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use files 2012.

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

number. The costliest 20 percent of dual-eligible beneficiaries accounted for 67 percent of 

Medicare spending and 51 percent of total spending on dual-eligible beneficiaries in 2012. In 

contrast, the least costly 50 percent of dual-eligible beneficiaries accounted for only 8

percent of Medicare spending and 24 percent of total spending on dual-eligible 

beneficiaries. 

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

in 2012 was about twice that for non-dual-eligible beneficiaries—$30,619 compared with 

$15,583 (data not shown).

8

50

24

26

30

24

36

15

29

31

5

22

0

10

20

30

40

50

60

70

80

90

100

Medicare spending for dualeligible beneficiariesShare of dual-eligible

beneficiaries

Total spending for dual-eligible

beneficiaries

Percent
5

A Data Book: Health care spending and the Medicare program, June 2016 43

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

others from 2011 to 2014

Measure 2011 2012 2013 2014

Discharged to the community 33.1% 35.6% 37.5% 37.6%

Potentially avoidable readmissions

 during SNF stay 12.4 11.5 11.2 10.9

Potentially avoidable readmissions 

 during 30 days after discharge from SNF 5.9 5.7 5.5 5.6

Rate of improvement in one or more mobility ADLs 43.6 43.5 43.7 43.5

Rate of no decline in mobility 87.3 87.2 87.2 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. 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 2011–2014.

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

the SNF stay improved slightly between 2013 and 2014. A higher percentage of 

beneficiaries were discharged to the community, and a lower percentage of beneficiaries 

were readmitted to an acute care hospital during the SNF stay for 1 of 13 potentially 

avoidable conditions. 

 The rate of potentially avoidable readmissions during the 30 days after discharge from the 

SNF worsened slightly from 2013 to 2014. 

 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 2013 and 2014. The mobility measures are composites of the patients’ abilities 

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

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

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

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

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

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

decline in any of the three ADLs. 
44 Quality of care in the Medicare program

Chart 5-2. Risk-adjusted home health quality measures held 

steady or improved slightly from 2008 to 2014

Functional measure 2004 2008 2013 2014

Hospitalization rate 27.7% 28.8% 26.5% 27.8%

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

Walking 37.2% 45.0% 61.2% 63.6%

Transferring 51.0% 53.1% 57.1% 58.9%

Note: The measure for walking changed in 2011, and therefore the 2004 and 2008 results shown are not comparable with data 

from later years.

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

 Since 2004, the rates of functional improvement have slightly improved each year. The 

hospitalization rate has not changed significantly.

 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.
A Data Book: Health care spending and the Medicare program, June 2016 45

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

the community and potentially avoidable 

rehospitalizations

2011 2012 2013 2014

Potentially avoidable rehospitalizations 

during IRF stay 2.9% 2.6% 2.5% 2.5%

Potentially avoidable rehospitalizations 

during 30 days after discharge from IRF 5.0 4.6 4.5 4.5

Discharged to the community 73.9 75.1 75.7 76.1

Discharged to a SNF 6.9 6.7 6.8 6.9

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 2011 and 2013, the national average rate of risk-adjusted potentially avoidable 

readmissions during the IRF stay declined from 2.9 percent to 2.5 percent, where it 

remained in 2014. (Lower rates are better.) A similar pattern was observed in the rate of 

risk-adjusted potentially avoidable readmissions within 30 days after discharge from an IRF: 

The national average declined between 2011 and 2013 (from 5.0 percent to 4.5 percent) 

and remained unchanged in 2014.

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

diagnosis of a potentially avoidable condition. The potentially avoidable readmissions 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 2013 and 2014, the national average risk-adjusted community discharge rate 

increased slightly from 75.7 percent to 76.1 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.
46 Quality of care in the Medicare program

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

progress, others need improvement, 2009–2013

Outcome measure 2009 2011 2013

Percent of in-center hemodialysis patients:

Receiving adequate dialysis N/A 96% 97%

Managing anemia 

Mean hemoglobin 10 to <12 g/dL 56% 70 71

Mean hemoglobin ≥12 g/dL* 35 17 5

Mean hemoglobin <10 g/dL 9 14 24

Dialyzed with an AV fistula 53 59 62

Percent of peritoneal dialysis patients:

Receiving adequate dialysis N/A 88 91

Managing anemia

Mean hemoglobin 10 to <12 g/dL 56 65 62

Mean hemoglobin ≥12 g/dL* 31 15 6

Mean hemoglobin <10 g/dL 13 19 32

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

Renal transplant rate per 100 dialysis-patient years 4.3 4.0 3.7

Annual mortality rate per 100 patient years* 19.1 18.0 16.9

Total hospital admissions per patient year* 2.0 1.9 1.7

Hospital days per patient year 13.2 12.4 11.2

Note: N/A (not available), 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 from Fistula First, the United States Renal Data System, and 2011 and 2013 institutional outpatient 

files from CMS. 

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

performance on others remains unchanged.

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

is removed and returned during dialysis. Between 2009 and 2013, use of arteriovenous 

fistulas, considered the best type of vascular access, increased from 53 percent to 62 percent 

of hemodialysis patients. Between 2009 and 2013, overall adjusted mortality rates decreased 

by nearly 12 percent. 

 Between 2011 and 2013, the proportion of hemodialysis patients receiving adequate dialysis 

remained high. Between 2009 and 2013, 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 2009 and 2013, 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 2016 47

Chart 5-5. Medicare Advantage quality measures were 

generally stable between 2013 and 2015

HMO averages

(cost plans included) Local PPO averages

Measures 2013 2014 2015 2013 2014 2015

HEDIS®administrative measures 

Osteoporosis managementa24.8 29.2b37.9a19.4 22.7bc39.3a

Rheumatoid arthritis management 75.4 76.1 76.7c79.3 80.6c81.1c

HEDIS®hybrid measures 

BMI documented 81.7 90.1bc93.3bc77.1 86.5bc90.0bc

Colorectal cancer screening 63.1 65.1bc66.9bc59.1 61.8bc63.4c

Controlling blood pressured63.9 65.8b71.1d60.0d63.9b69.0d

Eye exam to check for damage from diabetesa67.6 68.8 69.2a65.5 67.3 69.3a

Kidney function testing for members with diabetesa90.5 91.4bc92.2a88.5 89.6bc90.3a

Diabetics not controlling blood sugar 

 (lower rate better)a 25.4 24.3c

24.2a28.6 25.1bc24.6a

Measures from HOSe

Advising physical activity 50.0 50.3c51.4bc49.1 48.4c49.4c

Reducing the risk of falling 61.8 62.3c62.2c56.6 56.5c57.1c

Other measures based on HOS

Improving or maintaining physical health 66.5 68.8b68.3 67.1 68.3b68.3

Improving or maintaining mental health 77.5 79.1bc78.7c78.0 80.3bc80.1c

Measures from CAHPS®

Annual flu vaccine 70.7 72.3b71.7c72.0 73.8 74.1c

Ease of getting needed care and seeing specialists 84.9 83.6bc83.0c86.1 85.3bc84.9c

Getting appointments and care quickly 75.7 76.0c75.7c76.2 77.2bc76.8c

Overall rating of health care quality 85.9 86.0 85.4bc86.3 86.4 86.4c

Overall rating of plan 86.2 85.8 85.0b85.0 85.1 84.3b

Care coordination 84.8 85.1 84.9c85.9 85.8 85.7c

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

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

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

trademark of the Agency for Healthcare Research and Quality). Data exclude regional PPOs, private fee-for-service plans, 

and employer-direct plans. Cost-reimbursed HMO plans are included. HEDIS administrative measures are calculated using 

administrative data; hybrid measures can involve sampling medical records to determine a rate. Averages are for all reporting 

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

measures for both years in a two-year time period. The 2014 HMO rate for reducing the risk of falling is a correction of the 

previously reported rate.

a NCQA advises caution in the evaluation of the rates for certain measures for 2015 due to some data anomalies.

b

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

c

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

d

The specifications for this measure changed for the 2015 reporting period such that the result cannot be compared with prioryear results. 

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

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

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

and for CAHPS measures.

(Chart continued next page)
48 Quality of care in the Medicare program

Chart 5-5. Medicare Advantage quality measures were 

generally stable between 2013 and 2015 (continued)

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

PPOs) for each year. 

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

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

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

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

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

measures have a weight of 3.0. 

 The table includes two HEDIS outcome measures used in the star ratings: controlling blood 

pressure (for all patients with hypertension) and diabetics not controlling blood glucose. In 

the last year, specifications for the former measure changed because of new standards for 

appropriate blood pressure levels varying by age. For the HOS-based outcome measures, 

there continue to be differences between HMO results and PPO results in the mental health 

measure, with PPOs showing better performance by a small margin (up to a 1.4 percentage 

point difference). 

 Among HMOs, for measures where there are no data comparability issues, 3 of 13 

measures show statistically significant improvement between 2014 and 2015, with the 

greatest improvement being a 3.2 percentage point improvement in the documentation of 

enrollees’ body mass index (BMI), a measure that also improved among PPOs by 3.5 

percentage points. The BMI measure was the only measure showing statistically significant 

improvement among PPOs. For HMOs, colorectal cancer screening rates rose by 1.8 

percentage points, and the HOS measure of advising patients to engage in physical activity 

rose by 1.1 percentage points (or about 2 percent). All six of the CAHPS patient experience 

measures showed a decline for HMOs between 2014 and 2015. Four of the CAHPS showed 

a decline for PPOs. However, the change in each of the CAHPS measures was less than 

one percentage point.

 In 2015, HMOs performed better than local PPOs on four measures where comparison can 

be made. HMOs showed better performance on two hybrid measures (BMI documentation 

and colorectal cancer screening, the reporting of which can be based on a review of a 

sample of medical records). HMOs also performed better on the two measures collected 

through the Health Outcomes Survey (advising physical activity and reducing the risk of 

falling). On the measure of improving or maintaining mental health, the PPO rate was 1.4 

percentage points higher than for HMOs. PPOs also performed better on influenza 

vaccination rates and on four of the five CAHPS patient experience measures, though for 

three of the five CAHPS measures the difference was 1.1 percentage points or less (getting 

appointments and care quickly, overall rating of health care quality, and care coordination).
A Data Book: Health care spending and the Medicare program, June 2016 49

Chart 5-6. Use and spending for selected services detected by 

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

Medicare, 2013

Measure

Broader version of measures Narrower version of measures

Count per 100 

beneficiaries

Share of 

beneficiaries 

affected

Spending 

(millions)

Count per 100 

beneficiaries

Share of 

beneficiaries 

affected

Spending 

(millions)

Imaging for nonspecific

low back pain 11.9 8.9% $236 3.4 3.2% $68

PSA screening at age ≥75 years 9.2 6.3 82 5.2 4.3 47

Colon cancer screening 

for older adults 8.4 8.0 443 0.4 0.4 4

Spinal injection for low-back pain 6.4 3.2 1,261 3.3 1.9 654

Carotid artery disease screening in 

asymptomatic patients 5.2 4.8 284 4.3 4.0 234

Preoperative chest radiography 4.8 4.3 72 1.2 1.2 18

Stress testing for stable 

coronary disease 4.5 4.3 1,297 0.5 0.5 148

PTH testing in early CKD 4.4 2.5 84 3.8 2.2 73

T3-level testing for patients with 

hypothyroidism 3.7 2.2 23 3.7 2.2 23

Head imaging for headache 3.7 3.4 255 2.5 2.3 168

Cervical cancer screening at 

age >65 years 2.5 2.5 52 2.2 2.2 46

Homocysteine testing in 

cardiovascular disease 1.6 1.3 13 0.4 0.4 4

Head imaging for syncope 1.2 1.2 83 0.8 0.8 54

Preoperative echocardiography 0.8 0.8 63 0.2 0.2 20

Carotid artery disease screening 

for syncope 0.7 0.7 36 0.5 0.5 26

Preoperative stress testing 0.6 0.6 187 0.2 0.2 65

CT for rhinosinusitis 0.6 0.5 40 0.2 0.2 18

Dihydroxyvitamin D testing in absence 

of hypercalcemia or decreased kidney 

function 0.5 0.5 9 0.5 0.4 8

Imaging for plantar fasciitis 0.5 0.4 9 0.4 0.3 6

BMD testing at frequent intervals 0.5 0.4 10 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 1,303 0.1 0.1 217

Arthroscopic surgery for knee 

osteoarthritis 0.3 0.3 222 0.1 0.1 117

Vertebroplasty 0.2 0.2 369 0.2 0.2 359

Renal artery stenting 0.2 0.2 463 0.03 0.03 76

IVC filter placement 0.2 0.2 38 0.2 0.2 38

Hypercoagulability testing after DVT 0.1 0.1 5 0.1 0.05 2

Preoperative PFT 0.1 0.1 1 0.1 0.1 1

Carotid endarterectomy for 

asymptomatic patients 0.1 0.1 173 0.03 0.03 74

EEG for headache 0.1 0.1 4 0.04 0.04 2

Pulmonary artery catheterization in ICU 0.01 0.01 0.3 0.01 0.01 0.2

Total 73.7 38.1 7,128 35.0 23.1 2,576

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

Chart 5-6. Use and spending for selected services detected by 

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

Medicare, 2013 (continued)

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

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

thrombosis), PFT (pulmonary function test), EEG (electroencephalography), ICU (intensive care unit). “Count” refers to 

the number of unique services. Numbers may not sum to totals due to rounding. The total share of beneficiaries affected 

does not equal the column sum because some beneficiaries received services covered by multiple measures. 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 2012.

Source: MedPAC analysis of 100 percent of Medicare claims using measures developed by Aaron 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 a service 

for which the risk of harm outweighs its potential benefit.

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

Harvard University. 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 2013.

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

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

specificity). 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 inappropriate use. 

 Based on the broader versions of each measure, there were about 74 instances of lowvalue care per 100 beneficiaries across all the measures, and about 38 percent of 

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

each measure, there were about 35 instances of low-value care per 100 beneficiaries, and 

about 23 percent of beneficiaries received at least one low-value service.
A Data Book: Health care spending and the Medicare program, June 2016 51

Chart 5-7. Use of services detected by selected measures of 

low-value care, by category, 2013 

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

Source: MedPAC analysis of 100 percent of Medicare claims using measures developed by Aaron 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). 

• Following the methodology used in Chart 5-6 (described in the note), we assigned each of 

the 31 measures of low-value care to 1 of 6 clinical categories. 

• Imaging and cancer screening accounted for 60 percent of the instances 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 patients. The cancer screening category includes prostatespecific antigen testing for men age 75 or older and colorectal cancer screening for older 

patients. 

• Among the narrower versions of the measures, imaging and diagnostic and preventive 

testing accounted for 60 percent of the instances 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 surgery

Diagnostic and preventive testing

Cancer screening

Imaging

Total: 74

Total: 35
52 Quality of care in the Medicare program 

Chart 5-8. Spending on services detected by selected 

measures of low-value care, by category, 2013 

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 2012. This method was developed by Schwartz et al. (2014). 

Source: MedPAC analysis of 100 percent of Medicare claims using measures developed by Aaron 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). 

• 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 surgery” category includes spinal 

injection for low-back pain and arthroscopic surgery for knee osteoarthritis. The “imaging” 

category includes back imaging for patients with nonspecific low-back pain and screening 

for carotid artery disease in asymptomatic patients. 

• Cardiovascular testing and procedures and other surgery accounted for 72 percent of total 

spending on low-value care using the broader measures. Other surgery and imaging 

comprised two-thirds of spending on low-value care using the narrower measures. 

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

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

result from the initial low-value service. 

0

1

2

3

4

5

6

7

8

Broader measures Narrower measures

Medicare spending (billions of dollars)

Cardiovascular testing and procedures

Preoperative testing

Other surgery

Diagnostic and preventive testing

Cancer screening

Imaging

Total: $7.1

Total: $2.6
6

A Data Book: Health care spending and the Medicare program, June 2016 55

Chart 6-1. Growth in Medicare’s FFS payments for hospital 

inpatient and outpatient services, 2000–2014

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 $147 billion and outpatient spending was 

$53 billion in 2014. From 2013 to 2014, inpatient spending was virtually unchanged, while 

outpatient spending increased nearly 13 percent.

 Inpatient spending increased substantially between 2001 and 2005 but remained relatively 

unchanged from 2005 to 2007. Spending for both inpatient and outpatient care began to 

increase in 2008, but beginning in 2011, inpatient spending began to plateau and outpatient 

spending grew significantly.

 Outpatient spending has increased as a share of total Medicare hospital spending in the 

past 14 years. In 2000, outpatient spending accounted for 16 percent of all hospital 

spending; in 2014, outpatient spending grew to over 26 percent of total Medicare hospital 

spending. 

97 106 114 120 127 134 135 136 139 141 143 146 146 147 147

18

20

21 22

25

28 29 31 32 34 37 40 43 47 53

0

50

100

150

200

250

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Billions of dollars

Calendar year

Inpatient

Outpatient
56 Acute inpatient services

Chart 6-2. Annual changes in number of acute care hospitals 

participating in the Medicare program, 2010–2014

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 2014, with 28 acute 

care hospitals closing (less than 1 percent of all acute care hospitals participating in the 

Medicare program) and 9 hospitals starting participation in the Medicare program.

 In 2014, rural hospital closures accounted for half of all hospital closures. The number of 

rural hospital closures has gradually increased in recent years, from 3 in 2010 to 14 in 2014.

Rural hospital closures could in part reflect declining inpatient volume at many rural 

hospitals.

3

6

7

12

14

29

14

17

14

9

11

16

22

30

28

0

5

10

15

20

25

30

35

2010 2011 2012 2013 2014

Number of hospitals

Rural closed hospitals All newly opened hospitals All closed hospitals
A Data Book: Health care spending and the Medicare program, June 2016 57

Chart 6-3. Percent change in hospital employment overall and 

for selected occupations, 2010–2014

Percent change in

Total hospital Total hospital total hospital

employment employment employment

(May 2010) (May 2014) (2010–2014)

All hospital occupations 5,159,860 5,247,530 1.7%

Physicians and surgeons (DE) 122,200 153,380 25.5

Computer and math science 56,820 67,010 17.9

Life, physical, & social science 27,160 31,650 16.5

Pharmacists 58,680 66,010 12.5

Business and finance 96,960 107,520 10.9

Physician assistants 18,710 19,810 5.9

Diagnostic-related technologists 212,030 221,880 4.7

Management 189,430 194,930 2.9

Registered nurses 1,521,400 1,560,200 2.6

Community and social services 101,240 100,330 0.9

Clinical laboratory technicians 165,040 161,370 2.2

Office and administrative 744,850 700,250 6.0

LPNs/LVNs 145,130 101,580 30.0

Note: DE (direct employment [by the hospital]), LPN (licensed practical nurse), LVN (licensed vocational nurse). Sum of 

employment for selected occupations listed does not equal the total in the “All hospital occupations” row. 

Source: MedPAC analysis of Bureau of Labor Statistics, Occupational Employment Statistics data set as of September 2014.

 The U.S. Bureau of Labor Statistics (BLS) survey of occupational employment data shows 

that from May 2010 to May 2014, hospital employment increased 1.7 percent.

 Five occupations with notable growth in the hospital sector from 2010 to 2014 include 

physicians and surgeons directly employed by hospitals (25.5 percent); computer and math 

science positions (17.9 percent); life, physical, and social science positions (16.5 percent);

pharmacists (12.5 percent); and business and finance positions (10.9 percent). Growth in 

the overall number of hospital-employed physicians suggests that hospitals have been more 

active in recent years in hiring physicians directly. Growth in computer and math science 

positions may reflect hospitals’ efforts to implement electronic health record systems.

 Four occupations with notable declines in employment in the hospital sector from 2010 to 

2014 include LPNs and LVNs, office and administrative staff, clinical laboratory technicians, 

and community and social service positions (social workers). During this time, the number of 

LPN/LVNs declined 30 percent (by roughly 44,000 LPN/LVNs). By contrast, during the same 

time period, the number of registered nurses employed by hospitals increased 2.6 percent 

(roughly 39,000 registered nurses), suggesting a continued shift toward employing nurses 

with a higher level of training.

 More recent industry-level (as opposed to occupation-level) survey data from BLS suggest

that overall hospital employment increased by 5 percent between May 2014 and January 

2016. As of January 2016, hospitals accounted for approximately 3.4 percent of all U.S. 

nonfarm employment (data not shown). 
58 Acute inpatient services

Chart 6-4. Share of Medicare acute care hospital inpatient 

discharges by hospital group, 2014

Hospitals Medicare discharges

 Share of Number Share of

Hospital group Number total (thousands) total

All PPS and CAHs 4,647 100% 9,528 100%

CAHs 1,336 28.8 322 3.4

PPS hospitals 3,311 71.3 9,206 96.6

 Urban (PPS only) 2,459 52.9 8,192 86.0

 Large urban 1,341 28.9 4,471 46.9

 Other urban 1,118 24.1 3,721 39.1

 Rural (PPS only) 852 18.3 1,014 10.6

 Rural referral 97 2.1 237 2.5

 Sole community 379 8.2 495 5.2

 Medicare dependent 147 3.2 108 1.1

 Other rural, <50 beds 113 2.4 43 0.5

 Other rural, ≥50 beds 116 2.5 131 1.4

 Tax status (PPS only)

 Voluntary 1,901 57.4 6,442 70.0

 Proprietary 867 26.2 1,638 17.8

 Government 543 16.4 1,126 12.2

 Teaching status (PPS only)

 Major teaching 293 8.8 1,588 16.7

 Other teaching 730 22.0 3,335 36.2

 Nonteaching 2,288 69.1 4,283 46.5

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 

2014 cost reports. Hospitals in urban, rural, tax status, and teaching status categories are all PPS hospitals. Numbers 

may not sum to totals due to rounding. 

Source: MedPAC analysis of PPS impact files and Medicare cost report data from CMS.

 In 2014, 3,311 hospitals provided 9.2 million discharges under Medicare’s acute inpatient PPS and 1,336

CAHs provided 322,000 discharges, for a combined total of more than 4,600 hospitals providing 9.5 million 

Medicare discharges. The number of PPS discharges continued to decline from 2013 to 2014, in part 

because of a shift in services to the outpatient setting (data not shown).

 Approximately 13.5 percent of PPS hospitals are 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 8.8 percent of all 

discharges. 

 About 90 percent of rural hospitals were given special payments through the CAH, RRC, SCH, or MDH

program in 2014. Collectively, these three types of hospitals provide 87 percent of all rural Medicare 

discharges (data not shown).
A Data Book: Health care spending and the Medicare program, June 2016 59

Chart 6-5. Change in share of discharges by major diagnostic 

categories, 20062014

Share of Share of Percentage

MDC all discharges all discharges point

number MDC name 2006 2014 change

5 Circulatory system 27% 20% 7

4 Respiratory system 14 14 0

8 Musculoskeletal system 12 14 2

6 Digestive system 11 11 0

1 Nervous system 8 8 0

18 Infectious and parasitic diseases 4 8 4

 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 93 1

Note: MDC (major diagnostic category). 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 In fiscal year 2014, 10 major diagnostic categories accounted for 93 percent of all 

discharges from hospitals paid under the inpatient prospective payment system.

 Circulatory system cases accounted for one-fifth of all inpatient discharges in 2014, a 

decline of 7 percentage points from 2006. 

 Musculoskeletal system cases accounted for 14 percent of all inpatient discharges in 2014, 

up 2 percentage points from 2006. 

 Infectious and parasitic disease cases accounted for 8 percent of all inpatient discharges in 

2014, up 4 percentage points from 2006.

 Kidney and urinary tract cases accounted for 8 percent of all inpatient discharges in 2014, 

up 2 percentage points from 2006. 
60 Acute inpatient services

Chart 6-6. Cumulative change in total all-payer inpatient 

admissions and outpatient visits, 2000–2014

Note: “Cumulative change” is the total percent increase from 2000 through 2014. Data reflect admissions (all payers) to and 

outpatient visits at about 5,000 community hospitals. “Community hospitals” are defined as all nonfederal, short-term 

general, and other specialty hospitals. “Other specialty hospitals” include obstetrics and gynecology; eye, ear, nose, and 

throat; rehabilitation; orthopedic; and other individually described specialty services. Community hospitals include 

academic medical centers or other teaching hospitals if they are nonfederal short-term hospitals. Excluded are hospitals 

not accessible by the general public, such as prison hospitals or college infirmaries.

Source: American Hospital Association, AHA Hospital Statistics.

 In 2014, community hospitals provided nearly 693 million outpatient visits and slightly fewer 

than 33 million inpatient admissions (data not shown).

 Hospital outpatient service use grew much more rapidly from 2000 to 2014 than inpatient 

service use. Total hospital outpatient visits increased 33 percent from 2000 to 2014. 

 Outpatient visits increased 2.9 percentage points from 2013 to 2014, or by nearly 5 million 

visits (data not shown). 

 Total inpatient admissions grew by over 8 percent between 2000 and 2008 but have since 

declined. Inpatient admissions decreased by 1.7 percentage points from 2013 to 2014, or 

over 500,000 admissions (data not shown). 

0.0 2.2

4.2

5.1

6.0 6.5 6.9 6.8

8.1 7.4

6.2

5.3

4.0

1.6

-0.1

0.0

3.3

6.7

8.0

9.6

12.1

15.0 15.7

19.7

23.1

24.9

25.8

29.5 30.0

32.9

-5

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Percent

Fiscal year

Total inpatient admissions

Total outpatient visits
A Data Book: Health care spending and the Medicare program, June 2016 61

Chart 6-7. Cumulative change in Medicare outpatient services 

and inpatient discharges per FFS beneficiary, 

2006–2014

Note: FFS (fee-for-service). Data pertain to short-term general and surgical hospitals, including critical access and children’s 

hospitals.

Source: MedPAC analysis of Medicare Provider Analysis and Review and hospital outpatient claims data from CMS.

 From 2006 to 2014, the number of Medicare inpatient discharges per FFS beneficiary 

declined by nearly 20 percent. From 2006 to 2008, the number of inpatient discharges per 

beneficiary was relatively flat, but beginning in 2008, the volume of discharges per 

beneficiary began to decline. 

 From 2006 to 2014, the number of Medicare outpatient visits per FFS beneficiary increased

44 percent. 

 Together these two trends suggest a shift in services from the inpatient to the outpatient 

setting, as well as a shift in billing for some services from physician offices to outpatient

hospital departments. 

 From 2013 to 2014, the number of Medicare inpatient discharges per FFS beneficiary 

declined approximately 2.9 percentage points, slightly more than the average annual decline 

from 2006 to 2013.

 From 2013 to 2014, the number of Medicare outpatient visits per FFS beneficiary increased 

3.7 percentage points, slightly less than the average annual increase from 2006 to 2013. 

-19.9

44.2

-30

-20

-10

0

10

20

30

40

50

2006 2007 2008 2009 2010 2011 2012 2013 2014

Cumulative percent change

Fiscal year

Inpatient discharges per Part A beneficiary

Outpatient visits per Part B beneficiary
62 Acute inpatient services

Chart 6-8. Cumulative change in Medicare inpatient discharges 

per FFS beneficiary, by length of stay, 2006–2014 

Note: FFS (fee-for-service). Data reflect short-term general and surgical hospitals, including critical access and children’s 

hospitals. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• In recent years, one-day inpatient discharges declined more rapidly than inpatient discharges of other 

lengths. From 2006 to 2014, one-day inpatient stays declined nearly 36 percent per FFS beneficiary. 

In 2014, there were approximately 1.2 million one-day discharges, representing 11 percent of all 

discharges (data not shown). 

• From 2006 to 2014, three-day inpatient stays declined the least rapidly. From 2006 to 2011, three-day 

stays increased. However, three-day inpatient stays began to decline in 2011. In 2014, there were 

approximately 2 million three-day discharges, representing 18 percent of all discharges (data not 

shown). 

• Collectively, inpatient discharges of five days or declined rapidly from 2006 to 2014, at −24 percent 

per beneficiary. Rates of decline for these longer stays were variable depending on the number of 

days, but ranged from 22 percent to 56 percent for the most common lengths (five-day, six-day, 

seven-day, and eight-day discharges). In 2014, there were approximately 4.6 million discharges of 5 

or more days in length, representing 42 percent of all discharges (data not shown). 

• From 2006 to 2014, inpatient surgical discharges per beneficiary declined approximately 26 percent 

(data not shown), or an average of 3.3 percent per year. Over the same period, inpatient medical 

discharges per beneficiary declined approximately 20 percent, or an average of 2.4 percent per year. 

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Cumulative percent change

Fiscal year

1-day discharges

2-day discharges

3-day discharges

4-day discharges

5-day or more discharges

-8%

-11%

-20%

-24%

-36%
A Data Book: Health care spending and the Medicare program, June 2016 63

Chart 6-9. Trends in Medicare and non-Medicare inpatient 

lengths of stay, 2006–2014

Note: Length of stay is calculated based on discharges and patient days for more than 3,000 hospitals covered by the inpatient 

prospective payment system. Chart excludes critical access hospitals.

Source: MedPAC analysis of Medicare cost report data from CMS.

 While Medicare length of stay fell between 2006 and 2014, the average length of stay for 

non-Medicare inpatients was relatively flat. Between 2006 and 2014, Medicare inpatient 

length of stay fell 7.5 percent, while the inpatient length of stay for all non-Medicare 

inpatients increased 2.6 percent.

 The decline in average length of inpatient stays for Medicare beneficiaries was slight 

between 2013 and 2014. 

 In 2014, 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. 

4.94 4.91 4.89 4.80 4.70 4.67 4.60 4.61 4.57

3.91 3.92 3.96 3.95 3.91 3.90 3.90 3.94 4.01

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013 2014

Inpatient days

Fiscal year

Medicare inpatients

Non-Medicare inpatients
64 Acute inpatient services

Chart 6-10. Share of Medicare Part A fee-for-service 

beneficiaries with at least one hospitalization, 

2006–2014

Note: Analysis excludes Medicare Advantage claims and claims for non–inpatient prospective payment system hospitals such 

as critical access hospitals and hospitals located in Maryland. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

 The share of Medicare fee-for-service beneficiaries with Part A coverage who had at least 

one inpatient hospitalization in a given year declined by 4.4 percentage points from 2006 to 

2014. In 2014, 19 percent of Medicare beneficiaries had at least one inpatient stay covered 

under Part A. 

 Medicare fee-for-service beneficiaries with Part A coverage who used inpatient hospital 

services in 2014 had an average of 1.69 inpatient claims over the course of the year (data 

not shown), a decline of approximately 2 percent from 2006 (1.73 inpatient claims per year). 

 A portion of the decline in beneficiaries’ use of inpatient services could reflect the increase in 

the number of cases in which beneficiaries are served in outpatient observation status. In 

addition, this decline could also represent, in part, a secular trend in reduced inpatient use. 

23.4

22.9

22.6

21.8

21.5

21.2

20.2

19.7

19.0

15

16

17

18

19

20

21

22

23

24

25

2006 2007 2008 2009 2010 2011 2012 2013 2014

Percent

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2016 65

Chart 6-11. Share of inpatient admissions preceded by 

emergency department visit, by location, 2006–2014

Average annual

Percent percent change Percent change

2014 20062013 20132014

All hospitals 71.3% 1.8% 0.2%

Urban 70.9 1.8 0.1

 Large urban 72.7 1.7 0.0

 Other urban 69.0 2.1 0.2

Rural 74.5 1.9 0.9

 Rural referral 74.2 1.9 1.1

 Sole community 74.0 1.9 1.1

 Medicare dependent 76.3 1.9 1.2

 Other rural, <50 beds 64.3 1.4 3.9

 Other rural, ≥50 beds 78.3 2.0 1.2

Tax status

 Voluntary 70.2 1.7 0.1

 Proprietary 70.7 1.9 0.6

 Government 68.1 2.2 0.4

Teaching status

 Major teaching 62.4 1.6 0.4

 Other teaching 69.0 1.9 0.0

 Nonteaching 73.6 1.9 0.3

Note: Figures are reported for 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 2014, 71 percent of inpatient admissions entered the hospital through the emergency 

department (ED). 

 From 2013 to 2014, the share of inpatient admissions entering the hospital through the ED 

was largely unchanged, following several years of increases. From 2006 to 2013, the 

average annual percent change in the share of inpatient admissions entering the hospital 

through the ED was 1.8 percent. 

 The share of inpatient admissions preceded by an ED visit is consistently higher for rural 

hospitals than for urban hospitals. In 2014, nearly 75 percent of inpatient admissions 

provided at rural hospitals were preceded by an ED visit. By contrast, approximately 71

percent of inpatient admissions provided at urban hospitals were preceded by an ED visit.

From 2013 to 2014, the smallest rural hospitals saw a 3.9 percent decline in inpatient 

admissions preceded by an ED visit. 
66 Acute inpatient services

Chart 6-12. Number of Medicare outpatient observation visits

and inpatient claims preceded by observation care 

per 1,000 beneficiaries increased from 2006 to 2014

Source: Medicare hospital cost reports and Medicare outpatient claims data.

 In 2014, Medicare beneficiaries had approximately 2.9 million observation visits. Among this total, 

approximately 1 million were observation visits that preceded an inpatient stay and 1.9 million were 

exclusively outpatient stays (data not shown).

 The number of Medicare inpatient admissions preceded by observation care increased 136 percent 

from 2006 to 2014, from 11 admissions per 1,000 Part A beneficiaries to 26 admissions per 1,000 

beneficiaries. 

 The number of Medicare outpatient observation visits increased 107 percent from 2006 to 2014. 

During this period, the rate of outpatient observation visits per Part B beneficiary increased from 

approximately 28 visits per 1,000 beneficiaries to 58 visits per 1,000 beneficiaries. 

 The length of outpatient observation visits increased in recent years. From 2006 to 2014, the average 

length of outpatient observation visits increased by approximately 4 hours, from 25.6 hours in 2006 to 

28.0 hours in 2014 (data not shown). 

 In 2014, approximately 317,000 observation visits were 48 hours or longer, representing 

approximately 11 percent of all observation stays (data not shown). 

 The number of observation visits increased by similar amounts for patients with a prior admission and

for patients without a prior admission, suggesting the growth is not primarily driven by the Hospital 

Readmission Reduction Program, which penalizes hospitals for excess preventable inpatient 

readmissions (see Chart 6-13).

28

32

35

40

43

45

52

54

58

11 11 11 12 14

17 18 20

26

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013 2014

Visits or claims per 1,000 beneficiaries

Fiscal year

Outpatient observation visits

per 1,000 Part B beneficiaries

Inpatient claims preceded by

observation care per 1,000

Part A beneficiaries
A Data Book: Health care spending and the Medicare program, June 2016 67

Chart 6-13. Potentially preventable readmission rates for 

selected conditions, 20102014 

Reason for initial 

admission 2010 2011 2012 2013 2014

Percentage point 

change,

20102014

All 12.9% 12.4% 11.9% 11.3% 11.0% –1.9

AMI 17.3 16.9 16.1 15.0 14.3 –3.0

Heart failure 19.5 19.2 18.4 17.6 17.0 –2.5

Pneumonia 13.1 12.6 12.1 11.5 11.5 –1.6

COPD 16.8 16.5 15.9 15.1 14.7 –2.1

Note: AMI (acute myocardial infarction), COPD (congestive obstructive pulmonary disease). Rates are adjusted for changes in 

the mix of patients. 

Source: MedPAC analysis of 2010–2014 Medicare claims data and 3MTM potentially preventable readmissions software. 

 The Congress enacted the Hospital Readmission Reduction Program (HRRP) in 2010, with 

penalties for hospitals that have above-average readmission rates for select conditions 

starting in 2013. 

 Rates of potentially preventable readmissions declined across all conditions between 2010 

and 2014, not just for those covered by the readmission reduction program. Across all 

conditions, potentially preventable readmission rates declined 1.9 percentage points, from 

12.9 percent of discharges in 2010 to 11.0 percent in 2014. 

 The three conditions covered under the HRRP beginning in 2013 have experienced declines 

in potentially preventable readmission rates. Readmissions for acute myocardial infarction 

declined 3 percentage points from 2010 to 2014. Readmissions for heart failure declined 2.5 

percentage points from 2010 to 2014. Readmissions for pneumonia cases declined 1.6 

percentage points over the same period. Chronic obstructive pulmonary disorder (COPD) 

was not included in HRRP until 2015, but COPD readmissions declined 2.1 percentage 

points over this period. 

 The decline in readmissions is not primarily due to an increase in observation stays. From 

2011 to 2016, only 20 percent to 25 percent of the decline in readmissions can be 

accounted for by increased use of outpatient observation (data not shown). 
68 Acute inpatient services

Chart 6-14. Hospital occupancy rates, 2006–2014

Note: “Hospital occupancy rates” are defined as total bed days used (including swing bed days) and observation bed days used, 

minus nursery bed days used, over total bed days available. A consistent cohort of approximately 3,300 prospective 

payment system and critical access hospitals was used in this analysis. 

Source: MedPAC analysis of Medicare hospital cost reports.

 In the aggregate, hospital occupancy rates have been relatively stable over the past decade

but have edged down slightly in more recent years as total inpatient admissions have fallen. 

In 2014, occupancy rates were 61 percent across all hospitals, their lowest level in the past 

12 years (not all years are shown). 

 Occupancy rates are generally higher for urban than for rural hospitals. In 2014, the 

aggregate occupancy rate for urban hospitals was 64 percent and the aggregate occupancy 

rate for rural hospitals was 41 percent. 

 The decline in occupancy rates from 2006 to 2014 has been more rapid for rural hospitals 

than for urban hospitals. During this period, rural occupancy rates declined by about 6

percentage points and urban occupancy rates declined by about 3 percentage points. 

 Occupancy rates vary across markets and are inversely correlated with the number of beds 

per capita in a market. The 10 major metropolitan areas with the lowest number of beds per 

capita had an average occupancy rate of 68 percent, while the 10 markets with the highest 

number of beds per capita had an average occupancy rate of 61 percent (data not shown). 

For example, in 2014, the market-wide occupancy rate in Atlanta (with 1.8 beds per 1,000 

people) was 72 percent compared with 55 percent in St. Louis, MO (with over 3.4 beds per 

1,000 people) (data not shown).

67 67 67 66 65 65 64 64 64

47 47 47 46 44 44 42 41 41

64 64 64 63 62 62 61 61 61

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014

Occupancy rate (percent)

Fiscal year

Urban

Rural

All hospitals
A Data Book: Health care spending and the Medicare program, June 2016 69

Chart 6-15. Medicare inpatient payments, by source and PPS 

hospital group, 2014

Percent of total payments

 Additional Total

rural payments

Hospital group Base IME DSH UC Outlier hospital (millions)

All PPS hospitals 78.7% 5.2% 2.4% 8.2% 4.1% 1.4% $112,210

Urban PPS 78.5 5.6 2.8 8.3 4.3 0.6 103,085

Rural PPS 80.5 0.8 1.7 5.0 1.2 10.9 9,124

Large urban 76.6 6.8 3.0 8.9 4.8 0.0 59,906

Other urban 81.2 3.9 2.5 7.4 3.7 1.4 43,180

Rural referral 87.2 0.7 2.6 7.8 1.8 0.0 2,105

SCH (HSP rate) 75.0 0.1 0.0 0.0 0.3 25.2 3,142

SCH (federal rate) 80.9 2.7 2.7 8.0 2.0 3.6 1,754

Medicare dependent 80.0 0.0 1.9 5.6 1.2 11.3 833

Other rural, <50 beds 78.9 0.0 2.5 7.4 1.6 9.6 294

Other rural, >50 beds 84.0 1.2 2.8 8.4 1.5 2.1 996

Voluntary 79.5 5.5 2.4 7.2 4.1 1.3 79,594

Proprietary 82.5 1.9 3.0 8.9 2.9 0.9 17,734

Government 70.0 7.6 3.7 11.0 5.3 2.6 14,882

Major teaching 64.8 15.6 3.4 10.1 6.1 0.0 28,292

Other teaching 81.0 3.6 2.7 8.0 3.7 1.0 40,249

Nonteaching 85.5 0.0 2.2 6.6 3.1 2.7 43,669

Note: PPS (prospective payment system), IME (indirect medical education), DSH (disproportionate share), UC (uncompensated 

care), SCH (sole community hospital), HSP (hospital-specific payment). Chart includes hospitals covered by the inpatient 

prospective payment system but excludes critical access hospitals. The “Medicare-dependent” hospital category includes 

facilities paid at either the HSP or the federal rate. Percentages may not sum to 100 percent due to rounding. Percentages 

were generated by simulating payments using 2014 payment rules applied to the actual number of cases in 2014. 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, Medicare-dependent hospital, and low-volume add-on payments. For 

SCHs paid the HSP rate, the additional rural hospital payments also include the payments they received indirectly—

attributable to the costs associated with residency programs, low-income patients, and outlier cases.

Source: MedPAC analysis of claims and impact file data from CMS.

 Medicare inpatient payments in 2014 to hospitals covered by the acute inpatient prospective payment 

system (IPPS) exceeded $112 billion. About $103 billion (92 percent) went to urban hospitals and $9

billion (8 percent) went to rural hospitals. This figure does not reflect $2.7 billion in payments to critical 

access hospitals (CAHs) for inpatient care. Cost-based reimbursement for post-acute care in CAH swing 

beds results in payments that are significantly above what CAHs would have been paid under the IPPS. 

 Base payments accounted for 78.7 percent of all inpatient payment in 2014. Special payments—including 

IME, DSH, UC, and outlier payments, as well as additional payments to rural hospitals through the SCH

and Medicare-dependent hospital programs—accounted for 21.3 percent of all inpatient payments.

 In 2014, uncompensated care payments for each eligible hospital were based on each hospital’s number 

of Medicaid and Supplemental Security Income patient days. 

 Outlier payments accounted for 4.1 percent of total inpatient payments in 2014, or approximately $4.6 

billion.
70 Acute inpatient services

Chart 6-16. Medicare inpatient disproportionate share and 

uncompensated care payments, 2012–2017

Note: DSH (disproportionate share). Chart includes hospitals covered by the inpatient prospective payment system. The chart 

excludes hospitals not eligible for DSH payments or uncompensated care payments: critical access hospitals, hospitals in 

Maryland, and sole community hospitals paid hospital-specific rates. 

*While data for 2012 through 2016 represent DSH and uncompensated care payment levels finalized by CMS, data for 2017 

represent payment levels proposed by CMS. 

Source: CMS hospital inpatient prospective payment systems (IPPS) for acute care hospitals and long-term care hospital 

prospective payment system final rule regulations from fiscal years 2012 to 2016 and the CMS IPPS for acute care 

hospitals and long-term care hospital prospective payment system proposed rule regulations for fiscal year 2017. 

 Before 2014, hospitals received approximately $12 billion in aggregate Medicare DSH hospital 

payments annually. The traditional DSH payment formula was based on hospitals’ share of patients with 

Medicaid and Supplemental Security Income. 

 Beginning in 2014, DSH payments are 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 per year since the policy change, and for fiscal year 2017, 

CMS has proposed $3.6 billion in DSH payments. 

 Beginning in 2014, DSH 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. The amount of uncompensated care payments declined $2.6 billion 

between 2014 and 2016 due to the declining uninsured population. For fiscal year 2017, CMS proposed 

$6.1 billion in uncompensated care payments. 

 From fiscal year 2013 to 2014, inpatient DSH payments declined by approximately $9 billion, but in 

2014 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 $2 billion between 2012 and

2017 ($11.7 billion to $9.7 billion) due to the decline in the uninsured population. 

3.2 3.3 3.4 3.6

9.0 7.6

6.4 6.1

0

2

4

6

8

10

12

14

2012 2013 2014 2015 2016 2017

Billions of dollars

Fiscal year

DSH payments Uncompensated care payments

11.7 12.1 12.2

10.9

9.8 9.7*
A Data Book: Health care spending and the Medicare program, June 2016 71

Chart 6-17. Discharge destination of Medicare fee-for-service 

beneficiaries, 2006–2014

Percentage

point change

Destination 2006 2013 2014 2006–2014

Home self-care 52.3% 46.8% 46.0% 6.3%

Skilled nursing or swing bed 18.8 20.7 21.0 2.2

Home with organized home health care 13.8 16.5 16.8 3.1

Inpatient rehabilitation facility 3.4 3.6 3.8 0.4

Long-term care hospital 0.9 1.2 1.2 0.3

Inpatient psychiatric facility 0.4 0.5 0.5 0.1

Hospice 1.6 2.7 2.9 1.2

Other setting (e.g., ICF, nursing facility) 2.0 1.7 1.6 0.4

Transferred to other acute care hospital 2.5 2.1 2.2 0.3

Left against medical advice 0.6 0.8 0.8 0.2

Died in hospital 3.8 3.4 3.3 0.5

Note: ICF (intermediate care facility). Numbers may not sum to 100 percent due to rounding. Percentage point changes were 

calculated using unrounded numbers.

Source: Medicare inpatient claims data.

 In 2014, 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 various post-acute care providers, particularly home health care, skilled nursing care, and 

hospice.

 About one in five beneficiaries are discharged to skilled nursing care, either in a skilled 

nursing facility (SNF) or hospital swing bed. The share of beneficiaries being discharged to 

SNF-level care increased 2.2 percentage points between 2006 and 2014. 

 An increasing share of beneficiaries is being discharged home with organized home health 

care, from 13.8 percent of discharges in 2006 to 16.8 percent in 2014.

 In 2014, about 5 percent of beneficiaries were discharged to hospital-level post-acute care 

in an inpatient rehabilitation facility (3.8 percent) or long-term care hospital (1.2 percent), an 

increase of 0.7 percentage points since 2006.

 Discharges to hospice care have shown substantial growth, rising from 1.6 percent of 

discharges in 2006 to 2.9 percent of discharges in 2014. A little more than half of these 

hospice discharges were 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 has been declining.
72 Acute inpatient services

Chart 6-18. Overall Medicare margin, 2002–2014

Note: A margin is calculated as revenue minus costs, divided by revenue. Data reflect Medicare-allowable costs and exclude 

critical access hospitals. “Overall Medicare margins” cover the costs and payments of acute inpatient, outpatient, inpatient 

psychiatric and rehabilitation unit, skilled nursing facility, and home health services, as well as graduate medical education 

and bad debts. Maryland hospitals are excluded from this analysis.

Source: MedPAC analysis of Medicare cost report data from CMS.

 The overall Medicare margin incorporates payments and costs for acute inpatient, 

outpatient, skilled nursing, home health care, and inpatient psychiatric and rehabilitative 

services, as well as direct graduate medical education, bad debts, Medicare payments for 

health information technology, and (starting in 2014) uncompensated care payments. The 

overall margin follows a trend similar to that for the Medicare inpatient margin.

 The overall Medicare margin in 2002 was 2.2 percent. In 2014, it was –5.8 percent.

 In 2014, 25 percent of hospitals had overall Medicare margins of 5.9 percent or higher and 

another 25 percent had margins of –15.6 percent or lower. About 39 percent of hospitals 

had positive overall Medicare margins in 2013 (data not shown).

2.2

-1.3

-3.0 -3.1

-4.8

-6.1

-7.3

-5.3

-4.9

-5.7 -5.4

-5.0

-5.8

-8

-6

-4

-2

0

2

4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Margin (percent)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2016 73

Chart 6-19. Overall Medicare margin, by urban and rural 

location, 2002–2014

Note: A margin is calculated as revenue minus costs, divided by revenue. Data reflect Medicare-allowable costs and exclude 

critical access hospitals. “Overall Medicare margins” cover the costs and payments of acute hospital inpatient, outpatient, 

inpatient psychiatric and rehabilitation unit, skilled nursing facility, and home health services, as well as direct graduate

medical education and bad debts. Maryland hospitals are excluded from this analysis.

Source: MedPAC analysis of Medicare cost report data from CMS.

 As with inpatient margins, overall Medicare margins historically were higher for urban 

hospitals than for rural hospitals, but since 2005, overall Medicare margins for rural hospitals 

have exceeded those for urban hospitals. The difference is about 2.4 percentage points in 

2014.

 The difference in overall Medicare margins between urban and rural hospitals narrowed 

throughout the middle of the past decade. In 2002, the overall margin for urban hospitals 

was 2.7 percent, compared with –2.5 percent for rural hospitals. In 2004, the overall 

Medicare margin for urban hospitals was –3.0 percent, compared with –3.2 percent for rural 

hospitals. Policy changes made in the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 helped to improve the relative financial position of rural hospitals. 

Further legislation to assist rural hospitals was implemented after 2008. Most recently, in 

2014, the overall Medicare margin for urban hospitals was –6.0 percent compared with –3.6

percent for rural hospitals. 

2.7

-1.0

-3.0

-3.1

-4.9

-6.3 -7.4

-5.4 -5.2

-6.0 -5.8 -5.7

-6.0

-2.5

-3.9

-3.2

-2.6

-4.2

-4.9

-5.9

-4.2

-2.8 -2.7

-1.3

1.4

-3.6

-8

-6

-4

-2

0

2

4

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Margin (percent)

Fiscal year

Urban

Rural
74 Acute inpatient services

Chart 6-20. Hospital total all-payer margin, 2002–2014

Note: A margin is calculated as revenue minus costs, divided by revenue. Total margin includes all patient care services funded by 

all payers, plus nonpatient revenue. Analysis excludes critical access hospitals. Maryland hospitals are excluded from this 

analysis. 

*The significant drop in total margin includes investment losses stemming from the decline of the U.S. stock market in 2008.

Source: MedPAC analysis of Medicare cost report data from CMS.

 The total hospital margin for all payersMedicare, Medicaid, other government, and private 

payersreflects the relationship of all hospital revenues to all hospital costs, including 

inpatient, outpatient, post-acute, and nonpatient services. The total margin also includes 

nonpatient revenue, such as investment income. Other types of margins we track—

Medicare inpatient margin and overall Medicare margin—are operating margins that do not 

include investment income. 

 From 2002 to 2007, total margins increased to the highest level in a decade. In 2008, the 

total margin declined to 1.8 percent. The 2008 decline of the U.S. stock market resulted in 

significant investment losses for hospitals, which resulted in a corresponding decline in total 

margins. In 2014, total margins increased to 7.3 percent from 7.2 percent in 2013, reaching 

their highest levels since we started tracking total all-payer margins. 

3.7

4.3 4.3

4.8

5.4

6.0

1.8

4.3

6.3

5.9

6.4

7.2 7.3

0

1

2

3

4

5

6

7

8

9

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Margin (percent)

Fiscal year

* *
A Data Book: Health care spending and the Medicare program, June 2016 75

Chart 6-21. Hospital total all-payer margin, by urban and rural 

location and critical access hospitals, 2002–2014

Note: A margin is calculated as revenue minus costs, divided by revenue. Total margin includes all patient care services funded 

by all payers, plus nonpatient revenue such as investment revenues. Maryland hospitals are excluded from this analysis.

*The significant drop in total margin for all three categories in part reflects 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 

2014, total margins were 7.5 percent for urban hospitals and 4.8 percent for rural hospitals. 

From 2009 to 2013, the growth in urban and rural total all-payer margins reflects low cost 

growth and increasing private-payer reimbursement rates. 

 In 2008, both rural and urban hospitals experienced their lowest level of total (all-payer) 

margins in the past 15 years. Hospitals’ total margins include all patient care services 

funded by all payers, plus nonpatient revenue, such as investment revenue. The 2008 

decline of the U.S. stock market resulted in significant investment losses for hospitals, which 

in turn resulted in a corresponding decline in total margins. Other types of margins we 

track—Medicare inpatient margin and overall Medicare margin—are operating margins that 

do not include investment income. 

 In general, all-payer margins for critical access hospitals have historically been lower than 

for other urban or rural hospitals.

3.9

4.0

4.9

5.6 5.7

5.8

2.1

3.8

5.3

4.7

5.0 5.0 4.8

3.6

4.3

4.2

4.7

5.3

6.0

1.7

4.3

6.4 6.0

6.6

7.4 7.5

2.6 2.5 2.3

3.5

4.4

4.9

2.8

2.8

3.3 3.4 3.5 3.6 3.4

0

1

2

3

4

5

6

7

8

9

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Margin (percent)

Fiscal year

Rural

Urban

Critical access hospitals

*
76 Acute inpatient services

Chart 6-22. Hospital total all-payer margin, by teaching status, 

2002–2014

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 less than 0.25. A margin is calculated as revenue minus costs, divided by revenue. Total margin 

includes all patient care services funded by all payers, plus nonpatient revenue. Analysis excludes critical access 

hospitals. Maryland hospitals are excluded from this analysis. 

*The significant drop in total margin for all three categories in part reflects 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 2014, the total margin for major 

teaching hospitals stood at 5.2 percent, compared with other teaching hospitals and 

nonteaching hospitals at 8.8 percent and 7.6 percent, respectively.

 Beginning in 2002, major teaching hospitals’ total (all-payer) margins steadily increased, 

reaching 5.1 percent in 2007. However, in 2008, this trend was interrupted by a steep 

decline in their investment revenues, resulting in a negative total margin. Since then, total 

margins have recovered and remain above their historic average. 

4.5 4.9

4.6

5.2

5.5

5.9

3.0 4.7

6.5 6.3

6.9 7.1

7.6

4.6

5.1

5.2 5.5

6.2

7.0

2.4

5.4

7.4 7.1 7.2

8.5 8.8

1.6

2.6 2.9

3.4

4.2

5.1

-0.5

2.5

4.9

4.3

5.1

6.0

5.2

-2

0

2

4

6

8

10

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Margin (percent)

Fiscal year

Nonteaching

Other teaching

Major teaching

*

*

*
A Data Book: Health care spending and the Medicare program, June 2016 77

Chart 6-23. Medicare margins, by teaching and disproportionate 

share status, 2014

Share of 

Medicare Overall

Share of inpatient Medicare

Hospital group hospitals payments margin

All hospitals 100% 100% –5.8%

Major teaching 10 27 –4.0

Other teaching 23 33 –5.2

Nonteaching 67 40 –7.5

Both IME and DSH 30 57 –4.1

IME only 4 3 –14.6

DSH only 53 33 –6.3

Neither IME nor DSH 14 6 –13.5

Note: IME (indirect medical education), DSH (disproportionate share). Numbers may not sum to totals due to rounding.

Maryland hospitals and critical access hospitals are excluded from this analysis.

Source: MedPAC analysis of 2014 Medicare cost report data from CMS.

 By contrast with all-payer total margins, major teaching hospitals had the highest Medicare 

inpatient and overall Medicare margins in 2014. Their better financial performance was 

largely due to the additional payments they received from the IME and DSH adjustments to 

their inpatient payments.

 Hospitals that received only IME payments, and not DSH payments, had the lowest 

Medicare margins. In 2014, the overall Medicare margin of these hospitals was –14.6

percent, well below the margins of major teaching hospitals (–4.0 percent) and the allhospital average (–5.8 percent).

 Major teaching hospitals have higher Medicare margins than other hospitals, but in contrast 

they have lower total (all-payer) margins than other hospitals (see Chart 6-22). 
78 Acute inpatient services

Chart 6-24. Financial pressure leads to lower costs

Level of financial pressure, 2009–2014

High pressure Low pressure

(non-Medicare Medium (non-Medicare

margin ≤ 1%) pressure margin > 5%)

Number of hospitals 693 433 1,649

Financial characteristics, 2014 (medians)

Non-Medicare margin

(private, Medicaid, uninsured) –5.0% 3.3% 13.5%

Standardized cost per discharge 

(as a share of the national median)

For-profit and nonprofit hospitals 92 99 102

Nonprofit hospital 93 100 103

For-profit hospital 90 96 100

Annual growth in cost per

discharge, 2011–2014 3% 3% 3%

Overall 2014 Medicare margin (medians) 6% –2% –8%

Patient characteristics (medians)

Total hospital discharges in 2014 3,751 5,090 7,457

Medicare share of inpatient days 41% 39% 39%

Medicaid share of inpatient days 11 9 8

Medicare case-mix index 1.36 1.47 1.59

Note: The sample includes all hospitals that had complete cost reports on file with CMS by October 2015. “High-pressure 

hospitals” are defined as those with a median non-Medicare profit margin of 1 percent or less from 2009 to 2014 and with

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 2009

to 2014 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.

“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.

Source: MedPAC analysis of Medicare cost report and claims files from CMS.

 Higher financial pressure tends to lead to lower standardized costs per discharge. Hospitals 

with lower volume, lower case mix, and higher Medicaid charges are more likely to be under 

financial pressure. 

 In 2014, hospitals under higher financial pressure had standardized costs per discharge at 

or below 93 percent of the national median and a median Medicare margin of 6 percent. By 

contrast, hospitals under lower financial pressure had standardized costs per discharge 

above 100 percent and a median Medicare margin of 8 percent.
A Data Book: Health care spending and the Medicare program, June 2016 79

Chart 6-25. Change in the private payer payment-to-cost ratio

for hospital services, 19872014

Note: Calculations are based on data from community hospitals (including critical access hospitals and Maryland hospitals) and 

cover all hospital services. The private payer payment-to-cost ratio includes self-pay patients. Data for 2006–2014

exclude Medicare and Medicaid managed care patients from the private payer payment-to-cost ratio. Starting in 2012, the 

American Hospital Association survey shifted from hospitals reporting bad debts as an expense to reporting bad debts as 

a reduction in revenue, resulting in an increase in the payment-to-cost ratio from 2011 to 2012. 

Source: MedPAC analysis of data from the American Hospital Association Annual Survey of Hospitals.

 The private payer payment-to-cost ratio reflects hospitals’ weighted average profit margin on 

all service lines of business such as inpatient, outpatient, and hospital-owned physician 

practices. In 2014, the private payer payment-to-cost ratio was 1.50. This ratio includes 

payments and costs attributed to uninsured patients who pay for their own services (selfpay). 

 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. In 1992,

hospitals’ private payer payment-to-cost ratio was 1.32. However, with the expansion of 

health maintenance organizations and movements to narrow networks, the private payer 

payment-to-cost ratio declined to 1.15 by 1999. Between 2000 and 2012, the payment-tocost ratio rose to approximately 1.50.

 From 2012 to 2014, the payment-to-cost ratio was relatively flat at around 1.50. During this 

period, total hospital profits increased from 6.4 percent in 2012 to a 30-year high of 7.3 

percent in 2014 (see Chart 6-20), in part due to a decline in uncompensated care as more 

patients gained insurance (see Chart 6-16). 

1.20

1.32

1.15

1.50

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

1.60

1987198819891990199119921993188419951996199719981999200020012002200320042005200620072008200920102011201220132014

Payment-to-cost ratio

Fiscal year
80 Acute inpatient services

Chart 6-26. Markup of hospital charges above costs for 

Medicare services, 2002–2014

Note: Analysis includes all community hospitals (including critical access hospitals and hospitals in Maryland). Markups are 

calculated as the amount of charges over the amount of costs, minus the amount that charges equal costs 

(charges/costs – 1). 

Source: American Hospital Association Annual Survey of Hospitals.

 The average markup of hospitals’ charges above costs rose from 139 percent in 2002 to 244

percent in 2014. Hospital charges ($649 billion) were more than three times costs ($189 billion)

in 2014.

 Rapid growth in charges may have little impact on hospital financial performance because few 

patients pay full charges. However, charge growth may significantly affect uninsured patients, 

who may pay full charges. More rapid growth in charges (relative to growth in costs) may reflect 

hospitals’ attempts to maximize revenue from private payers (who often structure their payments 

as a discount off charges). The unusually large increases in charges in 2003 and 2004 may have 

resulted from some hospitals manipulating Medicare outlier payments. Toward the end of fiscal 

year 2003, Medicare revised its outlier policy in an attempt to curb hospitals’ opportunity to 

increase their outlier payments through excessive increases in charges.

 The markup of charges over costs is generally higher for urban hospitals (254 percent in 2014) 

than for rural hospitals (167 percent in 2014) (data not shown).

 Among urban hospitals in 2014, the markup of charges over costs was higher for for-profit 

hospitals (462 percent) than for nonprofit hospitals (246 percent). Rural for-profit hospitals have 

a higher markup of charges over costs (361 percent) than nonprofit hospitals (185 percent) (data 

not shown).

139

157

167

176 181 185 193

207

218

229 227 234

244

0

50

100

150

200

250

300

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Percent

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2016 81

Chart 6-27. Medicare payments to inpatient psychiatric facilities, 

2003–2015

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 2.1 percent per year between 2003 and 2015.

3.5

3.8

4.0 4.1 4.0 4.0 4.1 4.2 4.3 4.4 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

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dollars (in billions)

Fiscal year
82 Acute inpatient services

Chart 6-28. Inpatient psychiatric facilities, 2004–2014

Average annual change

2004– 2013–

Type of IPF 2004 2006 2008 2010 2012 2013 2014 2013 2014

All 1,658 1,648 1,633 1,596 1,566 1,560 1,563 –0.7% 0.2%

Urban 1,326 1,308 1,288 1,259 1,237 1,229 1,229 –0.8 0.0

Rural 332 340 345 337 329 331 333 0.0 0.6

Freestanding 352 396 419 447 450 462 464 3.1 0.4

Hospital-based units 1,306 1,252 1,214 1,149 1,116 1,098 1,099 –1.9 0.1

Nonprofit 950 903 865 807 761 740 724 –3.0 –2.2

For profit 327 348 357 386 435 465 485 4.5 4.3

Government 381 397 411 403 370 355 354 –0.8 –0.3

Note: IPF (inpatient psychiatric facility). Data are from facilities that submitted valid Medicare cost reports in the given fiscal 

year. Numbers may not sum to totals due to missing data.

Source: MedPAC analysis of Medicare cost report files from CMS.

 Between 2004 and 2013, the number of IPFs that filed Medicare cost reports fell, on 

average, almost 1 percent per year. Between 2013 and 2014, the supply of IPFs held 

steady. 

 A growing share of Medicare IPF users receives care in for-profit facilities. Between 2004 

and 2014, the number of for-profit IPFs grew, on average, more than 4 percent per year. 

Since 2004, the number of nonprofit IPFs has fallen 2.9 percent per year, on average, 

compared with a 4.5 percent increase in for-profit IPFs.
A Data Book: Health care spending and the Medicare program, June 2016 83

Chart 6-29. Number of inpatient psychiatric facility cases 

declined between 2013 and 2014

Average annual

change

2004– 2013–

2004 2006 2008 2010 2012 2013 2014 2013 2014

Cases 483,271 474,417 442,759 447,897 450,731 442,554 436,799 –1.0% –1.3%

Cases per 1,000 FFS

 beneficiaries 13.2 13.1 12.5 12.4 12.1 11.8 11.6 –1.3 1.2

Spending per FFS 

beneficiary $96.9 $104.9 $109.0 $115.5 $117.5 $114.5 $115.2 1.9 0.6

Payment per case $7,328 $7,989 $8,742 $9,288 $9,718 $9,739 $9,910 3.2 1.8

Payment per day $627 $677 $728 $782 $819 $809 $821 2.9 1.6

Length of stay (in days) 12.7 13.0 13.1 13.0 12.8 12.9 12.9 0.2 –0.2

Note: FFS (fee-for-service). Numbers of cases and beneficiaries reflect Medicare FFS use of services furnished in inpatient 

psychiatric facilities (IPFs). Scatter bed cases and spending are excluded, as are cases and spending for beneficiaries 

enrolled in Medicare Advantage plans.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 The number of IPF cases has declined, on average, about 1 percent per year since 2004. 
84 Acute inpatient services

Chart 6-30. One diagnosis accounted for almost three-quarters

of IPF cases in 2014

MS–DRG Diagnoses Percentage

885 Psychosis 72.9%

057 Degenerative nervous system disorders without MCC 6.9

884 Organic disturbances and mental retardation 6.1

897 Alcohol/drug abuse or dependency, no rehabilitation, without MCC 4.8

881 Depressive neurosis 3.3

882 Neurosis except depressive 1.2

895 Alcohol/drug abuse or dependency with rehabilitation, without MCC 1.1

880 Acute adjustment reaction and psychosocial dysfunction 0.7

056 Degenerative nervous system disorders with MCC 0.5

886 Behavioral and developmental disorders 0.4

883 Disorders of personality and impulse control 0.4

894 Alcohol/drug use—left AMA 0.3

896 Alcohol/drug abuse or dependency without rehabilitation, with MCC 0.2

876 OR procedure with principal diagnosis of mental illness 0.1

081 Nontraumatic stupor and coma without MCC 0.1

887 Other mental disorders 0.1

080 Nontraumatic stupor and coma with MCC 0.0

Nonpsychiatric MS–DRGs 1.0

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). 

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 73 percent of IPF 

discharges in 2014—was psychosis. This broad category includes patients with principal 

diagnoses of schizophrenia, bipolar disorder, and major depression.

 In 2014, the next most common discharge diagnosis, accounting for almost 7 percent of IPF 

cases, was degenerative nervous system disorder without MCC.
A Data Book: Health care spending and the Medicare program, June 2016 85

Chart 6-31. Characteristics of IPF users, 2014

Share of users

Share of with more than

Characteristic all IPF users one IPF stay

Current eligibility status*

Aged 41.1% 28.7%

Disabled 58.8 71.2

ESRD only 0.1 0.1

Age (years)

<45 23.4 31.0

45–64 34.9 39.8

65–79 25.6 20.3

80+ 16.1 8.9

Race

White 77.9 74.3

African American 16.0 18.9

Hispanic 2.8 3.3

Other 3.3 3.5

All 100.0 28.0

Note: IPF (inpatient psychiatric facility), ESRD (end-stage renal disease). Numbers may not sum to totals due to rounding.

*Some aged beneficiaries are also disabled.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 Almost 59 percent of Medicare beneficiaries who had at least one IPF stay in 2014 qualified 

for Medicare because of a disability. These beneficiaries tend to be younger and poorer than 

the typical fee-for-service beneficiary.

 Twenty eight percent of Medicare beneficiaries who used an IPF in 2014 had more than one 

IPF stay during the year. These beneficiaries were far more likely than all IPF users to be 

disabled.

 A majority of beneficiaries admitted to IPFs are dually eligible for Medicare and Medicaid

(data not shown). In 2014, 57 percent of Medicare beneficiaries with at least one IPF stay 

were dually eligible for at least one month of the year.

7

A Data Book: Health care spending and the Medicare program, June 2016 89

Chart 7-1. Medicare spending per FFS beneficiary on services

in the fee schedule for physicians and other health 

professionals, 2004–2014

Note: FFS (fee-for-service). 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 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 The fee schedule for physicians and other health professionals includes a broad range of 

services such as office visits, surgical procedures, and diagnostic and therapeutic services 

furnished in all health care settings. “Other health professionals” refers to nurse practitioners, 

physician assistants, chiropractors, physical therapists, and other clinicians. Fee schedule 

spending was $69 billion in 2014.

 Except for a small decrease in spending in 2013 (data not shown), FFS spending per beneficiary 

for fee schedule services has increased annually. From 2004 to 2014, spending per beneficiary

grew at a cumulative rate of 31 percent.

 Growth in spending on fee schedule services is one of several factors contributing to Part B 

premium increases over this period.

 Per capita spending for disabled beneficiaries (under age 65) is lower than per capita spending 

for aged beneficiaries. In 2014, for example, per capita spending for disabled beneficiaries was 

$1,839 compared with $2,130 for aged beneficiaries. 

1,639

1,801

1,905

2,037

2,132 2,130

1,338

1,434 1,491

1,669

1,764

1,839

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2004 2006 2008 2010 2012 2014

Spending per beneficiary (dollars)

Aged

Disabled
90 Ambulatory care

Chart 7-2. Volume growth has caused physician spending to 

increase faster than input prices and payment 

updates, 2000–2014

Note: MEI (Medicare Economic Index).

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 From 2000 to 2014, Medicare spending per beneficiary for services paid under the fee 

schedule for physicians and other health professionals increased by a cumulative 70

percent. 

 Spending per beneficiary grew much more rapidly over the period than both the fee

schedule payment rate updates and the MEI. Payment updates grew cumulatively by 10

percent, and the MEI increased 29 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 revenue for physicians and other health professionals.

0

10 12

19

30

37

43 45

50

55

61

67

69 67

70

2

5

8

11

14

18

20 22 24 26 26 27 28 29

5

0

1

3

5 5 5 5

7

8

9 9 9 10

-10

0

10

20

30

40

50

60

70

80

 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cumulative percent change

Spending per beneficiary

MEI

Updates
A Data Book: Health care spending and the Medicare program, June 2016 91

Chart 7-3. Growth in volume per beneficiary of physician and 

other health professional services, 2000–2014

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, with relative 

value units for 2014. 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 2014, 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 2014, the volume of some services furnished by physicians and other health 

professionals grew much more than others.

 The volume of tests grew by 85 percent, the volume of imaging grew by 70 percent, and the 

volume of “other procedures” (i.e., other than major procedures) also grew by 70 percent. 

The comparable growth rates for E&M services and major procedures were only 39 percent 

and 38 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.

85

70

39

38

0

10

20

30

40

50

60

70

80

90

100

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cumulative percent change

Tests

Imaging

Other procedures

E&M

Major procedures
92 Ambulatory care

Chart 7-4. Medicare beneficiaries reported better ability to get 

timely appointments with physicians compared with 

privately insured individuals, 2012–2015

Medicare (ages 65 and older) Private insurance (ages 50–64)

Survey question 2012 2013 2014 2015 2012 2013 2014 2015

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 77%

b

73% 72%

a

72%a72%

b

69% 69%a69%a

Sometimes 17 20 20a19a21 23 23a23a

Usually 3 3 3 4 3 4 4 4

Always 2 3 3 3 3 3 3 3

For illness or injury

Never 84

b

82 83

a

82

a

80b77 79

a

77

a

Sometimes 12 14 12a13

a

16 17 16

a

17

a

Usually 2 2 2 3 2

b

 3 2 3

Always 1 1 1

a

2 2 2 2

a

 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 2015 within the same insurance coverage 

category.

Source: MedPAC-sponsored annual telephone surveys conducted 2012–2015.

 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 better access to physicians for 

appointments than privately insured individuals ages 50 to 64. For example, in 2015, 72 

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 also reported more timely appointments for injury and illness than

their privately insured counterparts. 

 Appointment scheduling for illness and injury is better than for routine care appointments for 

both Medicare beneficiaries and privately insured individuals.
A Data Book: Health care spending and the Medicare program, June 2016 93

Chart 7-5. Medicare and privately insured patients who were 

looking for a new physician reported more difficulty 

finding one in primary care, 2012–2015

Medicare (ages 65 and older) Private insurance (ages 50–64)

Survey question 2012 2013 2014 2015 2012 2013 2014 2015

Looking for a new physician “In the past 12 months, have you tried to get a new ...?” (Percent 

answering “Yes”)

Primary care physician 7% 7% 8% 7%

a

 7%b 8% 8% 9%a

Specialist 13

b

14 17 16 18 16b17 18

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 72 70 67 67 75b67 63 63

Small problem 14 11 16 18 9

b

15 16 18

Big problem 14 17 15 14 15 18 19 17

Specialist

No problem 87 86 85 87a86b87b85 82a

Small problem 6 8 7 7 7 6 9 8

Big problem 7 5 7 6 7 7 6

b

 9

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 2015 within the same insurance coverage category.

Source: MedPAC-sponsored annual telephone surveys, conducted 2012–2015.

 In 2015, only 7 percent of Medicare beneficiaries and 9 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 7 percent of Medicare beneficiaries who looked for a new primary care physician in 2015, 32

percent reported problems finding one: 14 percent reported their problem as “big,” and 18 percent 

reported their problem as “small.” Although this number indicates that only about 2 percent of the total 

Medicare population reported problems finding a primary care physician, the Commission is 

concerned about the continuing trend of greater problems accessing primary care.

 Of the 9 percent of privately insured individuals who looked for a new primary care physician in 2015,

35 percent reported problems finding one: 17 percent reported their problem as “big,” and 18 percent 

reported their problem as “small.”

 In 2015, Medicare beneficiaries and privately insured individuals were more likely to report problems 

accessing a new primary care physician than a new specialist.
94 Ambulatory care

Chart 7-6. Access to physician care was better for Medicare 

beneficiaries than privately insured individuals, but 

minorities in both groups reported unwanted delays 

more frequently, 2015

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 72%

a

 74%

ab

 64%

b

 69%

a

 70%

ab

 66%

b

Sometimes 19a18ab23b23

a

23

a

 23

Usually 4 4 5 4 4 6

Always 3 3

b

6

b

3 3

b

 5

b

For illness or injury

Never 82

a

83

ab 76b

77

a

78a74

Sometimes 13

a

12

a

15

a

17

a

17

a

20a

Usually 3 3 4 3 3 2

Always 2 1

ab

 4

b

2 2

ab 3b

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 2015. Sample size for individual 

questions varied.

a

Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured 

populations in the given race category.

b

Statistically significant difference (at a 95 percent confidence level) by race within the same insurance category.

Source: MedPAC-sponsored telephone surveys conducted in 2015.

 In 2015, Medicare beneficiaries (ages 65 and older) reported better access to physicians for 

appointments than privately insured individuals ages 50 to 64. 

 Access varied by race, with minorities more likely than Whites to report access problems in 

both insurance categories. For example, in 2015, 83 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 76 percent of minority beneficiaries. 
A Data Book: Health care spending and the Medicare program, June 2016 95

Chart 7-7. Minorities in Medicare were less likely to report a big 

problem in finding a new specialist than White 

beneficiaries, 2015

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 7%

a

 7%a 8% 9%

a

 9%

a

 10%

Specialist 16 16

a

15 18 19

a

16

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 66 68 63 63 62

Small problem 18 17 20 18 18 18

Big problem 14 15 12 17 17 19

Specialist

No problem 87a87 86 82a84 77

Small problem 7 6 10 8 8 11

Big problem 6 7 4

a

9 8 12a

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 2015. Sample size for individual 

questions varied.

a

Statistically significant difference (at a 95 percent confidence level) between the Medicare and privately insured 

populations in the given race category.

Source: MedPAC-sponsored telephone surveys conducted in 2015.

 Among the small percentage of Medicare beneficiaries looking for a specialist, minorities 

were less likely than Whites to report a big problem finding one. For the privately insured, 

minorities were more likely than Whites to report a big problem finding a specialist. 
96 Ambulatory care

Chart 7-8. Changes in physicians’ professional liability 

insurance premiums, 2008–2015

Note: Bars represent a four-quarter moving average percent change. 

Source: CMS, Office of the Actuary. Data are from CMS’s Professional Liability Physician Premium Survey. 

 Professional liability insurance (PLI) accounts for 4.3 percent of total payments under the 

physician fee schedule. 

 The change in PLI premiums over the last 14 years reflects 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 and began falling during the second quarter of 

2014. 

-2.7 -2.8

-3.2

-4.0

-3.6

-2.1

-1.2 -1.0

-0.2

1.2

1.6

1.0

0.3

-0.5

-1.0

-1.2

-5

-4

-3

-2

-1

0

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015

Percent change
A Data Book: Health care spending and the Medicare program, June 2016 97

Chart 7-9. Spending on hospital outpatient services covered 

under the outpatient PPS, 2005–2015

Note: PPS (prospective payment system). Spending amounts are for services covered by the Medicare outpatient PPS. They do 

not include services paid on separate fee schedules (e.g., ambulance services and durable medical equipment) or those 

paid on a cost basis (e.g., corneal tissue acquisition and flu vaccines) or payments for clinical laboratory services. 

*Estimate.

Source: CMS, Office of the Actuary.

 Overall spending by Medicare and beneficiaries on hospital outpatient services covered 

under the outpatient PPS from calendar year 2005 to 2015 increased by 107 percent, 

reaching $56.6 billion. The Office of the Actuary projects continued growth in total spending, 

averaging 9 percent per year from 2015 to 2017.

 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). Spending under the outpatient PPS is expected to rise to almost $57 billion in 2015 

($44.5 billion in program spending, $12.1 billion in beneficiary copayments). The outpatient PPS 

accounted for about 7 percent of total Medicare program spending in 2015.

 Beneficiary cost sharing under the outpatient PPS includes the Part B deductible and 

coinsurance for each service. Under the outpatient PPS, beneficiary cost sharing is 

generally higher than for other sectors, about 22 percent in 2014. Chart 7-13 provides more 

detail on coinsurance.

19.1 20.2 21.9 23.6 26.3 28.6 31.1 33.9 36.3

41.1 44.5 8.3 7.8 8

7.8

7.7

8.2

8.7

8.8

10.2

11.5

12.1

0

10

20

30

40

50

60

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*

Dollars (in billions)

Beneficiary cost sharing

Program payments
98 Ambulatory care

Chart 7-10. Most hospitals provide outpatient services

Percent offering

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%

2013 3,456 96 92 93

2014 3,429 96 92 93

2015 3,395 96 92 93

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 percentage of hospitals providing emergency services increased sharply from 

2010 to 2012, but we question whether such a large increase actually occurred. This chart includes services provided or 

arranged by short-term hospitals and excludes long-term, Christian Science, psychiatric, rehabilitation, children’s, critical 

access, and alcohol/drug hospitals.

Source: Medicare Provider of Services files from CMS.

 The number of hospitals that furnish services under Medicare’s outpatient prospective 

payment system has declined slowly since 2006.

 The share of hospitals providing outpatient services remained stable, and the share offering 

outpatient surgery steadily increased from 2006 through 2013 and remained stable since 

then. The share offering emergency services has remained stable over the period we are 

able to measure accurately.
A Data Book: Health care spending and the Medicare program, June 2016 99

Chart 7-11. Payments and volume of services under the 

Medicare hospital outpatient PPS, by type of 

service, 2014

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 classification 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. Percentages for payments do not sum to 100 percent because of rounding.

Source: MedPAC analysis of standard analytic file of outpatient claims for 2014.

 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 2014, 

procedures accounted for 49 percent of payments but only 18 percent of volume.

 Procedures (e.g., endoscopies, surgeries, and skin and musculoskeletal procedures) 

accounted for the greatest share of payments for services (49 percent) in 2014, followed by 

evaluation and management services (17 percent), imaging services (16 percent), and

separately paid drugs and blood products (15 percent).

Tests

3%

Passthrough 

drugs

1%

Procedures

49%

Imaging

16%

E&M

17%

Separately 

paid drugs/

blood 

products

15%

Tests

8%

Pass-through 

drugs

2%

Procedures

18%

Imaging

12%

E&M 16%

Separately 

paid 

drugs/blood 

products

44%
100 Ambulatory care

Chart 7-12. Hospital outpatient services with the highest 

Medicare expenditures, 2014

Share of Volume Payment

APC title payments (thousands) rate

Total 46%

Clinic visits 5 27,474 $93

All emergency visits 5 13,018 260

Extended assessment & management composite 3 1,489 1,199

Diagnostic cardiac catheterization 2 493 2,587

Level I plain film except teeth 2 16,981 57

Level II cardiac imaging 2 855 1,154

Level II implantation of cardioverter-defibrillators 2 30 32,145

Transcatheter placement of intracoronary drug-eluting stents 2 125 7,714

Cataract procedures with IOL insert 2 494 1,766

Level I implantation of cardioverter-defibrillators 2 34 25,018

Level II echocardiogram without contrast 2 1,795 427

Lower gastrointestinal endoscopy 1 1,089 737

Level II endovascular revascularization of the lower extremity 1 85 9,120

Level III radiation therapy 1 1,336 510

Coronary angioplasty, valvuloplasty, and level I endovascular 

revascularization of the lower extremity 1 158 4,410

Level II drug administration 1 13,112 44

Cardiac electrophysiologic, evaluation, and ablation composite 1 42 13,115

Level II laparoscopy 1 155 3,648

Level III nerve injections 1 798 670

Level III drug administration 1 4,832 106

Insertion/replacement/conversion of permanent dual chamber 1 50 10,588

pacemaker or pacing electrode

Level V drug administration 1 1,564 300

Level III cystourethroscopy and other genitourinary procedures 1 265 2,007

Combined abdomen and pelvis CT with contrast 1 1,197 390

Level IV drug administration 1 2,592 172

PET imaging 1 340 1,311

Level I upper gastrointestinal procedures 1 820 670

Average APC 445 156

Note: APC (ambulatory payment classification), IOL (intraocular lens), CT (computed tomography), PET positron emission 

tomography. The payment rate for “all emergency visits” is a weighted average of payment rates from 10 APCs.

Source: MedPAC analysis of 100 percent analytic files of outpatient claims for calendar year 2014.

 Although the outpatient prospective payment system covers thousands of services, 

expenditures are concentrated in a few categories that have high volume, high payment 

rates, or both.
A Data Book: Health care spending and the Medicare program, June 2016 101

Chart 7-13. Medicare coinsurance rates, by type of hospital

outpatient service, 2014

Note: We grouped services into the following categories, according to the Berenson–Eggers Type of Service classification 

developed by CMS: evaluation and management, imaging, procedures, and tests. We classified pass-through drugs and 

separately paid drugs and blood products by their payment status indicators. The coinsurance rate for procedures and 

pass-through drugs is less than 20 percent because the coinsurance amount for services in the outpatient prospective 

payment system cannot exceed the hospital inpatient deductible. Therefore, services that have very high payment rates in 

the outpatient prospective payments system have coinsurance rates below 20 percent.

Source: MedPAC analysis of the standard analytic files of outpatient claims for 2014.

 Before CMS began using the outpatient prospective payment system (PPS), beneficiary 

coinsurance payments for hospital outpatient services were based on hospital charges, 

while Medicare payments were based on hospital costs. As hospital charges grew faster 

than costs, coinsurance represented an increasingly large share of total payments. 

 In adopting the outpatient PPS, the Congress froze the dollar amounts for coinsurance. 

Consequently, beneficiaries’ share of total payments has declined over time.

 The coinsurance rate differs for each service. Some services, such as imaging, have 

relatively high rates of coinsurance—26 percent in 2014. Other services, such as evaluation 

and management, have coinsurance rates of 20 percent.

 In 2014, the average coinsurance rate was about 21 percent (shown by the horizontal line in 

the chart). There is a small discrepancy between the average coinsurance rate of 21 percent 

and the average cost sharing of 22 percent listed in Chart 7-9 because the cost sharing 

includes both coinsurance and the Part B deductible. 

20

26

19

23

16

20

0

5

10

15

20

25

30

35

Evaluation and

management

Imaging Procedures Tests Pass-through

drugs

Separately paid

drugs/blood

products

Coinsurance rate (in percent)

Type of service

21
102 Ambulatory care

Chart 7-14. Effects of hold-harmless and SCH transfer payments 

on hospitals’ outpatient revenue, 2012–2014

2012 2013 2014

Share of Share of Share of

payments payments payments

from Number from Number from

Number of hold harmless of hold harmless of hold harmless

Hospital group hospitals and SCH transfer hospitals and SCH transfer hospitals and SCH transfer

All hospitals 3,041 0.4% 2,971 0.1% 2,917 0.0%

Urban 2,178 –0.3 2,117 –0.4 2,083 –0.4

Rural SCHs 372 8.4 365 6.3 372 5.6

Rural ≤100 beds 362 4.2 359 0.8 337 –0.4

Other rural 129 –0.1 130 –0.4 125 –0.4

Major teaching 261 –0.3 259 –0.3 267 –0.3

Other teaching 717 –0.1 697 –0.2 684 –0.2

Nonteaching 2,063 1.2 2,015 0.5 1,966 0.4

Note: SCH (sole community hospital).

Source: MedPAC analysis of Medicare Cost Report files from CMS. 

 Medicare implemented the hospital outpatient prospective payment system (PPS) in 2000. 

Previously, Medicare paid for hospital outpatient services on the basis of hospital costs.

Recognizing that some hospitals might receive lower payments under the outpatient PPS than 

under the earlier system, the Congress established transitional corridor payments. The corridors 

were designed to make up part of the difference between payments that hospitals would have 

received under the old payment system and those under the new outpatient PPS.

 Transitional corridor payments expired for most hospitals at the end of 2003. However, some rural 

hospitals continued to receive a special category of transitional corridor payments called “hold 

harmless” (HH) through 2012. Qualifying hospitals receive the greater of the payments they would 

have received from the previous system or the actual outpatient PPS payments.

 Hospitals that qualified for HH payments in 2004 and 2005 included rural SCHs and other small 

rural hospitals (100 or fewer beds). After 2005, small rural hospitals continued to be eligible for HH 

payments, but SCHs no longer qualified. In 2006, CMS implemented a policy (the “SCH transfer”) 

that increased outpatient payments to rural SCHs by 7.1 percent above the standard rates. This 

policy is made budget neutral by reducing payments to all other hospitals. Finally, the Congress 

reestablished HH payments for SCHs that had 100 or fewer beds in 2009 and extended HH 

payments to all SCHs in 2010 and 2011. HH payments for SCHs that had more than 100 beds 

expired on March 1, 2012, and expired for SCHs and rural hospitals that had 100 or fewer beds on 

January 1, 2013.

 HH payments and the SCH transfer represented 0.4 percent of total outpatient PPS payments for 

all hospitals in 2012. However, the percentage of total outpatient payments from these policies was 

8.4 percent for rural SCHs and 4.2 percent for small rural hospitals. Data from 2013 and 2014

indicate transfer and HH payments to rural SCHs were 6.3 percent of their outpatient revenue in 

2013 and 5.6 percent in 2014. HH payments were only 0.8 percent of total outpatient payments to 

small rural hospitals in 2013. In 2014, HH payments were completely eliminated for small rural 

hospitals, and the SCH transfer policy reduced their revenue by 0.4 percent.
A Data Book: Health care spending and the Medicare program, June 2016 103

Chart 7-15. Number of observation hours increased,

2006–2014

Source: MedPAC analysis of Limited Data Set claims for the outpatient prospective payment system 2006–2014.

 Hospitals use observation care to determine whether a patient should be hospitalized for 

inpatient care, transferred to an alternative treatment setting, or sent home.

 Medicare began providing separate payments to hospitals for some observation services on 

April 1, 2002. Previously, the observation services were packaged into the payments for the 

emergency department or clinic visits that occurred with observation care.

 The number of observation hours (both packaged and separately paid) has increased 

substantially, from about 23 million in 2006 to 53 million in 2014. Before 2006, it was difficult 

to count the total number of observation hours because hospitals were not required to report 

packaged observation hours on Medicare claims.

23.5

27.2

31.1

36.0

39.2

42.5

50.0

53.1 53.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2006 2007 2008 2009 2010 2011 2012 2013 2014

Observation hours (millions)
104 Ambulatory care

Chart 7-16. Number of Medicare-certified ASCs increased by 

15 percent, 2007–2014

2007 2008 2009 2010 2011 2012 2013 2014

Medicare payments (billions of dollars) $2.9 $3.1 $3.2 $3.3 $3.4 $3.6 $3.7 $3.8

Number of centers 4,740 4,929 5,039 5,123 5,205 5,271 5,343 5,446

New centers 343 281 221 193 198 171 167 176

Closed or merged centers 79 81 111 109 116 105 95 73

Net percent growth in number

of centers from previous year 5.6% 4.0% 2.2% 1.7% 1.6% 1.3% 1.4% 1.9%

Percent of all centers that are:

For profit 95 95 95 95 95 95 95 95

Nonprofit 4 4 3 3 3 3 3 3

Government 1 1 2 1 1 1 2 2

Urban 92 92 92 92 92 93 93 93

Rural 8 8 8 8 8 7 7 7

Note: ASC (ambulatory surgical center). Medicare payments include program spending and beneficiary cost sharing for ASC 

facility services. Totals may not sum to 100 percent due to rounding.

Source: MedPAC analysis of Provider of Services file from CMS 2014. Payment data are from CMS, Office of the Actuary. 

 ASCs are distinct entities that furnish ambulatory surgical services not requiring an overnight 

stay. The most common ASC procedures are cataract removal with lens insertion, upper 

gastrointestinal endoscopy, colonoscopy, and nerve procedures.

 Total Medicare payments for ASC services increased by 4.1 percent per year, on average, 

from 2007 through 2014. Payments per ASC fee-for-service beneficiary grew by 3.8 percent 

per year during this period (data not shown). Between 2013 and 2014, total payments rose 

by 3.1 percent and payments per beneficiary grew by 3.1 percent. 

 The number of Medicare-certified ASCs grew at an average annual rate of approximately 

2 percent from 2007 through 2014. Each year from 2007 through 2014, an average of 219 

new facilities entered the market, while an average of 96 closed or merged with other 

facilities.

 The slower growth in the number of ASCs from 2009 through 2014 may reflect the 

substantially higher rates that Medicare pays for ambulatory surgical services in hospital 

outpatient departments than in ASCs, the very slow growth of national health care spending 

and Medicare spending, and the significant increase in hospital employment of physicians. 
A Data Book: Health care spending and the Medicare program, June 2016 105

Chart 7-17. Medicare spending for imaging services under the 

fee schedule for physicians and other health 

professionals, by type of service, 2014

Note: PET (positron emission tomography), MRI (magnetic resonance imaging), CT (computed tomography). “Standard”

imaging includes chest, musculoskeletal, and breast X-rays. “Imaging procedures” include stereoscopic X-ray guidance 

for delivery of radiation therapy, fluoroguide for spinal injection, and other interventional radiology procedures. Medicare 

payments include program spending and beneficiary cost sharing for fee schedule imaging services provided in all 

settings. Payments include carrier-priced codes but exclude radiopharmaceuticals. 

Source: MedPAC analysis of the 100 percent physician/supplier procedure summary file from CMS 2014.

 Almost one-third of Medicare spending for imaging under the fee schedule for physicians 

and other health professionals in 2014 was for CT and MRI studies. About one-quarter was 

for various types of ultrasound (echocardiography and other echography).

 Medicare and beneficiaries spent a total of $9.3 billion for imaging services under the fee 

schedule in 2014. Spending declined from $9.6 billion in 2013 (–3.1 percent) (data not 

shown). The decline in spending was largely due to a 1.1 percent drop in the number and 

complexity of imaging services per beneficiary in 2014, the reduction of practice expense 

payments for certain types of imaging, and the shift in billing of imaging services from 

freestanding offices to hospital outpatient departments (where the technical component of 

the service is paid under the hospital outpatient prospective payment system instead of the 

fee schedule). 

Standard

23%

CT

19%

Other echography 

(ultrasound)

17%

MRI

12%

Echocardiography

10%

Nuclear medicine

7%

Imaging procedure

6%

PET

6%
106 Ambulatory care

Chart 7-18. Growth in the number of CT, MRI, and cardiac 

imaging services per 1,000 FFS beneficiaries, 

2000–2014

Note: CT (computed tomography), MRI (magnetic resonance imaging), FFS (fee-for-service). Data include imaging services 

paid under the fee schedule for physicians and other health professionals that were provided in all settings but exclude 

technical component–only services. The number of echocardiography and nuclear cardiology services excludes add-on 

services. 

Source: MedPAC analysis of the 100 percent physician/supplier procedure summary files from CMS 2000, 2013, and 2014.

.

 The number of CT and MRI scans per 1,000 fee-for-service beneficiaries grew rapidly from 

2000 to 2014. For example, the number of CT scans of parts of the body other than the 

head (“CT: other”) more than doubled from 2000 to 2014 (from 185 per 1,000 beneficiaries 

to 417). 

 The number of echocardiography studies per 1,000 beneficiaries grew by 49 percent from 

2000 to 2013 and stayed about the same in 2014. 

 The number of nuclear cardiology studies per 1,000 beneficiaries rose by 2 percent from 

2000 to 2013 and fell by 5 percent in 2014.

124

185

44

58

158

67

205

398

75

130

235

68

210

417

76

133

236

65

0

50

100

150

200

250

300

350

400

450

Number of services per 1,000 FFS beneficiaries

2000

2013

2014
8

A Data Book: Health care spending and the Medicare program, June 2016 109

Chart 8-1. Number of post-acute care providers remained 

stable in 2015

Average

annual

percent Percent

change change

2007 2009 2011 2013 2014 2015 20072014 20142015

Home health

agencies 9,291 10,568 12,054 12,613 12,461 12,346 4.3% 0.9%

Inpatient

rehabilitation

facilities 1,202 1,196 1,165 1,161 1,177 1,182 0.3 0.4

Long-term

care hospitals 396 427 437 432 422 426 0.9 0.9

Skilled nursing

facilities 15,047 15,062 15,120 15,163 15,173 15,223 0.1 0.3

Note: The skilled nursing facility count does not include swing beds.

Source: MedPAC analysis of data from the Provider of Services files from CMS.

 The number of home health agencies declined slightly in 2014 and 2015 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.

 Most inpatient rehabilitation facilities (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.

 In spite of a moratorium on new long-term care hospitals (LTCHs) beginning in October 

2007, the number of these facilities continued to grow through 2011. The number of LTCHs 

has since decreased from 437 in 2011 to 426 in 2015.

 The total number of skilled nursing facilities (SNFs) has increased slightly since 2007, and 

the mix of facilities shifted from hospital-based to freestanding facilities. In 2015, hospitalbased facilities made up 5 percent of all SNF facilities, down from 8 percent in 2005 (data 

not shown).
110 Post-acute care

Chart 8-2. Growth in Medicare’s post-acute care expenditures

has slowed since 2012

Note: These numbers represent only program spending; they do not include beneficiary copayments.

Source: CMS Office of the Actuary 2016.

 Increases in fee-for-service (FFS) spending on post-acute care have slowed in part because 

of expanded enrollment in managed care under Medicare Advantage (Medicare Advantage

spending is not included in this chart). The slowest growth in FFS spending on post-acute 

care since 2001 occurred between 2012 and 2014.

 FFS spending on inpatient rehabilitation hospitals 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 hospitals 

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. 

29.3

32.9

34.8

39.1

43.0

45.6

48.8

52.5

56.0

58.6

61.4

58.4 58.8 59.2

13.6 15.0 15.5

17.6

19.5 21.0 22.8

24.9 26.2 27.8

31.2

28.3 28.8 29.1

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

4.8 5.8 6.2 6.4 6.3 6.1 5.9 5.9 6.0 6.1 6.4 6.6 6.8 7.1

1.9 2.4 3.0 3.6 4.2 4.3 4.4 4.5 4.8 5.0 5.2 5.3 5.2 5.1

0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Dollars (in billions)

Calendar year

All post-acute care

Skilled nursing facilities

Home health agencies

Inpatient rehabilitation hospitals

Long-term care hospitals
A Data Book: Health care spending and the Medicare program, June 2016 111

Chart 8-3. Freestanding SNFs and for-profit SNFs account for 

the majority of facilities, Medicare stays, and 

Medicare spending

Medicare payments

Facilities Medicare-covered stays (billions)

Type of SNF 2006 2014 2006 2014 2006 2014

Totals 15,178 15,005 2,454,263 2,344,173 $19.5 $27.0

Freestanding 92% 95% 89% 94% 94% 97%

Hospital based 8 5 11 6 6 3

Urban 67 72 79 83 81 85

Rural 33 28 21 17 19 15

For profit 68 70 67 72 73 76

Nonprofit 26 25 29 24 24 21

Government 5 5 4 3 3 3

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, 2006 and 2014.

 The mix of where beneficiaries receive SNF services has shifted toward freestanding, urban, 

and for-profit facilities. 

 In 2014, freestanding facilities accounted for 94 percent of stays and an even larger share of

Medicare’s payments (97 percent).

 Urban facilities accounted for 72 percent of facilities, 83 percent of stays, and 85 percent of 

Medicare payments in 2014. 

 In 2014, for-profit facilities accounted for 70 percent of facilities, but proportionally higher 

shares of stays and Medicare payments (72 percent and 76 percent, respectively). 
112 Post-acute care

Chart 8-4. SNF service use declined between 2013 and 2014

Percent 

change

Volume measure 2008 2010 2012 2013 2014 2013–2014

Covered admissions per 

 1,000 FFS beneficiaries 73 72 68 67 66 –1.4%

Covered days (in thousands) 1,977 1,938 1,861 1,835 1,808 –1.5

Covered days per admission 27.0 27.1 27.4 27.6 27.6 0.0

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, 2015. 

 In 2014, 4.5 percent of beneficiaries used SNF services, down slightly from 2011 (data not 

shown). 

 Between 2013 and 2014, admissions per 1,000 FFS beneficiaries declined 1.4 percent, 

paralleling the decline in inpatient hospital use. An acute hospital stay of three or more days 

is a prerequisite for Medicare coverage of SNF care. 

 During the same period, covered days declined at a similar rate (–1.5 percent) so the 

covered days per admission remained the same (27.6 days). 
A Data Book: Health care spending and the Medicare program, June 2016 113

Chart 8-5. Freestanding SNF Medicare margins remain high 

despite reductions in payments 

2004 2006 2008 2010 2012 2013 2014

All 13.8% 12.8% 16.7% 19.4% 14.1% 13.2% 12.5%

Rural 16.1 13.5 17.9 19.4 13.0 12.1 10.6

Urban 13.3 12.7 16.4 19.4 14.2 13.3 12.9

Nonprofit 3.8 3.2 7.2 10.8 5.7 5.0 3.9

For profit 16.1 15.1 19.0 21.5 16.2 15.3 14.9

Note: SNF (skilled nursing facility). 

Source: MedPAC analysis of freestanding SNF cost reports 2004–2014. 

 Though lower than in recent years, the Medicare margin for freestanding SNFs in 2014 

exceeded 10 percent for the 15th 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 2014, on average, urban facilities had higher Medicare margins than rural facilities even 

though rural facilities have higher base rates than urban facilities. In aggregate, for-profit 

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 2014, total margins (the margin across all payers and all lines of business) for 

freestanding facilities remained positive (1.9 percent, the same as in 2013, data not shown). 
114 Post-acute care

Chart 8-6. Cost and payment differences explain variation in 

Medicare margins for freestanding SNFs in 2014

 

Highest margin Lowest margin Ratio of highest

quartile quartile quartile to

Characteristic (n = 3,186) (n = 3,186) lowest quartile

Cost measures 

Standardized cost per day $254 $369 0.7

Standardized cost per discharge $11,120 $14,185 0.8

Average daily census (patients) 89 67 1.3

Average length of stay (days) 45 37 1.2

Revenue measures

Medicare payment per day $489 $428 1.1

Medicare payment per discharge $22,728 $16,107 1.4

Share of days in intensive therapy 85% 77% 1.1

Share of medically complex days 4 5 0.8

Medicare share of facility revenue 25 15 1.7

Patient characteristics

Case-mix index 1.40 1.31 1.1

Share of dual-eligible beneficiaries 39% 27% 1.4

Share of minority beneficiaries 13 5 2.6

Share of very old beneficiaries 29 34 0.9

Medicaid share of days 65 58 1.1

Facility mix

Percent for profit 90% 58% N/A

Percent urban 78 67 N/A

Note: SNF (skilled nursing facility), N/A (not applicable). Values shown are medians for the quartile. Highest margin quartile 

SNFs were in the top 25 percent of the distribution of Medicare margins. Lowest margin quartile SNFs were in the bottom 

25 percent of the distribution of Medicare margins. “Standardized costs per day” are Medicare costs adjusted for 

differences in area wages and the case mix (using the nursing component’s relative weights) of Medicare beneficiaries. 

“Intensive therapy days” are days classified into ultra-high and very high rehabilitation case-mix groups. Very old 

beneficiaries are 85 years or older. 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 2014. 

 Medicare margins varied widely across freestanding SNFs. One-quarter of SNFs had

Medicare margins at or below 2.4 percent, and one-quarter of facilities had Medicare 

margins at or above 21.2 percent (data not shown). 

 High-margin SNFs had lower costs per day (30 percent lower costs than low-margin SNFs),

after adjusting for wage and case-mix differences, and higher revenues per day (1.1 times 

the revenues per day of low-margin SNFs). 

 Facilities with the highest Medicare margins had higher case-mix indexes, higher shares of 

beneficiaries who were dually eligible for Medicare and Medicaid, and higher shares of 

minority beneficiaries.
A Data Book: Health care spending and the Medicare program, June 2016 115

Chart 8-7. Financial performance of relatively efficient SNFs 

reflects a combination of lower cost per day and 

higher payment per day

Relatively All

efficient SNFs SNFs

Performance in 2014

Community discharge rate 47.3% 37.3%

Readmission rate 9.2% 10.9%

Standardized cost per day $277 $303

Medicare revenue per day $492 $450

Medicare margin 20.0% 11.8%

Total margin 3.5% 1.7%

Facility case-mix index 1.43 1.35

Medicare average length of stay 35 days 40 days

Occupancy rate 89% 87%

Number of beds 120 100

Share of ultra-high therapy days 63% 52%

Share of medically complex days 4.7% 4.6%

Medicaid share of facility days 58% 61%

Share of urban 78% 66% 

Share of for profit 83% 70%

Note: SNF (skilled nursing facility). The analysis includes 11,637 freestanding facilities. SNFs were defined as “efficient” by their 

cost per day (2011–2013) and two quality measures (community discharge and readmission rates) for the same period. 

Efficient SNFs were those in the best third of the distribution of one measure and not in the bottom third on any measure 

in each of three years. 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. Quality measures were rates of riskadjusted community discharge and readmission for patients with potentially avoidable conditions within 100 days of 

hospital discharge. Quality measures 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” were defined as those assigned to 

clinically complex or special-care case-mix groups.

Source: MedPAC analysis of quality measures for 2011–2014 and Medicare cost report data for 2011–2014. 

 “Relatively efficient SNFs” were defined as consistently providing relatively low-cost and 

high-quality care compared with other SNFs. 

 Compared with other SNFs, relatively efficient SNFs furnished considerably higher quality 

(higher discharge to community rates and lower readmission rates) and had costs per day 

that were 8 percent lower. 

 Compared with other SNFs, relatively efficient SNFs treated more complex patients, had a 

higher share of ultra-high therapy days, were larger, and had slightly higher occupancy 

rates. 
116 Post-acute care

Chart 8-8. Spending on home health care, 2001–2014

Source: CMS Office of the Actuary.

 In October 2000, the prospective payment system (PPS) replaced the previous Medicare 

payment system for home health care. At the same time, eligibility for the benefit broadened 

slightly. 

 Home health care spending has risen rapidly under the PPS. Spending rose by about 10 

percent per year between 2001 and 2009; spending peaked in 2010 and has declined

slightly since then.

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 

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Dollars (in billions)
A Data Book: Health care spending and the Medicare program, June 2016 117

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

Cumulative

Percent change percent change

2002 2013 2014 2013–2014 2002–2014

Number of users (in millions) 2.5 3.5 3.4 1.3% 36.0%

Percent of beneficiaries 

who used home health care 7.2% 9.3% 9.1% 2.2 26.0

Episodes (in millions) 4.1 6.7 6.6 2.1 60.1

Episodes per home

health patient 1.6 1.9 1.9 0.8 17.7

Visits per home health 

episode 18.9 17.0 17.5 3.1 7.4

Visits per home health 

patient 30.8 32.9 33.6 2.2 9.1

Average payment per 

episode $2,335 $2,674 $2,689 0.5 15.1

Note: Yearly figures presented in the table are rounded, but the percent-change columns were calculated using unrounded data.

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, but at a lower rate than 

the growth in episodes. In 2014, 3.4 million beneficiaries used the home health benefit.

 The number of visits per episode decreased from 2002 to 2014. 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 2014. 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 34 visits per home health user in 2014.
118 Post-acute care

Chart 8-10. Home health episodes not preceded by a 

hospitalization accounted for the majority of 

services in 2013

Number of episodes (in millions) Cumulative Share of episodes

2001 2013 growth 2001 2013

Episodes not preceded by a hospitalization or PAC stay:

 First 0.8 1.4 80% 20% 21%

 Subsequent 1.3 3.0 137 32 45

 Subtotal 2.1 4.5 115 53 66

Episodes preceded by a hospitalization or PAC stay:

 First 1.6 1.9 18 40 27

 Subsequent 0.3 0.5 60 8 7

 Subtotal 1.9 2.3 25 47 34

Total 3.9 6.9 72 100% 100%

Note: PAC (post-acute care). “First” indicates no home health episode in the 60 days preceding the episode. “Subsequent” 

indicates the episode started within 60 days of the end of a preceding episode. “Episodes not preceded by a 

hospitalization or PAC stay” indicates that there was no hospitalization or PAC stay in the 15 days before the start of the 

episode. “Episodes preceded by a hospitalization or PAC stay” indicates the episode occurred less than 15 days after a 

stay in a hospital (including a long-term care hospital, skilled nursing facility, or inpatient rehabilitation facility). The 

number of episodes presented in the table is rounded, but the cumulative-growth column was calculated using unrounded 

data. Components may not sum to subtotals or totals due to rounding. 

Source: CMS Datalink file 2013.

 The rise in the average number of episodes per beneficiary coincides with a relative shift 

away from using home health care as a PAC service. 

 During the 2001 through 2013 period, the number of episodes not preceded by a 

hospitalization or PAC stay increased by 115 percent compared with a 25 percent increase 

in episodes that were preceded by a hospitalization or PAC stay. During that period, the 

share of all episodes not preceded by a hospitalization or PAC stay rose from about 53 

percent to 66 percent. 

 Beneficiaries for whom the majority of home health episodes in 2013 were preceded by a 

hospitalization or other post-acute stay had different characteristics from communityadmitted beneficiaries. Community-admitted home health users were more likely to be dually 

eligible for Medicare and Medicaid, had more home health episodes, and had more 

episodes with a high share of home health aide services compared with post-acute users of 

home health (data not shown). Community-admitted users generally had fewer chronic 

conditions, tended to be older, and were more likely to have dementia and Alzheimer’s 

disease (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2016 119

Chart 8-11. Medicare margins for freestanding home health

agencies

Percent of

agencies

2013 2014 2014

All 12.7% 10.8% 100%

Geography

Mostly urban 13.1 11.2 85

Mostly rural 11.0 8.5 15

Type of control

For profit 13.7 12.2 89

Nonprofit 10.0 6.4 11

Volume quintile (lowest to highest)

First 6.1 4.0 20

Second 7.8 5.4 20

Third 8.9 7.6 20

Fourth 11.2 10.0 20

Fifth 14.8 12.5 20

Note: Agencies are characterized as urban or rural based on the residence of the majority of their patients.

Source: MedPAC analysis of 2013–2014 Medicare Cost Report files from CMS.

 In 2014, freestanding home health agencies (HHAs) (85 percent of all HHAs) had an 

aggregate margin of 10.8 percent. HHAs that served mostly urban patients in 2014 had an 

aggregate margin of 11.2 percent; HHAs that served mostly rural patients had an aggregate 

margin of 8.5 percent. The 2014 margin is consistent with the historically high margins the 

home health industry has experienced under the prospective payment system. The margin 

from 2001 to 2014 averaged 16.5 percent (data not shown), indicating that most agencies 

have been paid well in excess of their costs under the prospective payment system.

 For-profit agencies in 2014 had an average margin of 12.2 percent, and nonprofit agencies 

had an average margin of 6.4 percent.

 Agencies that serve more patients have higher margins. The agencies in the lowest volume 

quintile in 2014 had an aggregate margin of 4.0 percent, while those in the highest quintile 

had an aggregate margin of 12.5 percent.
120 Post-acute care

Chart 8-12. Number of IRF FFS patients was stable in 2014

Average

annual percent Percent

change change

2004 2012 2013 2014 2004–2013 2013–2014

Number of IRF cases 495,000 373,000 373,000 376,000 –3.1% 0.7%

Cases per 10,000 135.6 100.1 99.7 99.9 3.4 0.2

FFS beneficiaries

Payment per case $13,290 $17,995 $18,258 $18,632 3.6 2.0

Average length of stay

(in days) 12.7 12.9 12.9 12.8 0.2 –0.4

Note: IRF (inpatient rehabilitation facility), FFS (fee-for-service). Numbers of cases reflect Medicare FFS utilization only. Yearly 

figures presented in the table are rounded, but 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.

 After CMS renewed its enforcement of the compliance threshold in 2004, IRF volume 

declined substantially. 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. Between 

2013 and 2014, volume was fairly stable, rising less than 1 percent.

 In recent years, the number of IRF cases per 10,000 FFS beneficiaries has held steady at 

about 100. Relatively few Medicare beneficiaries use IRF services because, to qualify for 

Medicare coverage, IRF patients must be able 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. 

 Medicare payments per IRF case rose, on average, 3.6 percent per year between 2004 and 

2013. Payments per case grew 2.0 percent between 2013 and 2014.
A Data Book: Health care spending and the Medicare program, June 2016 121

Chart 8-13. Most common types of inpatient rehabilitation 

facility cases, 2014

Type of case Share of cases

Stroke 19.5%

Neurological conditions 13.1

Fracture of the lower extremity 12.2

Debility 10.3

Brain injury 8.7

Major joint replacement of lower extremity 7.8

Other orthopedic conditions 7.7

Cardiac conditions 5.6

Spinal cord injury 4.6

All other 10.6

Note: “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. 

Numbers may not sum to 100 percent due to rounding.

Source: MedPAC analysis of Inpatient Rehabilitation Facility–Patient Assessment Instrument data from CMS.

 In 2014, the most frequently occurring case type among beneficiaries admitted to inpatient 

rehabilitation facilities (IRFs) was stroke, which accounted for 19.5 percent of Medicare feefor-service cases. 

 The number and share of Medicare cases with neurological conditions has grown 

significantly over the past decade. Between 2004 and 2014, the number of neurological 

cases grew 93 percent, even as the total number of Medicare IRF cases declined 23 

percent (data not shown). As a result, in 2014, neurological conditions made up 13.1 

percent of all Medicare cases in IRFs, compared with 5.2 percent in 2004 (2004 data not 

shown).
122 Post-acute care

Chart 8-14. Inpatient rehabilitation facilities’ Medicare margin 

by type of facility, 2004–2014

2004 2006 2008 2010 2012 2013 2014

All IRFs 16.7% 12.4% 9.3% 8.7% 11.2% 11.6% 12.5%

Hospital based 12.2 9.6 3.8 –0.5 0.8 0.2 1.0

Freestanding 24.7 17.5 18.2 21.4 23.9 24.4 25.3

Urban 17.0 12.6 9.5 9.0 11.6 12.0 13.0

Rural 13.2 10.1 6.9 4.7 6.5 6.5 6.4

Nonprofit 12.8 10.6 5.2 2.1 2.4 1.4 2.1

For profit 24.4 16.3 16.9 19.6 23.1 23.6 24.3

Note: IRF (inpatient rehabilitation facility).

Source: MedPAC analysis of cost report data from CMS. 

 Between 2013 and 2014, the aggregate IRF Medicare margin rose from 11.6 percent to 12.5 

percent. The aggregate margin has risen steadily since 2009, after a period of declining, 

though healthy, margins.

 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 have a neuromuscular disorder (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 2016 123

Chart 8-15. Low standardized costs led to high margins for both 

hospital-based and freestanding IRFs, 2014

Characteristic Lowest cost quartile Highest cost quartile

Median cost per discharge

 All $10,583 $18,888

 Hospital based 10,992 18,881

 Freestanding 10,437 19,833

Median Medicare margin

 All 26.1% 21.3%

 Hospital based 19.5 21.3

 Freestanding 31.1 21.7

Median

 Number of beds 42 18

 Occupancy rate 70% 50%

 Case-mix index 1.29 1.21

Share of facilities in the quartile that are:

 Hospital based 43% 95%

 Freestanding 57 5

 Nonprofit 30 65

 For profit 66 18

 Government 4 17

 Urban 94 70

 Rural 6 30

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 44 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 42 

compared with 18 in the highest cost quartile. In addition, IRFs with the lowest costs had a 

higher median occupancy rate (70 percent vs. 50 percent). These results suggest that lowcost IRFs benefit from economies of scale.

 Low-cost IRFs were disproportionately freestanding and for profit. Still, 43 percent of IRFs in 

the lowest cost quartile were hospital based and 30 percent were nonprofit. By contrast, in 

the highest cost quartile, 95 percent were hospital based and almost two-thirds were 

nonprofit.
124 Post-acute care

Chart 8-16. The top 25 MS–LTC–DRGs made up two-thirds of

LTCH discharges in 2014

MS–LTC

–DRG Description Discharges Percentage

189 Pulmonary edema and respiratory failure 16,017 12.0%

207 Respiratory system diagnosis with ventilator support 96+ hours 15,224 11.4

871 Septicemia without ventilator support 96+ hours with MCC 8,809 6.6

177 Respiratory infections and inflammations with MCC 3,733 2.8

592 Skin ulcers with MCC 3,663 2.7

208 Respiratory system diagnosis with ventilator support <96 hours 3,105 2.3

949 Aftercare with CC/MCC 2,864 2.1

539 Osteomyelitis with MCC 2,785 2.1

682 Renal failure with MCC 2,437 1.8

919 Complications of treatment with MCC 2,321 1.7

314 Other circulatory system diagnoses with MCC 1,981 1.5

190 Chronic obstructive pulmonary disease with MCC 1,975 1.5

870 Septicemia with ventilator support 96+ hours 1,966 1.5

862 Postoperative and post-traumatic infections with MCC 1,955 1.5

559 Aftercare, musculoskeletal system and connective tissue with MCC 1,947 1.5

166 Other respiratory system OR procedures with MCC 1,925 1.4

4 Tracheostomy with ventilator support 96+ hours or primary diagnosis 1,840 1.4

except face, mouth, and neck without major OR

193 Simple pneumonia and pleurisy with MCC 1,809 1.3

291 Heart failure and shock with MCC 1,739 1.3

638 Diabetes with CC 1,665 1.2

570 Skin debridement with MCC 1,629 1.2

853 Infectious and parasitic diseases with OR procedure with MCC 1,600 1.2

981 Extensive OR procedure unrelated to principal diagnosis with MCC 1,568 1.2

560 Aftercare, musculoskeletal system and connective tissue with CC 1,359 1.0

602 Cellulitis with MCC 1,328 1.0

Top 25 MS–LTC–DRGs 87,244 65.1

Total 134,004 100.0

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. Components may not sum to totals due to rounding.

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS.

 Cases in LTCHs are concentrated in a relatively small number of MS–LTC–DRGs. In 2014, 

the top 25 MS–LTC–DRGs accounted for 65 percent of all cases.

 The most frequent diagnosis in LTCHs in 2014 was pulmonary edema and respiratory 

failure. Nine of the top 25 diagnoses were respiratory conditions or involved prolonged 

mechanical ventilation. 
A Data Book: Health care spending and the Medicare program, June 2016 125

Chart 8-17. The number of Medicare LTCH cases and users 

continued to decrease between 2013 and 2014

 Average annual change

2008– 2012– 2013–

2008 2010 2012 2013 2014 2012 2013 2014

Cases 130,869 134,683 140,463 137,827 133,984 2.4% –1.9% 2.8%

Cases per 10,000

FFS beneficiaries 36.9 37.4 37.7 36.6 35.7 0.7 –2.8 –2.6

Spending per

FFS beneficiary $129.8 $144.2 $148.8 $146.7 $142.7 4.7 1.4 2.8

Payment per case $35,200 $38.582 $39,493 $40,070 $40,015 3.9 1.5 0.1

Length of stay (in days) 26.7 26.6 26.2 26.5 26.3 –0.6 1.0 0.7

Users 115,328 118,322 123,652 121,532 118,288 2.4 1.7 2.7

Note: LTCH (long-term care hospitals), FFS (fee-for-service). Yearly figures presented in the table are rounded, but the 

average-annual-change columns 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 2.6

percent between 2013 and 2014. This two-year decline that began in 2013 is due at least in 

part to a congressional moratorium that limited growth in the number of LTCHs.

 Between 2013 and 2014, the number of beneficiaries who had LTCH stays (“users”) 

decreased by 2.7 percent. 
126 Post-acute care

Chart 8-18. LTCHs’ per case costs increased more than 

payments in 2014

Note: LTCH (long-term care hospital), TEFRA (Tax Equity and Fiscal Responsibility Act of 1982), PPS (prospective payment 

system). Percentage changes are calculated based on consistent two-year cohorts of LTCHs.

Source: MedPAC analysis of Medicare cost report data from CMS.

 In the first years of the PPS, costs per case increased rapidly, following a surge in payments 

per case. Between 2005 and 2007, growth in cost per case slowed considerably because 

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 between 

2009 and 2011, when the average cost per case increased less than 1 percent per year.

 Starting in 2011, the average cost per case increased more rapidly each year, equaling 2.2 

percent between 2013 and 2014.

4.4

7.5

13.4

26.5

36.0

40.0 38.7 40.1

45.6

47.6 48.1

50.4 51.2 51.4

3.6 4.9

5.6

14.3

20.3

26.3

30.4 32.2

34.8 35.4 35.9 37.2

39.2

41.4

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Cumulative percent change

Payments per case

Costs per case

TEFRA PPS
A Data Book: Health care spending and the Medicare program, June 2016 127

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

2013 and 2014

Medicare margin

Type of LTCH

Share of 

discharges 2009 2010 2011 2012 2013 2014

All 100% 5.7% 6.8% 6.9% 7.5% 6.8% 4.9%

Urban 94 6.0 7.1 7.1 7.7 7.0 4.9

Rural 6 3.0 0.6 3.1 3.7 2.5 4.1

Nonprofit 13 0.7 0.3 0.5 0.2 1.4 2.8

For profit 85 7.4 8.4 8.5 9.3 8.7 6.9

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.

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 through 2012, LTCH margins climbed as providers consistently held cost growth 

below that of payment growth.

 In 2013, the aggregate LTCH margin fell from 7.5 percent (in 2012) to 6.8 percent, primarily 

because of the first year of a three-year phase-in of the downward adjustment for budget 

neutrality and the effect of sequestration beginning on April 1, 2013. The aggregate LTCH 

margin fell further to 4.9 percent in 2014.

 Financial performance in 2014 varied across LTCHs. The aggregate Medicare margin for 

for-profit LTCHs (which accounted for 85 percent of all Medicare discharges from LTCHs) 

decreased from 8.7 percent in 2013 to 6.9 percent in 2014. The aggregate margin for 

nonprofit LTCHs fell from –1.4 percent in 2013 to –2.8 percent in 2014. These declines were

from cost growth that exceeded growth in payments. 

9

A Data Book: Health care spending and the Medicare program, June 2016 131

Chart 9-1. Enrollment in MA plans, 1996–2016

Note: MA (Medicare Advantage).

Source: Medicare managed care contract reports and monthly summary reports, CMS.

 Medicare enrollment in MA plans that are paid on an at-risk capitated basis is at an all-time 

high, at 17.2 million enrollees (31 percent of all Medicare beneficiaries). Enrollment rose 

rapidly throughout the 1990s, peaking at 6.4 million enrollees in 1999, but then declined to a 

low of 4.6 million enrollees in 2003. MA enrollment has increased steadily since 2003. The 

Medicare program paid the MA plans about $170 billion in 2015 to cover Part A and Part B 

services for MA enrollees.

4.1

6.1 6.3

4.9 4.7

6.9

9.4

11.0

12.8

15.4

17.2

0

2

4

6

8

10

12

14

16

18

20

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Beneficiaries (in millions) 
132 Medicare Advantage

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

beneficiaries

CCPs

HMO Any Average plan

or local Regional Any MA offerings per

PPO PPO CCP PFFS plan county

2009 88% 91% 99% 100% 100% 34

2010 91 86 99 100 100 21

2011 92 86 99 63 100 12

2012 93 76 99 60 100 12

2013 95 71 99 59 100 12

2014 95 71 99 53 100 10

2015 95 70 98 47 99 9

2016 96 73 99 47 99 9

Note: MA (Medicare Advantage), CCP (coordinated care plan), HMO (health maintenance organization), PPO (preferred 

provider organization), PFFS (private fee-for-service). These data do not include plans that have restricted enrollment or 

are not paid based on the MA plan bidding process (special needs plans, cost plans, employer-only plans, and certain 

demonstration plans).

Source: MedPAC analysis of plan bid data from CMS.

 There are four types of 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 2016, and regional 

PPOs are available to 73 percent of beneficiaries; the availability of both plan types has 

increased from 2013. For the past 10 years, almost all Medicare beneficiaries have had MA 

plans available: 99 percent in 2016, up from 84 percent in 2005 (2005 data not shown).

 The number of plans from which beneficiaries may choose in 2016 is the same as last year. 

In 2016, beneficiaries can choose from an average of 9 plans operating in their counties 

(this figure is the simple average of plans per county; if counties were enrollee weighted, the 

average would be 18). This availability has decreased from the peak in 2009, reflecting 

network requirements for PFFS plans and CMS’s 2010 effort to reduce the number of 

duplicative plans and plans with low enrollment. The decrease in plan choices from 2010 to 

2016 was due to the reduction in the number of PFFS and regional PPO plans.
A Data Book: Health care spending and the Medicare program, June 2016 133

Chart 9-3. Average monthly rebate dollars, by plan type, 

2010–2016

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 generosity is the average rebate, which plans

receive to provide additional benefits. Plans are awarded rebates for bidding under their 

benchmarks. The rebates must be returned to the plan members in the form of extra 

benefits. The extra benefits may be supplemental benefits, lower cost sharing, or lower 

premiums.

 HMOs have had, by far, the highest rebates because they tend to bid lower than other types 

of plans. Average rebates for HMOs have remained relatively stable over this period.

 For the three non-HMO categories, the rebates rose from 2010 to 2011 and declined 

through 2015.

 For all categories of non-PFFS plans, the rebates rose from 2015 to 2016.

97

40

25 27

74

101

44

31

51

83

103

44

29

43

85

102

35

21

36

81

92

35

18

28

75

95

29

18

24

76

101

34

17

26

81

0

20

40

60

80

100

120

HMO PPO PFFS Regional PPO Any MA plan

Average monthly rebate dollars

2010 2011 2012 2013 2014 2015 2016
134 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 2012 2013 2014 2015 2016 2015–2016

Local CCPs 11,382 12,580 13,809 14,824 15,588 5% 

Regional PPOs 930 1,060 1,221 1,237 1,315 6

PFFS 518 417 309 260 238 –8

Note: CCP (coordinated care plan), PPO (preferred provider organization), PFFS (private fee-for-service). Local CCPs include 

health maintenance organizations and local PPOs.

Source: CMS health plan monthly summary reports.

 Enrollment in local CCPs grew by 5 percent over the past year. Enrollment in regional PPOs 

grew by 6 percent, while enrollment in PFFS plans continued to decline. Combined 

enrollment in the three types of plans grew by 5 percent from February 2015 to February 

2016. 
A Data Book: Health care spending and the Medicare program, June 2016 135

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

plan, 2016

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 55,576 20% 8% 2% 0% 1% 32%

Alabama 966 16 9 2 0 0 27

Alaska 83 0 0 0 0 0 0

Arizona 1,145 35 2 1 0 0 39

Arkansas 600 9 3 5 3 0 21

California 5,709 38 1 0 0 0 39

Colorado 798 30 3 0 0 3 37

Connecticut 635 23 3 1 0 0 26

Delaware 183 5 4 0 0 0 9

Florida 4,060 29 3 9 0 0 41

Georgia 1,541 11 15 7 1 0 33

Hawaii 248 19 26 1 0 0 46

Idaho 286 18 14 0 0 0 33

Illinois 2,085 9 10 0 0 0 20

Indiana 1,161 6 14 4 0 0 24

Iowa 578 5 11 0 0 2 18

Kansas 492 6 7 0 1 0 15

Kentucky 869 6 15 6 0 0 27

Louisiana 802 27 2 3 0 0 31

Maine 309 15 8 0 1 0 24

Maryland 942 3 2 0 0 4 10

Massachusetts 1,229 15 4 1 0 0 20

Michigan 1,915 13 18 1 0 0 33

Minnesota 922 13 4 0 0 39 56

Mississippi 564 8 3 4 0 0 16

Missouri 1,145 19 6 3 1 0 30

Montana 204 1 18 0 1 0 20

Nebraska 317 7 3 0 2 1 13

Nevada 458 31 4 0 0 0 35

New Hampshire 267 4 2 0 1 0 8

New Jersey 1,506 12 4 0 0 0 16

New Mexico 377 20 11 0 0 0 32

New York 3,369 27 6 3 1 0 37

North Carolina 1,788 14 15 2 0 0 31

North Dakota 119 0 2 0 0 17 19

Ohio 2,171 18 13 3 0 1 35

Oklahoma 684 11 5 1 1 0 18

Oregon 763 28 16 0 0 0 45

Pennsylvania 2,549 25 14 0 0 0 40

Puerto Rico 777 70 3 0 0 0 73

Rhode Island 205 33 1 1 0 0 36

South Carolina 953 7 5 11 1 0 24

South Dakota 157 0 5 0 0 16 21

Tennessee 1,245 25 10 1 0 0 36

Texas 3,683 19 8 4 1 1 32

Utah 350 28 6 0 0 0 35

Vermont 133 1 2 4 1 0 8

Virgin Islands 20 0 0 0 0 0 1

Virginia 1,366 6 4 2 2 2 17

Washington 1,205 26 4 0 0 0 30

Washington, D.C. 89 2 5 0 0 7 14

West Virginia 418 2 21 1 1 2 28

Wisconsin 1,061 19 12 2 1 5 39

Wyoming 97 0 1 0 2 1 3

Note: MA (Medicare Advantage), HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private 

fee-for-service). Cost plans are not MA plans; they submit cost reports rather than bids to CMS. Component percentages

may not sum to totals due to rounding.

Source: CMS enrollment and population data 2016.
136 Medicare Advantage

Chart 9-6. MA plan benchmarks, bids, and Medicare program

payments relative to FFS spending, 2016

All plans HMOs Local PPOs Regional PPOs PFFS

Benchmarks/FFS 107% 106% 109% 103% 111%

Bids/FFS 94 90 105 98 108

Payments/FFS 102 101 108 101 110

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 2015.

 Since 2006, plan bids have partly determined the Medicare payments they receive. Plans bid to 

offer Part A and Part B coverage to Medicare beneficiaries (Part D coverage is bid separately). 

The bid includes plan administrative cost and profit. CMS bases the Medicare payment for a 

private plan on the relationship between its bid and its applicable benchmark.

 The benchmark is an administratively determined bidding target. Legislation established the 

formula, being phased in by 2017, for calculating benchmarks in each county, based on 

percentages (ranging from 95 percent to 115 percent) of each county’s per capita Medicare 

spending.

 If a plan’s bid is above the benchmark, then the plan receives the benchmark as payment from 

Medicare, and enrollees have to pay an additional premium that equals the difference. If a plan’s bid 

is below the benchmark, the plan receives its bid plus a “rebate,” defined by law as a percentage of 

the difference between the plan’s bid and its benchmark. The percentage is based on the plan’s 

quality rating, and 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 average 94 percent of FFS spending in 2016. We estimate that 

HMOs bid an average of 90 percent of FFS spending, while bids from other plan types average 

at least 98 percent of FFS spending. These numbers suggest that HMOs can provide the same 

services for less than FFS in the areas where they bid, while most other plan types tend to 

charge more.

 We project that 2016 MA payments will be 102 percent of FFS spending. It is likely this number 

will decline further over the next year as benchmarks are reduced relative to FFS levels to 

complete the transition to the requirements under the Patient Protection and Affordable Care Act 

of 2010.

 The ratio of payments relative to FFS spending varies by the type of MA plan. HMO and regional 

PPO payments are estimated to be 101 percent of FFS, while payments to PFFS and local 

PPOs average 110 percent and 108 percent of FFS, respectively. 
A Data Book: Health care spending and the Medicare program, June 2016 137

Chart 9-7. Enrollment in employer group MA plans, 2006–2016

Note: MA (Medicare Advantage). Enrollment numbers are as of May for 2006, November for 2007, and February for 2008 

through 2016.

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 2016, about 3 million enrollees were in employer group plans, or about 18

percent of all MA enrollees.

 Our analysis of MA bid data shows that employer group plans on average have bids that are 

higher relative to FFS spending than individual plans, meaning that group plans appear to 

be less efficient than individual market MA plans. Employer group plans bid an average of 

103 percent of FFS, compared with 92 percent of FFS for individual plans (data not shown).

0.96

1.30

1.56

1.83 1.92 2.08

2.32 2.53

2.96 3.14 3.16

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Enrollment (in millions)
138 Medicare Advantage

Chart 9-8. Number of special needs plan enrollees, 2007–2016

Source: CMS special needs plans comprehensive reports, May 2007, April 2008–2016.

 The Congress created special needs plans (SNPs) as a new Medicare Advantage (MA) plan 

type in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 to 

provide a common framework for the existing plans serving special needs beneficiaries and 

to expand beneficiaries’ access to and choice among MA plans.

 SNPs were originally authorized for five years. SNP authority was extended several times, 

often subject to new requirements. Absent further congressional action, SNP authority will 

expire at the end of 2018.

 CMS approves three types of SNPs: dual-eligible SNPs enroll only beneficiaries dually 

entitled to Medicare and Medicaid, chronic condition SNPs enroll only beneficiaries who 

have certain chronic or disabling conditions, and institutional SNPs enroll only beneficiaries 

who reside in institutions or are nursing-home certified.

 Enrollment in dual-eligible SNPs has grown continuously and is about 1.8 million in 2016.

 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 has held steady over the 

last few years and increased in 2016.

670

829

918 967

1,069

1,188

1,380

1,576

1,678

1,790

93

180

265 214 170 201

266 288 313 332

143 136 119 98 80 47 49 50 50 58

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number of special needs plan enrollees

(in thousands)

Dual Chronic Institutional
A Data Book: Health care spending and the Medicare program, June 2016 139

Chart 9-9. Number of SNPs and SNP enrollment rose from 2015

to 2016

Note: SNP (special needs plan).

Source: CMS special needs plans comprehensive reports, April 2015 and 2016.

 The number of SNPs increased by 5 percent from April 2015 to April 2016, and the number 

of SNP enrollees increased by 7 percent. All three types of SNPs showed increases in the 

number of plans and enrollment in those plans, except that the number of chronic disease 

SNPs decreased by about 6 percent.

 In 2016, most SNPs (62 percent) are for dual-eligible beneficiaries, while 24 percent are for 

beneficiaries with chronic conditions, and 14 percent are for beneficiaries who reside in 

institutions (or reside in the community but have a similar level of need).

 Enrollment in SNPs has grown from 0.9 million in May 2007 (not shown) to 2.2 million in 

April 2016.

 The availability of SNPs varies by type of special needs population served (data not shown). 

In 2016 83 percent of beneficiaries reside in areas where SNPs serve dual-eligible 

beneficiaries (up from 82 percent in 2015), 50 percent live where SNPs serve 

institutionalized beneficiaries (up from 47 percent in 2015), and 54 percent live where SNPs 

serve beneficiaries with chronic conditions (down from 55 percent).

336 350

57 79

148

139

0

100

200

300

400

500

600

April 2015 April 2016

Number of SNPs

Chronic or disabling condition

Institutional

Dual eligible

1,678 1,790

50

58 313

332

0

500

1,000

1,500

2,000

2,500

April 2015 April 2016

SNP enrollment (in thousands)

Chronic or disabling condition

Institutional

Dual eligible
140 Medicare Advantage

Chart 9-10. Twenty most common condition categories among 

MA beneficiaries, as defined in the CMS–HCC model, 

2014

Percent of

Percent of beneficiaries

beneficiaries with listed condition

Conditions (defined by HCC) with listed condition and no others

Vascular disease 16.4% 2.0%

Diabetes with chronic complications 14.4 2.6

COPD 14.1 2.1

Diabetes without complications 13.2 4.8

Specified heart arrhythmias 11.2 1.4

CHF 11.1 0.6

Major depressive, bipolar, and paranoid disorders 8.7 1.6

Morbid obesity 5.8 0.7

Rheumatoid arthritis and inflammatory connective tissue disease 5.5 1.0

Breast, prostate, colorectal, and other cancers and tumors 5.2 1.5

Angina pectoris 3.5 0.3

Coagulation defects and other specified hematological disorders 3.5 0.3

Acute renal failure 2.8 0.1

Other significant endocrine and metabolic disorders 2.6 0.3

Ischemic or unspecified stroke 2.6 0.2

Seizure disorders and convulsions 2.5 0.3

Drug/alcohol dependence 2.2 0.2

Cardio-respiratory failure and shock 2.1 0.0

Chronic ulcer of skin, except pressure 1.8 0.1

Colorectal, bladder, and other cancers 1.7 0.3

Note: MA (Medicare Advantage), CMS–HCC (CMS–hierarchical condition category), COPD (chronic obstructive pulmonary 

disease), CHF (congestive heart failure). There are some differences between the conditions in this table and the 

analogous table in our 2015 data book. Most of these differences reflect a 2014 change in the condition categories that 

CMS used in the CMS–HCC model.

Source: MedPAC analysis of Medicare data files from Acumen LLC.

 CMS uses the CMS–HCC model to risk adjust capitated payments to MA plans so that payments 

better reflect the clinical needs of MA enrollees given the number and severity of their clinical 

conditions. The CMS–HCC model uses beneficiaries’ conditions, which are collected into HCCs, to 

adjust the capitated payments.

 CMS previously used a version of the CMS–HCC model that had 70 HCCs, but this analysis uses a 

newer model that has 79 HCCs. Vascular disease is the most common HCC, but two diabetes HCCs 

combined are more common than vascular disease. Over 27 percent of MA enrollees are in one of 

those two diabetes HCCs.
A Data Book: Health care spending and the Medicare program, June 2016 141

Chart 9-11. Medicare private plan enrollment patterns, by age 

and Medicare–Medicaid dual-eligible status, 

December 2014

As percent of 

Medicare population

Percent of 

category in FFS

Percent of 

category in plans

All beneficiaries 100% 70% 30%

Aged (65 or older) 84 69 31

Under 65 16 76 24

Non–dual eligible 82 70 30

Aged (65 or older) 73 69 31

Under 65 9 76 24

Dual eligible 18 70 30

Aged (65 or older) 10 64 36

Under 65 8 75 25

Dual-eligible beneficiaries by category (all ages)

Full dual eligibility 13 74 26

Beneficiaries with partial dual eligibility

QMB only 2 66 34

SLMB only 2 58 42

QI 1 54 46

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 2014, 

Puerto Rico had 532,000 Medicare Advantage enrollees, which is nearly three-quarters of the Medicare-eligible 

population. Dual-eligible special needs plans in Puerto Rico had 272,000 enrollees in December 2014.

Source: MedPAC analysis of 2014 denominator and common Medicare environment files.

 Recent levels of Medicare plan enrollment among the dually eligible represent a significant 

increase over earlier years. In 2004, only 1 percent of dual-eligible beneficiaries were enrolled in 

plans, compared with 16 percent of non-dual-eligible beneficiaries. At the end of 2012, 23 

percent of dual-eligible beneficiaries were in Medicare private plans, compared with 30 percent 

at the end of 2014.

 A substantial share of dual-eligible beneficiaries (43 percent (not shown in table)) are under the 

age of 65 and entitled to Medicare on the basis of disability or end-stage renal disease. 

Beneficiaries under age 65 are less likely than aged beneficiaries to enroll in Medicare plans (24 

percent vs. 31 percent). 

 Dual-eligible beneficiaries who have full dual eligibility—that is, those who have coverage for 

their Medicare out-of-pocket costs (premiums and cost sharing) as well as coverage for services 

such as long-term care services and supports—are less likely to enroll in private Medicare plans 

than beneficiaries with “partial” dual eligibility. Full dual-eligibility categories consist of 

beneficiaries with coverage through state Medicaid programs as well as certain QMBs and 

SLMBs who also have Medicaid coverage for services. The latter two categories are referred to 

as QMB-Plus and SLMB-Plus beneficiaries. Beneficiaries with partial dual eligibility have 

coverage for Medicare premiums (through the QI or SLMB program) or premiums and Medicare 

cost sharing, in the case of the QMB program. SLMB-only and QI beneficiaries have higher rates 

of plan enrollment (42 percent and 46 percent, respectively) than any other category shown in 

this chart, and the rates are higher than the average rate (30 percent) across all Medicare 

beneficiaries.
142 Medicare Advantage

Chart 9-12. Distribution of MA plans and enrollment by CMS 

overall star ratings, March 2016 

Year 2016 star ratings: Number of stars

Plans and enrollment 5 4.5 4 3.5 3 2.5 Any star 

rating

All plan types

Number of plans 12 65 102 110 66 11 366

As share of rated 

plan enrollees 10% 28% 34% 19% 8% 1% 100%

HMOs

Number of plans 12 45 72 79 49 11 268

As share of 

HMO enrollees 14% 23% 35% 19% 7% 1% 100%

Local PPOs

Number of plans 0 20 27 24 11 N/A 82

As share of local 

PPO enrollees N/A 53% 40% 5% 2% N/A 100%

Regional PPOs

Number of plans 0 0 1 4 5 N/A 10

As share of regional 

PPO enrollees N/A N/A 2% 63% 35% N/A 100%

PFFS

Number of plans 0 0 2 3 1 0 6 

As share of 

PFFS enrollees N/A N/A 69% 24% 7% N/A 100%

Note: MA (Medicare Advantage), PPO (preferred provider organization), N/A (not applicable), PFFS (private fee-for-service). 

For purposes of this table and the accompanying text, a plan is an MA contract, which can consist of several options with 

different benefit packages that are also referred to as “plans.” Cost-reimbursed HMO plans are included in the data. No 

plan had an overall star rating below 2.5. Numbers may not sum to 100 percent due to rounding; enrollment totals are 

rounded results of the sum of unrounded numbers. 

Source: MedPAC analysis of CMS star ratings and enrollment data, 2016.

 The star rating system is a composite measure of clinical processes and outcomes, patient 

experience measures, and measures of a plan's administrative performance. The overall 

star rating measures performance on Part C measures and Part D measures.

 The average overall star rating across all plans is 3.75, or 4.05 on an enrollment-weighted 

basis. There are 132 plans, with nearly 560,000 enrollees, that do not have a star rating 

because they are too new to be rated or there is insufficient information on which to base a 

rating. (In addition, certain plans, such as the MedicareMedicaid plans participating in the 

financial alignment demonstration, are not included in the star rating system.)

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2016 143

Chart 9-12. Distribution of MA plans and enrollment by CMS 

overall star ratings, March 2016 (continued)

 Under the statutory provisions that introduced quality bonus payments beginning in 2012, 

plans with ratings of 4 stars or above receive bonus payments in the form of an increase in 

their benchmarks. Plan star ratings also determine the level of rebate dollars, with higher 

rated plans able to use a higher proportion of the difference between the plan bid and 

benchmark amounts to provide extra benefits to enrollees. 

 Plans with a 5-star rating are able to enroll beneficiaries outside of the annual election 

period, on a year-round basis. The 5-star status of such plans is highlighted in the 

Medicare.gov website’s Medicare Plan Finder. 

 HMOs are the only plan type for which there are 5-star plans. Ten MA HMO plans and two 

cost-reimbursed HMO plans have 5-star ratings. The highest star rating attained by any local 

PPO is 4.5, whereas the highest rating for a regional PPO or a PFFS plan is 4. The majority 

of enrollees in regional PPO plans are in plans with a rating below 4 stars. 

 Plans with ratings below 3 stars have an indicator of their status in the Medicare Plan 

Finder. CMS has the authority to terminate plans that have had three consecutive years of 

poor performance (a star rating below 3 stars) in either their MA or Part D performance.

 The criteria for determining plan star ratings change from year to year. Therefore, plan 

ratings across years are not entirely comparable. Beginning in 2012, a weighting approach 

was used that assigns greater weight to outcome measures and patient experience 

measures, with less weight assigned to process and administrative measures. In 2016, 

excluding two composite improvement measures, 60 percent of the weight of measures 

reflects Part C and Part D clinical quality measures (outcomes as well as clinical process 

measures); 22 percent of the weight represents patient experience measures; and the 

remaining 18 percent are administrative measures.

 The two year-over-year composite improvement measures—one each for Part C and 

Part D—account for 13 percent of the total weight for determining a Medicare Advantage

Prescription Drug plan’s overall star rating in 2016. These two measures were 

introduced in the 2013 star rating year, and as new measures were assigned a weight of 

1 (the lowest weight of the possible weights of 1, 1.5, or 3). In 2014, the measures had a 

weight of 3 (the same weight as an outcome measure). For 2015 and 2016, the 

measures have a weight of 5, while all other measures remain at 1, 1.5, or 3. For highperforming plans that have little room for improvement in their measures, the plan’s 

overall star rating can be computed without including the improvement measure. 

 Another factor that can increase a plan’s overall star rating is a reward factor that CMS adds 

to the overall star rating for plans that “have both high and stable relative performance.”

10

00

A Data Book: Health care spending and the Medicare program, June 2016 147

Chart 10-1. Medicare spending for Part B drugs furnished by 

physicians, suppliers, and hospital outpatient 

departments 

Note: Data include Part B–covered drugs furnished by physicians, suppliers, and hospital outpatient departments, and exclude 

those furnished by dialysis facilities. “Medicare spending” includes program payments and beneficiary cost sharing. Data 

reflect all Part B drugs regardless of whether they are paid based on the average sales price plus 6 percent or another 

payment formula. Hospital outpatient spending only reflects drugs that are separately paid in that year and excludes 

critical access hospitals and hospitals located in Maryland, Guam, Samoa, and Saipan. Components may not sum to total 

due to rounding.

Source: MedPAC analysis of Medicare claims data from CMS.

 Spending by the Medicare program and beneficiaries on Part B drugs totaled about $22.2 billion in 2014, 

an increase of about 5.8 percent from 2013. Of this total, physicians and suppliers accounted for about 

two-thirds ($14.9 billion) and hospital outpatient departments (HOPDs) about one-third ($7.3 billion). 

 Medicare’s average sales price payment system for drugs began in 2005. Between 2005 and 2014, total 

spending grew at an average annual rate of 6 percent. Spending growth was slower from 2005 to 2009 

(about 3.1 percent per year on average) and was more rapid from 2009 to 2014 (about 8.4 percent per 

year on average). 

 Part B drug spending has been growing more rapidly for HOPDs than for physicians and suppliers. 

Between 2009 and 2014, Part B drug spending grew at an average annual rate of about 16.1 percent for 

HOPDs and 5.6 percent for physicians and suppliers.

 Part B drug spending trends can be affected by year-to-year changes in Medicare policy concerning which 

drugs are separately paid and which are packaged into payment for other services under the hospital 

outpatient prospective payment system (OPPS). For example, in 2014, the OPPS expanded packaging to 

include certain drugs that previously had been separately paid. Part B drug spending for HOPDs grew 

about 7.8 percent between 2013 and 2014. However, if drugs that had a change in their status between 

2013 and 2014 (from separately paid to packaged or vice versa) are excluded from the calculation, then 

HOPD Part B drug spending grew at a rate of 11.4 percent between 2013 and 2014 (data not shown).

13.1 13.4 14.1 14.1 14.8 

16.1 

18.1 

19.8 

21.0 

22.2 

10.2 10.5 10.9 10.8 11.4 12.0 

13.0 

13.8 14.2 14.9 

3.0 2.9 3.2 3.3 3.5 4.1 

5.1 

6.0 

6.8 7.3 

0

3

6

9

12

15

18

21

24

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Medicare spending (dollars in billions)

Total

Physicians and suppliers

Hospital outpatient
148 Prescription drugs

Chart 10-2. Top 10 Part B drugs furnished by physicians, 

suppliers, and hospital outpatient departments 

(dollars in millions), 2013 and 2014 

Total Physician and supplier Hospital outpatient

Part B drug spending Part B drug spending Part B drug spending

Part B drug 2013 2014 2013 2014 2013 2014

Rituximab $1,507 $1,503 $859 $830 $648 $673

Ranibizumab 1,353 1,332 1,303 1,284 51 48

Aflibercept 1,078 1,296 1,012 1,216 66 80

Infliximab 1,101 1,176 731 758 370 418

Pegfilgrastim 1,099 1,174 615 625 484 549

Bevacizumab 1,035 1,064 592 578 444 486

Denosumab 631 768 420 494 211 274

Trastuzumab 503 561 264 282 239 279

Pemetrexed 548 560 290 281 259 279

Bortezomib 450 472 275 276 175 196

Total spending, 

top 10 Part B drugs 9,305 9,905 6,359 6,623 2,946 3,281

Total spending, 

all Part B drugs 20,987 22,205 14,213 14,906 6,774 7,299

Note: The 10 drugs shown in the chart reflect the top 10 Part B drug billing codes with the highest Medicare expenditures in 

2014. Data for 2013 are also shown for comparison. Data include Part B–covered drugs furnished by physicians, 

suppliers, and hospital outpatient departments but exclude those furnished by dialysis facilities. “Drug spending” includes 

Medicare program payments and beneficiary cost sharing. Data reflect all Part B drugs regardless of whether they are 

paid based on the average sales price plus 6 percent or another payment formula. Hospital outpatient spending only 

reflects drugs that are separately paid in that year and excludes critical access hospitals and hospitals located in 

Maryland, Guam, Samoa, and Saipan. Components may not sum to total due to rounding.

Source: MedPAC analysis of Medicare claims data from CMS.

 Medicare has more than 500 billing codes for Part B drugs, but spending is very 

concentrated. Medicare spending (including cost sharing) on the top 10 drugs, 9 of which 

were biologics, totaled nearly $10 billion in 2014, about 45 percent of all Part B drug 

spending that year. 

 Many of the top 10 drugs are used to treat cancer or its side effects (rituximab, pegfilgrastim, 

bevacizumab, pemetrexed, denosumab, trastuzumab, and bortezomib). Drugs used to treat 

age-related macular degeneration (ranibizumab, aflibercept, and bevacizumab) and 

rheumatoid arthritis (rituximab and infliximab) 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 nearly $1.1 billion in 2014 (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2016 149

Chart 10-3. In 2013, 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 Current Beneficiary Survey Access to Care file 2013.

 In 2013, 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 (6 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.

 About 23 percent of Medicare beneficiaries received Part D’s LIS in 2013. Of all LIS 

beneficiaries, about three-fourths of them (17 percent of all Medicare beneficiaries) were 

enrolled in stand-alone PDPs, and the remaining beneficiaries (6 percent) were in MA–PD

plans.

(Chart continued next page)

Non-LIS enrollees in 

PDPs

26%

LIS enrollees in PDPs

17%

Non-LIS enrollees in 

MA-PDs

22%

LIS enrollees in 

MA-PDs

6%

Primary coverage 

through employers that 

receive RDS

6%

Other sources of 

creditable coverage

11%

No creditable 

coverage

12%

PDPs

43%

MA-PDs 28%
150 Prescription drugs

Chart 10-3. In 2013, 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 26 percent of all Medicare beneficiaries. 

Another 22 percent of non-LIS enrollees were in MA–PD plans. 

 Eleven 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.

 About 12 percent of Medicare beneficiaries had no drug coverage or coverage that was less 

generous than Part D’s defined standard benefit.
A Data Book: Health care spending and the Medicare program, June 2016 151

Chart 10-4. Changes in parameters of the Part D defined 

standard benefit over time

Cumulative

change

2006 2014 2015 2016 2006–2016

Deductible $250.00 $310.00 $320.00 $360.00 44%

Initial coverage limit 2,250.00 2,850.00 2,960.00 3,310.00 47%

Annual out-of-pocket threshold 3,600.00 4,550.00 4,700.00 4,850.00 35%

Total covered drug spending at annual

out-of-pocket threshold 5,100.00 6,690.77 7,061.76 7,515.22 47%

Minimum cost sharing above the annual

out-of-pocket threshold

Copay for generic/preferred 

multisource drugs 2.00 2.55 2.65 2.95 48%

Copay for other prescription drugs 5.00 6.35 6.60 7.40 48%

Note: Under Part D’s defined standard benefit, the enrollee pays the deductible and then 25 percent of covered drug spending 

(75 percent paid by the plan) until total covered drug spending reaches the initial coverage limit (ICL). Before 2011, 

enrollees exceeding the ICL were responsible for 100 percent of covered drug spending up to the annual out-of-pocket 

threshold. Beginning in 2011, enrollees 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 depends on the mix of brand and generic 

drugs filled during the coverage gap. The amounts shown are for individuals not receiving Part D’s low-income subsidy 

who have no other source of supplemental coverage. Cost sharing paid by most sources of supplemental coverage does 

not count toward this threshold. Above the out-of-pocket limit, the enrollee pays 5 percent coinsurance or the copays 

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 2016, the standard benefit has a $360

deductible, 25 percent coinsurance on covered drugs until the enrollee reaches $3,310 in 

total covered drug spending, and then a coverage gap until out-of-pocket spending reaches 

the annual threshold. Before 2011, enrollees were responsible for paying the full discounted 

price of covered drugs filled during the coverage gap. Because of changes made by the 

Patient Protection and Affordable Care Act of 2010, enrollees pay reduced cost sharing for 

drugs filled in the coverage gap. In 2016, the cost sharing for drugs filled during the gap 

phase is 45 percent for brand-name drugs and 58 percent for generic drugs. Enrollees with

drug spending that exceeds the annual threshold pay the greater of $2.95 to $7.40 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. 

The benefit parameters have generally increased over time, with the exception of 2014. The 

parameters have grown cumulatively by 35 percent to 48 percent between 2006, the year 

Part D began, and 2016.

(Chart continued next page)
152 Prescription drugs

Chart 10-4. Changes in parameters of the Part D defined 

standard benefit over time (continued)

 Within certain limits, sponsoring organizations may offer Part D plans that have the same 

actuarial value as the defined standard benefit but a different benefit structure, and most 

sponsoring organizations do offer such plans. For example, a plan may use tiered 

copayments rather than 25 percent coinsurance or have no deductible but use cost-sharing 

requirements that are equivalent to a rate higher than 25 percent. 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.
A Data Book: Health care spending and the Medicare program, June 2016 153

Chart 10-5. Characteristics of Medicare PDPs

2015 2016

Enrollees as of Enrollees as of

Plans February 2015 Plans February 2016

Number Number

Number Percent (in millions) Percent Number Percent (in millions) Percent

Total 1,001 100% 19.2 100% 886 100% 19.9 100%

Type of organization

National 707 71 16.4 86 685 77 18.1 91

Other 294 29 2.8 14 201 23 1.8 9

Type of benefit

Defined standard 0 0 0.0 0 0 0 0.0 0

Actuarially equivalent 454 45 10.6 55 438 49 11.6 58

Enhanced 547 55 8.6 45 448 51 8.4 42

Type of deductible

Zero 420 42 9.3 49 290 33 9.8 49

Reduced 139 14 1.4 7 128 14 0.6 3

Defined standard* 442 44 8.5 44 468 53 9.6 48

Drugs covered in the gap

Some coverage 261 26 2.0 10 199 22 2.5 12

None 740 74 17.2 90 687 78 17.5 88

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 $320 in 2015 and $360 in 2016.

Source: MedPAC analysis of CMS landscape, premium, and enrollment data.

 Between 2015 and 2016, the number of stand-alone PDPs decreased by 11 percent. Plan

sponsors are offering 886 PDPs in 2016 compared with 1,001 in 2015.

 In 2016, 77 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 91 percent of all PDP enrollment.

 For 2016, a smaller share of PDP offerings include enhanced benefits (basic plus 

supplemental coverage) than in 2015. The share of PDPs with actuarially equivalent benefits 

(having the same average value as the defined standard benefit but with alternative benefit 

designs) increased, and sponsors are offering no PDPs with the defined standard benefit in 

2016. Actuarially equivalent plans continue to attract the largest share of PDP enrollees (58

percent), and the share of enrollees choosing to enroll in enhanced benefit plans decreased 

slightly from 45 percent to 42 percent between 2015 and 2016.

 A smaller share of PDPs includes gap coverage for some drugs (usually generics) in 2016

than in 2015, and the majority of PDP enrollees (88 percent) continue to enroll in plans that 

offer no additional benefits in the coverage gap. However, because of the changes made by 

the Patient Protection and Affordable Care Act of 2010, the Part D benefit now includes some 

coverage for medications filled during the gap phase. In addition, many PDP enrollees receive 

Part D’s low-income subsidy, which effectively eliminates the coverage gap.
154 Prescription drugs

Chart 10-6. Characteristics of MA–PDs

2015 2016

Enrollees as of Enrollees as of

Plans February 2015 Plans February 2016

Number Number

Number Percent (in millions) Percent Number Percent (in millions) Percent

Totals 1,608 100% 10.6 100% 1,682 100% 11.2 100%

Type of organization

Local HMO 1,123 70 7.6 72 1,205 72 8.1 72

Local PPO 409 25 1.9 18 409 24 2.0 18

PFFS 50 3 0.2 2 38 2 0.2 1

Regional PPO 26 2 0.9 8 30 2 0.9 8

Type of benefit

Defined standard 39 2 0.1 1 30 2 0.1 1

Actuarially equivalent 268 17 2.9 27 185 11 1.4 13

Enhanced 1,301 81 7.6 72 1,467 87 9.7 86

Type of deductible

Zero 1,014 63 6.0 57 933 55 5.5 49

Reduced 337 21 3.4 32 483 29 4.2 37

Defined standard* 257 16 1.2 11 266 16 1.6 14

Drugs covered in the gap

Some coverage 703 44 4.8 45 744 44 5.2 47

None 905 56 5.8 55 938 56 6.0 53

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 $320 in 2015 and $360 in 2016.

Source: MedPAC analysis of CMS landscape, premium, and enrollment data.

 There are 5 percent more MA–PD plans in 2016 than in 2015. Sponsors are offering 1,682

MA–PD plans in 2016 compared with 1,608 the year before. HMOs remain the dominant kind 

of MA–PD plan, making up 72 percent of all (unweighted) offerings in 2016. The number of

PFFS plans continues to decline, from 50 in 2015 to 38 in 2016. The number of drug plans 

offered by local PPOs remained the same at 409 plans, and the number of drug plans offered 

by regional PPOs increased from 26 plans to 30 plans between 2015 and 2016. 

 A larger share of MA–PD plans than stand-alone prescription drug plans (PDPs) offer 

enhanced benefits (compare Chart 10-6 with Chart 10-5). In 2016, 51 percent of all PDPs 

have enhanced benefits compared with 87 percent of MA–PD plans. In 2016, enhanced 

MA–PD plans attracted 86 percent of total MA–PD enrollment.

 Fifty-five percent of MA–PD plans have no deductible in 2016. These plans attracted 49

percent of total MA–PD enrollees in 2016.

 MA–PD plans are more likely than PDPs to provide some additional benefits in the coverage 

gap. In 2016, about 44 percent of MA–PD plans include some gap coverage—the same as 

the year before. Those plans account for about 47 percent of MA–PD enrollment.
A Data Book: Health care spending and the Medicare program, June 2016 155

Chart 10-7. Change in average Part D premiums, 2012–2016

Average monthly premium weighted by enrollment

Cumulative change 

in weighted 

average

premium,

2012–2016

2012 2013 2014 2015 2016

All plans

Basic coverage $33 $32 $29 $26 $28 –15%

Enhanced coverage 26 28 30 33 33 30

Any coverage 30 30 29 30 31 4

PDPs

Basic coverage 33 32 30 28 29 –11

Enhanced coverage 58 49 49 48 53 –9

Any coverage 38 39 38 37 39 4

MA–PDs, including SNPs

Basic coverage 27 29 25 21 22 –19

Enhanced coverage 12 13 13 16 17 40

Any coverage 14 15 16 18 18 27

Base beneficiary premium 31.08 31.17 32.42 33.13 34.10 10

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), SNPs (special needs plans). All 

calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PD plans exclude Part B–

only plans, demonstrations, 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. MA–PD premiums reflect rebate dollars 

that were used to offset Part D premium costs. The fact that average premiums for enhanced MA–PD plans are lower than

for basic MA–PD plans could reflect several factors such as different plan sponsors, different counties of operation, and 

differences in the average health status of plan enrollees. Cumulative changes were calculated from unrounded data.

Source: MedPAC analysis of CMS landscape, plan report, and enrollment data.

 Between 2012 and 2016, the overall average premium paid by Part D enrollees has 

remained very stable at around $30 per month. However, year-to-year changes have 

differed by the type of benefit (basic vs. enhanced coverage) and type of plan (PDP vs. 

MA−PD), and they generally have not corresponded to changes observed in the base 

beneficiary premium.

 Over the five-year period, the average enrollee premium for basic coverage in PDPs ranged 

between a high of $33 per month in 2012 and a low of $28 in 2015, decreasing by a

cumulative 11 percent. The average enrollee premium for PDPs offering enhanced 

coverage has decreased from $58 in 2012 to $53 in 2016, a cumulative 9 percent decline.

 Between 2012 and 2016, the average premium paid by beneficiaries enrolled in MA−PD 

plans with basic coverage ranged between a high of $29 per month in 2013 and a low of 

$21 in 2015, decreasing by a cumulative 19 percent. The average premium paid by 

beneficiaries enrolled in MA−PD plans offering enhanced coverage has increased from $12 

in 2012 to $17 in 2016, a cumulative 40 percent increase.
156 Prescription drugs

Chart 10-8. Fewer premium-free (for LIS enrollees) PDPs in 2016

Number of PDPs

Number of PDPs that have zero 

premium for LIS enrollees

PDP region State(s) 2015* 2016* Difference 2015* 2016* Difference

1 ME, NH 28 27 –1 9 9 0

2 CT, MA, RI, VT 27 26 –1 5 6 1

3 NY 25 22 –3 8 7 –1

4 NJ 29 25 –4 10 8 –2

5 DC, DE, MD 27 24 –3 10 10 0

6 PA, WV 29 29 0 9 9 0

7 VA 31 28 –3 9 7 –2

8 NC 29 26 –3 8 5 –3

9 SC 31 27 –4 7 4 –3

10 GA 30 27 –3 8 5 –3

11 FL 27 22 –5 4 3 –1

12 AL, TN 30 27 –3 12 7 –5

13 MI 31 28 –3 10 7 –3

14 OH 31 27 –4 8 5 –3

15 IN, KY 31 28 –3 10 7 –3

16 WI 29 27 –2 8 7 –1

17 IL 33 28 –5 10 9 –1

18 MO 31 28 –3 6 4 –2

19 AR 29 26 –3 6 4 –2

20 MS 28 24 –4 9 6 –3

21 LA 28 25 –3 11 7 –4

22 TX 32 28 –4 10 7 –3

23 OK 31 27 –4 10 6 –4

24 KS 29 25 –4 7 4 –3

25 IA, MN, MT, ND, 

NE, SD, WY 30 26 –4 5 5 0

26 NM 31 27 –4 7 8 1

27 CO 30 26 –4 7 6 –1

28 AZ 30 26 –4 12 10 –2

29 NV 32 28 –4 4 4 0

30 OR, WA 30 26 –4 10 9 –1

31 ID, UT 31 28 –3 12 9 –3

32 CA 32 28 –4 6 6 0

33 HI 25 21 –4 9 2 –7

34 AK 24 19 –5 7 6 –1

Total 1,001 886 –115 283 218 –65

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan). 

*The number of PDPs includes 27 plans in 2015 and 12 plans in 2016 that did not accept new enrollees because of CMS 

sanctions.

Source: MedPAC based on 2015 and 2016 PDP landscape file provided by CMS. 

 The total number of stand-alone PDPs decreased by 11 percent, from 1,001 in 2015 to 886 in 2016. The 

median number of plans offered in PDP regions decreased to 27 plans from 30 in 2015 (data not shown).

In 2016, AK has the fewest stand-alone PDPs, with 19; The PA–WV region has the most, with 29.

 In 2016, 218 PDPs qualified to be premium free to LIS enrollees. With the exception of HI, which has

only two plans with no premium for LIS enrollees, and Florida, which has only three, at least four PDPs 

are available in any given region. However, 12 plans were not accepting new enrollees because of CMS 

sanctions, reducing the number of premium-free options to 206 PDPs.
A Data Book: Health care spending and the Medicare program, June 2016 157

Chart 10-9. In 2016, 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 97 percent of stand-alone PDPs and MA−PDs have a specialty tier in addition to the tiers listed above.

Source: MedPAC-sponsored analysis by NORC/Social and Scientific Systems 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 2016, 97 percent of PDP enrollees are in 

plans that have two generic and two brand-name tiers, an increase from 80 percent in 2015. About 76 

percent of MA–PD enrollees are in such plans in 2016, the same as in 2015.

 For enrollees in PDPs with two generic and two brand-name tiers, the median copay in 2016 is $39

for a preferred brand-name drug and $80 for a nonpreferred brand-name drug. The median copay for 

generic drugs is $1 for preferred-tier drugs and $4 for nonpreferred-tier drugs. For MA–PD enrollees, 

in 2016, the median copay is $45 for a preferred brand, $95 for a nonpreferred brand, and $3 and $10

for a generic drug on preferred and nonpreferred tiers, respectively. In 2016, some plans are offering 

a “value” tier with low or no copays.

 Most plans also use a specialty tier for drugs that have a negotiated price of $600 per month or more. 

In 2016, median cost sharing for a specialty-tier drug is 29 percent among PDPs and 33 percent 

among MA–PD plans. 

19%

97% 76%

<2%

3%

0%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2013 2014 2015 2016 2007 2013 2014 2015 2016

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

Most formularies 

also include a 

specialty tier

PDP enrollees MA–PD enrollees
158 Prescription drugs

Chart 10-10. In 2016, PDPs and MA–PDs apply some utilization 

management to about 40 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. 

Source: MedPAC-sponsored analysis by NORC/Social and Scientific Systems of formularies submitted to CMS.

 The number of drugs listed on a plan’s formulary does not necessarily represent beneficiary 

access to medications. Plans’ processes for nonformulary exceptions, prior authorization 

(preapproval from plans before coverage), quantity limits (plan limitations on the number of 

doses of a particular drug covered in a given period), and step therapy requirements (enrollees 

must try specified drugs before being prescribed other drugs in the same therapeutic category) 

can affect access to certain drugs. 

 In 2016, the average enrollee in a stand-alone PDP faces some form of utilization management 

for about 41 percent of drugs listed on a plan’s formulary, an increase from 39 percent in 2015. 

The average MA–PD enrollee faces some form of utilization management for 38 percent of drugs 

listed on a plan’s formulary, a slight decrease from 39 percent in 2015. 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 increased from 23 percent in 2015 to 26 percent in 2016. Similarly, the share with

quantity limits increased from 18 percent in 2015 to 22 percent in 2016. Among MA–PDs, the 

use of prior authorization remained steady, but use of quantity limits increased from 18 percent

of listed drugs in 2015 to 22 percent in 2016. The share of drugs listed on plan formularies that 

require the use of step therapy remained very low for both stand-alone PDPs and MA–PDs.

0

5

10

15

20

25

30

35

40

45

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

Percent

2007 2013 2014 2015 2016

PDPs

0

5

10

15

20

25

30

35

40

45

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

2007 2013 2014 2015 2016

MA–PDs
A Data Book: Health care spending and the Medicare program, June 2016 159

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

All 

Medicare Part D

Plan type Subsidy status

PDP MA–PD LIS Non-LIS

Beneficiariesa(in millions) 55.1 37.8 24.2 13.7 12.4 25.4

Percent of all Medicare 100% 69% 44% 25% 22% 46%

Gender

Male 45% 42% 42% 43% 40% 44%

Female 55 58 58 57 60 56

Race/ethnicity

White, non-Hispanic 76 74 77 69 56 83

African American, 

non-Hispanic 10 11 11 11 20 7

Hispanic 9 10 7 14 16 7

Asian 3 3 3 3 5 2

Other 2 2 2 2 2 2

Age (years)b

<65 19 20 22 16 42 9

65–69 26 23 22 26 15 27

70–74 19 20 19 22 12 23

75–79 14 14 14 15 10 16

80+ 22 23 23 21 19 24

Urbanicityc

Metropolitan 81 82 78 89 80 83

Micropolitan 10 10 12 7 11 10

Rural 8 8 10 4 9 7

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). 

Percentages may not sum to 100 due to rounding. 

a

Figures for Medicare and Part D include all beneficiaries with at least one month of enrollment in the respective program. 

A beneficiary is classified as LIS if that individual received Part D’s LIS at some point during the year. For individuals who 

switch plan types during the year, classification into plan types is based on the greater number of months of enrollment.

b

Age as of July 2013.

cUrbanicity is based on the Office of Management and Budget’s core-based statistical areas as of February 2013. A 

metropolitan area contains a core urban area of 50,000 or more people, and a micropolitan area contains an urban core of 

at least 10,000 (but fewer than 50,000) people. About 1 percent of Medicare beneficiaries were excluded because of an 

unidentifiable core-based statistical area designation. 

Source: MedPAC analysis of Medicare Part D denominator and Risk Adjustment System files from CMS. 

 In 2013, 37.8 million Medicare beneficiaries (69 percent) enrolled in Part D at some point in 

the year. Most of them (24.2 million) were in stand-alone PDPs, with 13.7 million in MA–PD

plans. Over 12 million enrollees received Part D’s LIS.

 Compared with the overall Medicare population, Part D enrollees are more likely to be 

female and non-White. MA–PD enrollees are less likely to be disabled beneficiaries under 

age 65 and more likely to be Hispanic compared with PDP enrollees; LIS enrollees are more 

likely to be female, non-White, and disabled beneficiaries under age 65 compared with nonLIS enrollees.

 Patterns of enrollment by urbanicity for Part D enrollees were similar to the overall Medicare 

population: 82 percent in metropolitan areas, 10 percent in micropolitan areas, and the 

remaining 8 percent in rural areas. 
160 Prescription drugs

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

Average annual growth rate

2007 2010 2013 20072010 20102013 20072013

Part D enrollment (in millions)*

Total 26.1 29.7 37.8 4.4% 8.4% 6.4%

By plan type

PDP 18.3 18.9 24.2 1.1 8.5 4.7

MA–PD 7.8 10.6 13.7 10.9 8.8 9.9

By subsidy status

LIS 10.4 11.3 12.4 2.7 3.1 2.9

Non-LIS 15.7 18.4 25.4 5.5 11.4 8.4

By race/ethnicity

White, non-Hispanic 19.4 22.0 28.1 4.3 8.5 6.4

African American, non-Hispanic 2.9 3.3 4.2 4.1 8.0 6.0

Hispanic 2.5 3.0 3.6 5.8 7.0 6.4

Other 1.3 1.4 1.9 3.9 10.6 7.2

By age (years)**

<65 5.5 6.3 7.5 4.7 6.2 5.5

65–69 5.4 6.6 8.8 6.5 10.5 8.5

70–79 8.8 9.9 13.0 3.8 9.5 6.6

80+ 6.4 7.1 8.5 3.2 6.5 4.8

Part D enrollment (in percent)

Total 100% 100% 100%

By plan type

PDP 70 64 64

MA–PD 30 36 36

By subsidy status

LIS 40 38 33

Non-LIS 60 62 67

By race/ethnicity

White, non-Hispanic 74 74 74

African American, non-Hispanic 11 11 11

Hispanic 10 10 10

Other 5 5 5

By age (years)**

<65 21 21 20

65–69 21 22 23

70–79 34 33 34

80+ 25 24 23

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). A 

beneficiary is classified as LIS if that individual received Part D’s LIS at some point during the year. If a beneficiary was

enrolled in both a PDP and an MA–PD plan during the year, that individual was classified into the type of plan with the greater 

number of months of enrollment. Numbers may not sum to totals due to rounding.

*Figures include all beneficiaries with at least one month of enrollment. 

**Age 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 2016 161

Chart 10-12. Part D enrollment trends, 2007–2013 (continued)

 Part D enrollment grew faster between 2010 and 2013 (average annual growth rate (AAGR) 

of 8.4 percent) than between 2007 and 2010 (AAGR of 4.4 percent). Between 2010 and 

2013, the largest growth in enrollment was observed for beneficiaries ages 65 to 69 (10.5 

percent annually, on average), followed by beneficiaries ages 70 to 79 (9.5 percent 

annually, on average).

 While MA–PD plan enrollment grew faster between 2007 and 2010 (nearly 11 percent 

annually compared with about 1 percent annually, on average, for PDP plan enrollment), the 

growth rates were comparable between MA–PDs and PDPs between 2010 and 2013 

(AAGR of 8.8 percent and 8.5 percent, respectively).

 The number of enrollees receiving the LIS grew modestly between 2007 and 2010 at 2.7

percent per year. Higher growth rates (3.1 percent) were observed between 2010 and 2013. 

The average annual growth in the number of non-LIS enrollees was also greater between 

2010 and 2013 (11.4 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 10-3 for 

information on the RDS).
162 Prescription drugs

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

Percent of 

Medicare enrollment

Percent of Part D enrollment

Plan type Subsidy status

PDP 

region State(s) Part D RDS PDP MA–PD LIS Non-LIS

1 ME, NH 63% 7% 82% 18% 42% 58%

2 CT, MA, RI, VT 67 11 71 29 39 61

3 NY 74 7 57 43 38 62

4 NJ 69 7 80 20 27 73

5 DE, DC, MD 55 10 86 14 36 64

6 PA, WV 72 6 57 43 30 70

7 VA 59 5 77 23 32 68

8 NC 71 5 74 26 34 66

9 SC 61 11 69 31 38 62

10 GA 68 5 63 37 38 62

11 FL 71 6 51 49 32 68

12 AL, TN 71 4 64 36 39 61

13 MI 74 7 78 22 27 73

14 OH 75 5 67 33 27 73

15 IN, KY 71 5 75 25 33 67

16 WI 67 6 62 38 27 73

17 IL 63 13 86 14 34 66

18 MO 70 5 67 33 30 70

19 AR 66 5 75 25 41 59

20 MS 69 2 83 17 49 51

21 LA 70 6 64 36 42 58

22 TX 67 6 68 32 38 62

23 OK 65 3 78 22 34 66

24 KS 68 3 83 17 26 74

25 IA, MN, MT, NE, 

ND, SD, WY 70 4 74 26 25 75

26 NM 67 4 58 42 36 64

27 CO 64 9 50 50 27 73

28 AZ 68 6 48 52 28 72

29 NV 64 6 52 48 26 74

30 OR, WA 64 7 54 46 29 71

31 ID, UT 63 6 54 46 25 75

32 CA 75 5 51 49 36 64

33 HI 70 2 37 63 27 73

34 AK 41 24 98 2 57 43

Mean 69 6 64 36 33 67

Minimum 41 2 37 2 25 43

Maximum 75 24 98 63 57 75

Note: PDP (prescription drug plan), RDS (retiree drug subsidy), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS 

(low-income [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 2013, all but three regions (Region 5 (DE, DC, MD), Region 7 (VA), 

and Region 34 (AK)) had over 60 percent of all Medicare beneficiaries enrolled in Part D. 

Beneficiaries were less likely to enroll in Part D in regions where employer-sponsored drug 

coverage continues to be available. For example, in Region 34, the share of Medicare 

beneficiaries enrolled in Part D was 41 percent, while the share of beneficiaries enrolled in 

employer-sponsored plans that received the RDS was 24 percent. In other regions (Region 

5 and Region 7), many beneficiaries likely received their drug coverage through the Federal 

Employees Health Benefits Program, which does not receive the RDS.

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2016 163

Chart 10-13. Part D enrollment by region, 2013 (continued)

 In 2013, all regions except Region 34 experienced a decrease in the number of 

beneficiaries who received the RDS (data not shown). The shift was 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 25 percent in Region 25 (IA, 

MN, MT, NE, ND, SD, and WY) and in Region 31 (ID and UT) to 57 percent in Region 34

(AK). In 20 of the 34 PDP regions, LIS enrollees accounted for 30 percent to 50 percent of 

enrollment. In one region (Region 34 (AK)), LIS enrollees accounted for more than half of 

Part D enrollment.
164 Prescription drugs

Chart 10-14. The majority of Part D spending was incurred by 

only one-quarter of all Part D enrollees, 2013

Note: “Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. Annual spending 

cuts used for this analysis generally correspond to the parameters of the defined standard benefit. In 2013, 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 $6,954.52 in total drug spending, assuming that expenses for brand-name drugs accounted for 

85.6 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 2013, about 25

percent of Part D enrollees had annual spending of $2,970 or more, at which point enrollees 

were responsible for a higher proportion of the cost of the drug until their spending reached 

$6,955 under the defined standard benefit. These beneficiaries accounted for 77 percent of 

total Part D spending.

 The costliest 8 percent (shown as 9 percent in the chart due to rounding) of beneficiaries, 

those with drug spending above the catastrophic threshold under the defined standard 

benefit, accounted for 50 percent of total Part D spending. Sixty-five percent of beneficiaries 

with the highest spending received Part D’s low-income [drug] subsidy (see Chart 10-15). 

Spending on prescription drugs is less concentrated than Medicare Part A and Part B 

spending. In 2012, the costliest 5 percent of beneficiaries accounted for 41 percent of 

annual Medicare fee-for-service (FFS) spending, and the costliest quartile accounted for 83

percent of Medicare FFS spending.

 In 2013, the share of Part D spending accounted for by the costliest 5 percent of enrollees

increased to 39 percent from 35 percent in 2012.

28

1

47

22

17

27

4

11

5

39

0

10

20

30

40

50

60

70

80

90

100

Percent of enrollees Percent of spending

Percent

≥$10,000

$6,955–$9,999

$2,970–$6,954

$325–$2,969

$0–$324

77

Annual spending on 

prescription drugs
A Data Book: Health care spending and the Medicare program, June 2016 165

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

levels, 2013

Annual drug spending

<$2,970 $2,970–$6,954 ≥$6,955

Sex

Male 43% 40% 41%

Female 57 60 59

Race/ethnicity

White, non-Hispanic 74 75 71

African American, non-Hispanic 11 11 14

Hispanic 10 9 10

Other 5 5 6

Age (years)

<65 17 20 40

65–69 25 19 17

70–74 20 19 15

75–80 15 16 12

80+ 23 26 17

LIS status*

LIS 27 41 65

Non-LIS 73 59 35

Plan type**

PDP 61 70 77

MA–PD 39 30 23

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 2013, Part D enrollees with annual drug spending between $2,970 and $6,954 and those 

with spending at or above $6,955 were more likely to be female than enrollees with annual 

spending below $2,970 (60 percent and 59 percent, respectively, compared with 57 percent).

 Part D enrollees with annual spending at or above $6,955 were more likely to be non-White;

disabled, under age 65; and receiving the LIS compared with those with annual spending 

below $2,970.

 Most Part D enrollees with spending at or above $6,955 were enrolled in stand-alone PDPs 

(77 percent) compared with MA–PD plans (23 percent). In contrast, beneficiaries with 

annual spending below $2,970 were more likely to be in MA–PDs compared with those with 

higher annual spending (39 percent compared with 23 percent). This finding reflects the fact 

that most LIS enrollees are more costly on average and are in PDPs.
166 Prescription drugs

Chart 10-16. Part D spending and use per enrollee, 2013

Part D

Plan type LIS status

PDP MA–PD LIS Non-LIS

Total gross spending (billions)* $103.7 $74.8 $28.9 $51.6 $52.1

Total number of prescriptions

(millions) 1,910 1,262 647 747 1,163

Average spending per prescription $54 $59 $45 $69 $45

Per enrollee per month

Total spending $242 $275 $185 $377 $179

Out-of-pocket spending 32 33 30 7 44

Manufacturer gap discount 6 7 5 N/A 9

Plan liability 149 166 117 227 112

Low-income cost-sharing subsidy 46 57 27 143 N/A

Number of prescriptions 4.5 4.6 4.1 5.4 4.0

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy), N/A 

(not applicable). “Total gross spending” reflects payments from all payers, including beneficiaries (cost sharing), but does not 

include rebates and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. Part D 

prescription drug event (PDE) records are classified into plan types based on the contract identification on each record. For

purposes of classifying the PDE records by LIS status, monthly LIS eligibility information in Part D’s denominator file was 

used. Estimates are sensitive to the method used to classify PDE records to each plan type and LIS status. “Out-of-pocket 

spending” includes all payments that count toward the annual out-of-pocket (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 over $2.7 million in manufacturer discounts for brand-name drugs filled by non-LIS enrollees 

during the coverage gap. 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

 In 2013, gross spending on drugs for the Part D program totaled $103.7 billion, with about 72 percent

($74.8 billion) accounted for by Medicare beneficiaries enrolled in stand-alone PDPs. Part D enrollees 

receiving the LIS accounted for about 50 percent ($51.6 billion) of the total. Manufacturer discounts for 

brand-name drugs filled by non-LIS enrollees while they were in the coverage gap accounted for 2.6

percent of the total, or about 5 percent of the gross spending by non-LIS enrollees (data not shown).

 The number of prescriptions filled by Part D enrollees totaled 1.910 billion, with about two-thirds (1.262

billion) accounted for by PDP enrollees. The 33 percent of enrollees who received the LIS accounted for 

about 39 percent (0.747 billion) of the total number of prescriptions filled.

 In 2013, Part D enrollees filled 4.5 prescriptions at $242 per month on average, an increase from $235

per month (for 4.3 prescriptions) in 2012 (2012 data not shown). The average monthly plan liability for 

PDP enrollees ($166) was considerably higher than that of MA–PD enrollees ($117), while average 

monthly OOP spending was similar for enrollees in both types of plans ($33 vs. $30, respectively). The 

average monthly low-income cost-sharing subsidy was much higher for PDP enrollees ($57) compared 

with MA–PD enrollees ($27).

 Average monthly spending per enrollee for an LIS enrollee ($377) was more than double that of a nonLIS enrollee ($179), while the average number of prescriptions filled per month by an LIS enrollee was 

5.4 compared with 4.0 for a non-LIS enrollee. LIS enrollees had much lower OOP spending, on 

average, than non-LIS enrollees ($7 vs. $44). Part D’s LIS pays for most of the cost sharing for LIS 

enrollees, averaging $143 per month in 2013.
A Data Book: Health care spending and the Medicare program, June 2016 167

Chart 10-17. Trends in Part D spending and use per enrollee, 

2007–2013

Average spending and number of prescriptions Average annual growth 

rate, 2007–2013

2007 2009 2010 2011 2012 2013 Number Percent

Average spending

 All Part D $212 $228 $231 $239 $235 $242 $5 2.2%

 By LIS status

 LIS 301 339 348 364 362 377 13 3.8

 Non-LIS 156 163 163 167 167 179 4 2.3

 By plan type

 PDP 239 260 265 274 270 275 6 2.4

 MA−PD 151 169 172 178 178 185 6 3.5

Average number of prescriptions*

 All Part D 3.9 4.1 4.2 4.3 4.3 4.5 0.1 2.2%

 By LIS status

 LIS 4.6 5.0 5.1 5.1 5.2 5.4 0.1 2.9

 Non-LIS 3.4 3.6 3.7 3.8 3.8 4.0 0.1 2.7

 By plan type

 PDP 4.1 4.4 4.4 4.5 4.5 4.6 0.1 2.0

 MA−PD 3.4 3.7 3.8 3.9 4.0 4.1 0.1 3.2

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. Numbers may not 

sum to totals due to rounding.

*Number of prescriptions is standardized to a 30-day supply. 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

 Between 2007 and 2013, the average per capita spending for Part D–covered drugs grew at an average 

annual rate of 2.2 percent, or by about 14 percent cumulatively. Growth in average per capita spending 

has fluctuated over the years, ranging from a negative 1.5 percent growth between 2011 and 2012 to a 

growth of over 4 percent during the first few years of the program.

 Spending for non-LIS enrollees remained relatively flat compared with LIS enrollees (average annual 

growth rate of 2.3 percent compared with 3.8 percent) during the 2007 to 2013 period, resulting in a 

larger difference in per capita spending between the two groups—from $145 in 2007 to nearly $200 per 

member per month in 2013. 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 2013 period (3.5 percent compared with 2.4 percent), but the average growth was 

the same for both PDP and MA−PD enrollees in terms of the dollar increase ($6), and the average per 

capita spending for MA−PD enrollees continued to be below that of PDP enrollees by about $90.
168 Prescription drugs

Chart 10-18. Top 15 therapeutic classes of drugs covered under 

Part D, by spending and volume, 2013

Top 15 therapeutic classes by spending Top 15 therapeutic classes by volume

Dollars Prescriptions

Billions Percent Millions Percent

Diabetic therapy $11.0 10.6% Antihypertensive therapy

agents

197.3 10.3%

Asthma/COPD therapy agents 7.6 7.3

Antihyperlipidemics 7.5 7.2 Antihyperlipidemics 190.2 10.0

Antipsychotics 5.8 5.5 Beta adrenergic blockers 119.5 6.3

Antihypertensive therapy 

agents

5.6 5.4 Diabetic therapy 117.2 6.1

Antidepressants 107.2 5.6

Peptic ulcer therapy 4.4 4.2 Peptic ulcer therapy 97.2 5.1

Antivirals 4.3 4.1 Diuretics 96.4 5.0

Antidepressants 3.8 3.7 Analgesics (narcotic) 82.6 4.3

Analgesics (narcotic) 3.5 3.4 Calcium channel blockers 82.3 4.3

Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic)

3.5 3.4 Thyroid therapy 70.6 3.7

Anticonvulsant 3.2 3.1 Anticonvulsant 66.0 3.5

Antineoplastic enzyme 

 inhibitors

2.6 2.5 Asthma/COPD therapy agents 51.3 2.7

Cognitive disorder therapy 

(antidementia)

2.5 2.4 Antibacterial agents 50.0 2.6

Calcium and bone metabolism 

 regulators

2.0 1.9 Antianxiety agents 35.2 1.8

Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic)

34.8 1.8

Anticoagulants 1.9 1.8

Subtotal, top 15 classes 69.1 66.6 Subtotal, top 15 classes 1,397.9 73.2

Total, all classes 103.7 100.0 Total, all classes 1,909.6 100.0

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. 

 The list of the top 15 therapeutic classes has been stable since 2007, with the majority of therapeutic 

classes on the list appearing every year. In 2013, spending on prescription drugs covered by Part D 

plans totaled $103.7 billion. The top 15 therapeutic classes by spending accounted for about twothirds of the total. About 1.9 billion prescriptions were dispensed in 2013, with the top 15 therapeutic 

classes by volume accounting for about 73 percent of the total.

 In 2013, spending on drugs to treat diabetes totaled $11 billion, an increase of about 26 percent from 

$8.7 billion in 2012, while the number of prescriptions filled totaled 117.2 million, an increase of about 

14 percent from 102.6 million in 2012 (2012 data not shown). Over 10 percent of the growth in 

spending on drugs to treat diabetes was due to the increase in the average price per standardized 

30-day prescription.

 Antianxiety agents appeared on the top 15 list by volume for the first time since 2007. The number of 

prescriptions for antianxiety agents totaled 35.2 million in 2013 (up from 8.5 million in 2012) (2012 

data not shown). The increase in the use of antianxiety agents reflects the addition of 

benzodiazepines to the list of Part D–covered drugs beginning in 2013. 
A Data Book: Health care spending and the Medicare program, June 2016 169

Chart 10-18. Top 15 therapeutic classes of drugs covered under 

 Part D, by spending and volume, 2013 (continued) 

 Nine therapeutic classes are among the top 15 in both spending and volume. Central nervous system 

agents (antipsychotics, anticonvulsants, and antidepressants) and cardiovascular agents 

(antihyperlipidemics and antihypertensive therapy agents) dominate the list by spending, each 

accounting for slightly less than one-fifth of spending, while cardiovascular agents 

(antihyperlipidemics, antihypertensive therapy agents, beta-adrenergic blockers, calcium channel 

blockers, and diuretics) dominate the list by volume, accounting for about 50 percent of the 

prescriptions in the top 15 therapeutic classes. 
170 Prescription drugs

Chart 10-19. Generic dispensing rate for selected therapeutic 

classes, by plan type, 2007–2013

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). Prescriptions are standardized to a 

30-day supply. Therapeutic classification is based on the First DataBank Enhanced Therapeutic Classification System 

1.0. “Generic dispensing rate” is defined as the proportion of generic prescriptions dispensed within a therapeutic class.

Part D prescription drug event records are classified as PDP or MA–PD records based on the contract identification on 

each record.

Source: MedPAC analysis of Medicare Part D prescription drug event data from CMS. 

 The share of prescriptions that are for generic drugs (generic dispensing rate, or GDR) has increased 

steadily over the years, from 61 percent in 2007 to 84 percent in 2013 across all therapeutic classes 

(data not shown). 

 The GDR in a given class depends, in large part, on the availability of generic drugs in the class. For 

example, the GDR for antipsychotics was among the lowest within the top 15 therapeutic classes until 

some of the key drugs came off patent and generic versions became available in 2011 and 2012.

Other factors such as prescribing behavior and patients’ medication needs and/or preferences can 

also affect the GDR.

 Between 2007 and 2013, GDRs for PDP enrollees were generally lower than those of MA–PD 

enrollees for most of the top 15 therapeutic classes. For example, GDRs for diabetic therapy among 

the MA–PD enrollees exceeded that of PDP enrollees by between 7 percentage points and 10 

percentage points during this period. The difference in GDRs for antihyperlipidemics between MA–PD 

enrollees and PDP enrollees decreased during this period (from 17 percentage points in 2007 to 

about 8 percentage points in 2013), but antihyperlipidemics are still one of the classes with the largest 

difference in GDRs between PDPs and MA–PDs. Some of the difference in GDRs reflects the fact 

that, relative to MA−PDs, PDPs have a higher proportion of LIS enrollees, who are less likely to take 

a generic medication in a given therapeutic class (see Chart 10-20).

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2007 2009 2010 2011 2012 2013

Generic dispensing rate

PDP

2007 2009 2010 2011 2012 2013

MA–PD

Antihyperlipidemics

Diabetic therapy

Antipsychotics
A Data Book: Health care spending and the Medicare program, June 2016 171

Chart 10-20. Generic dispensing rate for selected therapeutic 

classes, by LIS status, 20072013

Note: LIS (low-income [drug] subsidy). Prescriptions are standardized to a 30-day supply. Therapeutic classification is based on 

the First DataBank Enhanced Therapeutic Classification System 1.0. “Generic dispensing rate” is defined as the 

proportion of generic prescriptions dispensed within a therapeutic class. Part D prescription drug event (PDE) records are 

classified as LIS or non-LIS records based on monthly LIS eligibility information in Part D’s denominator file. Estimates are 

sensitive to the method used to classify PDE records as LIS or non-LIS.

Source: MedPAC analysis of Medicare Part D prescription drug event data and Part D denominator file from CMS. 

 Between 2007 and 2013, the share of prescriptions that are for generic drugs (generic 

dispensing rate, or GDR) has increased for both LIS and non-LIS enrollees. However, LIS 

enrollees have had a GDR consistently 4 percentage points to 5 percentage points lower 

than non-LIS enrollees in most of years after 2007.

 The difference in GDRs for antihyperlipidemics between LIS and non-LIS enrollees 

remained stable at around 7 percentage points to 8 percentage points for most of the years 

between 2007 to 2012, and decreased to 4 percentage points in 2013. 

 Other notable differences in GDRs between LIS and non-LIS enrollees include a large and 

persistent difference of around 14 percentage points to 15 percentage points for diabetic 

therapy and a 9 percentage point and 11 percentage point difference in GDRs observed in 

2012 and 2013, respectively, for antipsychotics (compared with a difference of less than 4 

percentage points before 2012) after generic versions became available for some of the key 

drugs in the class. Multiple factors likely contribute to the difference in GDRs. 

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2007 2009 2010 2011 2012 2013

Generic dispensing rate

LIS

2007 2009 2010 2011 2012 2013

Non-LIS

Antihyperlipidemics

Diabetic therapy

Antipsychotics
172 Prescription drugs

Chart 10-21. Drug spending and use and the characteristics of

beneficiaries filling the most prescriptions, 2013

Beneficiaries in the top 5 percent*

As a percent 

of Part D All Part D

Number of beneficiaries (in millions) 1.8 5% 37.8

Aggregate spending and use

 Gross spending (in billions) $19.7 19 $103.7

 Number of prescriptions (in millions) 264 19 1,372

 Average spending per prescription $75 $76

Per enrollee per year

 Gross spending $11,149 $2,906

Out-of-pocket spending $487 $387

Number of prescriptions 149 38

Demographic characteristics

 Percent female 66% 58%

 Percent White 72 74

 Percent LIS 78 33

 Percent PDP 76 64

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan). “Gross spending” reflects payments from all payers, 

including beneficiaries (cost sharing), but does not include rebates and discounts from pharmacies and manufacturers 

that are not reflected in prices at the pharmacies. “Out-of-pocket spending” includes all payments that count toward the 

annual out-of-pocket spending threshold. “Number of prescriptions” is based on counts of prescription drug events (PDEs) 

(not standardized to a 30-day supply). 

*“Beneficiaries in the top 5 percent” is based on the volume of prescriptions filled by those who filled at least one 

prescription in 2013. Because roughly 7 percent of Part D enrollees did not fill any prescriptions for a Part D–covered drug 

in 2013, the “top 5 percent” translates to about 4.7 percent of all Part D enrollees. The figures reported in the table include

claims for over 200 beneficiaries who did not have a record of Part D enrollment in the denominator file and claims that 

were missing beneficiary identification information. These claims accounted for about 34,000 prescriptions at a gross cost 

of over $2 million. 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

 In 2013, Part D enrollees in the top 5 percent (1.8 million), based on the number of prescriptions 

filled, accounted for $19.7 billion in gross spending (19 percent of total gross spending) for drugs 

covered under the Part D program. The number of prescriptions filled by enrollees in the top 5 

percent totaled 264 million, or 19 percent of all prescriptions filled under the Part D program.

 In 2013, Part D enrollees in the top 5 percent each filled a total of 149 prescriptions at a gross cost 

of $11,149, on average, compared with an average of 38 prescriptions each at a gross cost of 

$2,906 for all Part D enrollees. Compared with the difference in gross spending and the number of 

prescriptions filled, the difference in beneficiary out-of-pocket spending between enrollees in the 

top 5 percent and all Part D enrollees was much smaller ($487 compared with $387).

 Compared with the overall Part D population, enrollees in the top 5 percent were more likely to be 

female and non-White. Nearly 80 percent of the enrollees in the top 5 percent received the lowincome subsidy compared with 33 percent for all Part D enrollees, and 76 percent were enrolled in 

a stand-alone prescription drug plan compared with 64 percent for all Part D enrollees.
A Data Book: Health care spending and the Medicare program, June 2016 173

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

Part D

Plan type

PDP MA–PD

Total gross spending (billions) $103.6 $72.3 $28.6

Total number of prescriptions (millions) 1,368 900 440

Average cost per prescription $76 $80 $65

Total gross spending by specialty

 Primary care providers* $60.3 $41.5 $17.5

 Specialty and other providers $43.3 $30.8 $11.2

Total number of prescriptions by specialty

 Primary care providers* 974.0 639.4 319.8

 Specialty and other providers 394.2 260.7 119.8

Average cost per prescription

 Primary care providers* $61.95 $64.96 $54.58

 Specialty and other providers $109.79 $117.97 $93.20

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). “Gross spending” reflects 

payments from all payers, including beneficiaries (cost sharing), but does not include rebates and discounts from 

pharmacies and manufacturers that are not reflected in prices at the pharmacies. Part D prescription drug event (PDE) 

records are classified into plan types based on the contract identification on each record. Numbers may not sum to totals 

due to lack of information about plan type for some observations. “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 2013 prescription counts shown in Chart 10-16 through Chart 10-21.

*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 2013, gross spending on drugs for the Part D program totaled $103.6 billion, with about 70 percent 

($72.3 billion) accounted for by Medicare beneficiaries enrolled in PDPs, according to CMS’s Part D 

claims data summarized at the prescriber level. The number of prescriptions (not adjusted for the 

number of days’ supply) filled by Part D enrollees totaled about 1.37 billion, with about two-thirds (900

million) accounted for by PDP enrollees. The cost per prescription dispensed averaged $76 across all 

Part D enrollees. The average cost per prescription is higher among PDP enrollees ($80) compared 

with that of MA–PD enrollees ($65).

 Prescriptions written by primary care providers accounted for about 58 percent ($60.3 billion) of the 

gross spending and 71 percent (974 million) of prescriptions dispensed under the Part D program. The 

shares of spending and prescriptions written by primary care providers were lower in PDPs (about 57 

percent of gross spending and about 71 percent of prescriptions) than in MA–PDs (about 61 percent of 

gross spending and about 73 percent of prescriptions).

 The average cost per prescription dispensed was lower among primary care providers (about $62) 

compared with specialty and other providers (about $110). The cost per prescription dispensed for PDP 

enrollees was higher than that of MA–PD enrollees regardless of the provider type (primary care vs. 

specialty and others).
174 Prescription drugs

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

Part D

Provider type

Primary care* Specialty/others

Number of individual prescribers (thousands) 1,043 420 623

 Percent of all individual prescribers 40% 60%

Average beneficiary (patient) count 143 184 115

Average per beneficiary

 Gross spending $592 $690 $523

 Number of prescriptions 6.7 9.8 4.5

Prescribers in the top 1 percent based on 

number of prescriptions filled per beneficiary

Number of individual prescribers 9,054 7,490 1,564

 Percent of all individual prescribers 83% 17%

Total gross spending (billions) $8.0 $6.8 $1.2

 Percent of total gross spending 8% 11% 3%

Total number of prescriptions (millions) 131 115 16

 Percent of all prescriptions filled 10% 12% 4%

Average per beneficiary

 Gross spending $3,344 $3,049 $4,753

 Number of prescriptions 44 44 45

Note: “Gross spending” reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. Numbers may not 

sum to totals due to rounding. “Number of prescriptions” is a count of prescription drug events and is not adjusted for the 

size (number of days’ supply) of the prescriptions. As such, they are not comparable to the 2013 prescription counts 

shown in Chart 10-16 through Chart 10-21.

*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 2013, about 1 million individual providers wrote prescriptions for Medicare beneficiaries that 

were filled under Part D. Of those, about 40 percent were primary care providers and 60 

percent were specialty or other types of providers.

 The average count of (Medicare-only) beneficiaries (patients) was higher among primary care 

providers compared with specialty and other types of providers—184 beneficiaries versus 115

beneficiaries.

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2016 175

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

(continued)

 On a per beneficiary basis, average gross spending for Part D prescriptions was higher for 

prescriptions written by primary care providers ($690) compared with the average for specialty 

and other providers ($523). Primary care providers also wrote more prescriptions per 

beneficiary, on average, than specialty and other providers: 9.8 compared with 4.5.

 More than 9,000 prescribers were among the top 1 percent of all prescribers, as ranked by the 

average number of Part D prescriptions filled per beneficiary in 2013. Of those prescribers, 83 

percent were primary care providers and 17 percent were specialty and other providers.

 The top 1 percent of prescribers accounted for 8 percent of total gross spending and 10 

percent of all prescriptions filled. Among primary care prescribers, results were more 

concentrated: The top 1 percent of prescribers accounted for 11 percent of gross spending 

and 12 percent of all prescriptions.

 Among the prescriptions that were written by prescribers in the top 1 percent of all prescribers 

in 2013, per beneficiary Part D spending averaged more than $3,000 for a total of 44 to 45 

prescriptions filled.
176 Prescription drugs

Chart 10-24. Part D patterns of prescribing for selected

specialties, 2013

Number of 

individual Part D 

prescribers 

(thousands)

Share of all 

Part D 

prescribers 

(percent)

Average per beneficiary

Gross spending 

(in dollars)

Number of 

prescriptions

All Part D 1,042.6 100% $592 6.7

All specialty/others 622.6 60 523 4.5

Selected specialties:

Cardiology 22.7 4 597 9.3

Psychiatry 25.9 4 1,417 13.4

Neurology 13.1 2 2,213 7.9

Nephrology 7.9 1 1,315 10.0

Infectious disease 4.9 1 4,515 10.1

Endocrinology 5.3 1 1,460 8.9

Note: “Gross spending” reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies.

“Number of prescriptions” is a count of prescription drug events and is not adjusted for the size (number of days’ supply) 

of the prescriptions. As such, they are not comparable with the 2013 prescription counts shown in Chart 10-16 through 

Chart 10-21.

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

 Cardiologists and psychiatrists were among the most numerous types of specialty care 

prescribers, each making up 4 percent of all individual Part D prescribers in 2013. An 

additional 2 percent of all Part D prescribers had a neurology specialty. 

 Cardiologists wrote an average of 9.3 prescriptions per beneficiary for a combined $597 in 

average gross spending. That average number of prescriptions is considerably higher than 

the overall Part D average of 6.7 per beneficiary. However, average gross spending per 

beneficiary was about the same for cardiologists as for all Part D prescribers: $597 

compared with $592, which reflects the widespread availability of generic cardiology 

medications.

 By comparison, other specialties had much higher Part D gross spending per beneficiary. 

Infectious disease specialists had the highest spending per beneficiary at $4,515, followed 

by neurologists at $2,213. Psychiatrists had the highest average number of prescriptions 

filled per beneficiary, at 13.4 compared with the overall average of 6.7.
 

110

A Data Book: Health care spending and the Medicare program, June 2016 179

Chart 11-1. Number of dialysis facilities is growing, and most 

facilities are for profit and freestanding 

Average annual

percent change

2015 2010–2015 2014–2015

Total number of:

Dialysis facilities 6,475 3% 3%

Hemodialysis stations 113,422 3 2

Mean number of 

hemodialysis stations per facility 18 –0.1 –0.3

Percent of total

Hospital based 7% –5 –3

Freestanding 93 4 3

Urban 80 4 3

Rural, micropolitan 13 2 2

Rural, adjacent to urban 5 1 1

Rural, not adjacent to urban 3 2 3

Frontier 1 1 0

For profit 87 4 3

Nonprofit 13 3 0

Note: “Nonprofit” includes facilities designated as either nonprofit or government. “Average annual percent change” is based on 

comparing 2010, 2014, and 2015 end-of-year files. Components may not sum to totals due to rounding.

Source: Compiled by MedPAC from the 2010, 2014, and 2015 CMS Dialysis Compare end-of-year files.

 Between 2010 and 2015, the number of freestanding and for-profit facilities increased, while 

hospital-based and nonprofit facilities decreased. Freestanding facilities increased from 90

percent to 93 percent of all facilities, and for-profit facilities increased from 83 percent to 87

percent of all facilities.

 Between 2010 and 2015, the proportion of facilities located in rural areas has remained 

relatively constant.

 Since 2010, the number of facilities has increased 3 percent per year. The average size of a 

facility has remained relatively constant, averaging about 18 dialysis treatment stations per 

facility (17.6 stations in 2010, 17.6 stations in 2014, and 17.5 stations in 2015).
180 Other services

Chart 11-2. Medicare spending for outpatient dialysis services 

furnished by freestanding and hospital-based 

dialysis facilities, 2013 and 2014

Note: ESRD (end-stage renal disease).

Source: Compiled by MedPAC from the 2013 and 2014 institutional outpatient files from CMS. 

 In 2014, total spending for dialysis, dialysis drugs, and ESRD-related clinical laboratory tests 

was $11.2 billion. In 2014, Medicare paid all facilities under a modernized prospective 

payment system that includes in the payment bundle certain dialysis drugs and ESRDrelated clinical laboratory tests that were separately paid before 2011. In 2013, most 

facilities were paid under the new PPS.

 Between 2013 and 2014, total ESRD expenditures increased by about 1 percent. 

 Freestanding dialysis facilities treated most dialysis beneficiaries and accounted for 94

percent of expenditures in 2014. 

0

2

4

6

8

10

12

14

2013 2014

Spending on dialysis, dialysis drugs, 

and other ESRD-related services 

(in billions of dollars)

Freestanding Hospital based

$11.0 $11.2

93% 94%

7% 6%
A Data Book: Health care spending and the Medicare program, June 2016 181

Chart 11-3. The ESRD population is growing, and most ESRD 

patients undergo dialysis

2003 2009 2013

Patients Patients Patients

(thousands) Percent (thousands) Percent (thousands) Percent

Total 452.2 100% 575.3 100% 661.6 100%

Dialysis 325.8 72 406.3 71 468.4 71

In-center hemodialysis 293.8 65 367.8 64 412.8 62

Home hemodialysis* 1.7 0.4 5.5 1 8.5 1

Peritoneal dialysis* 29.0 6 31.3 5 45.4 7

Unknown 1.3 0.3 1.7 0.3 1.7 0.3

Functioning graft and 

kidney transplants 126.4 28 168.9 29 193.3 29

Note: ESRD (end-stage renal disease). Totals may not equal sum of components due to rounding. Data include both Medicare 

and non-Medicare patients. 

*Home dialysis methods.

Source: Compiled by MedPAC from the United States Renal Data System.

 Persons with ESRD require either dialysis or a kidney transplant to maintain life. The total 

number of ESRD patients increased by 4 percent annually between 2003 and 2013.

 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 2003 and 2013, the total number of in-center hemodialysis patients grew by 

3 percent annually while the total number of peritoneal dialysis patients increased by 5

percent annually. Although a smaller proportion of all dialysis patients undergo home 

hemodialysis, the number of these patients grew 18 percent per year during this time period.

 Functioning graft patients are patients who have had a successful kidney transplant. 

Patients undergoing kidney transplant may receive either a living kidney or a cadaveric 

kidney donation. In 2013, 33 percent of transplanted kidneys were from living donors and 

the remainder were from cadaver donors (data not shown).
182 Other services

Chart 11-4. Asian Americans and Hispanics are among the 

fastest growing segments of the ESRD population

Percent Average annual

of total percent change

in 2013 2008–2013

Total (N = 661,648) 100% 4%

Age (years)

0–17 1 0.3

18–44 16 1

45–64 44 4

65–79 30 6

80+ 9 4

Sex

Male 57 4

Female 43 3

Race/ethnicity

White 62 4

African American 31 3

Native American 1 2

Asian American 6 6

Hispanic 17 6

Non-Hispanic 83 3

Underlying cause of ESRD

Diabetes 37 4

Hypertension 25 5

Glomerulonephritis 16 2

Other causes 21 4

Note: ESRD (end-stage renal disease). Totals may not equal sum of the components due to rounding. ESRD patients include 

those who undergo maintenance dialysis and those who have a functioning kidney transplant.

Source: Compiled by MedPAC from the United States Renal Data System.

 Among ESRD patients, 39 percent are over age 65. About 60 percent are White.

 Diabetes is the most common cause of renal failure.

 The number of ESRD patients increased by 4 percent annually between 2008 and 2013. 

Among the fastest growing groups of patients are Asian Americans and Hispanics.
A Data Book: Health care spending and the Medicare program, June 2016 183

Chart 11-5. Characteristics of Medicare fee-for-service dialysis 

patients, 2014

Percent of all FFS dialysis patients

Age (years)

Under 45 12%

45–64 38

65–74 26

75–84 18

85+ 6

Sex

Male 55

Female 45

Race

White 48

African American 36

All other 16

Residence

Urban county 82

Rural county, micropolitan 11

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 2014, nearly 20 percent of FFS dialysis patients resided in a rural county.

 Nearly half of all dialysis patients were dually eligible for Medicare and Medicaid services. 

 Nearly 90 percent of FFS dialysis patients were enrolled in Part D plans or had other 

sources of creditable drug coverage.
184 Other services

Chart 11-6. Aggregate margins varied by type of freestanding 

dialysis facility, 2014

Percentage of 

Type of facility freestanding facilities Aggregate margin

All facilities 100% 2.1%

Urban 80 2.9

Rural 20 2.7

Treatment volume (quintile)

Lowest 20 15.4

Second 20 6.6

Third 20 0.6

Fourth 20 3.8

Highest 20 8.1

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 2014 cost reports and the 2014 institutional outpatient file from CMS.

 For 2014, the aggregate Medicare margin for composite rate services and injectable drugs 

was 2.1 percent. 

 Generally, freestanding dialysis facilities’ margins vary by the size of the facility; facilities 

with greater treatment volume have higher margins on average. Differences in capacity and 

treatment volume explain some of the differences observed between the margins of urban 

and rural facilities. Urban facilities are larger on average than rural facilities with respect to 

the number of dialysis treatment stations and Medicare treatments provided. Some rural 

facilities have benefited from the low-volume adjustment that is included in the new endstage renal disease payment method that began in 2011.
A Data Book: Health care spending and the Medicare program, June 2016 185

Chart 11-7. Medicare hospice spending and average length of 

stay were virtually unchanged in 2014

Average annual

change, Change,

2000 2013 2014 2000–2013 2013–2014

Beneficiaries in hospice 0.534 1.315 1.324 7.2% 0.7%

(in millions)

Medicare payments (in billions) $2.9 $15.1 $15.1 13.5% 0.2%

Average length of stay 53.5 87.8 88.2 3.9% 0.5%

among decedents (in days)

Median length of stay 17 17 17 0 days* 0 days*

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.

 The number of Medicare beneficiaries receiving hospice services has more than doubled 

since 2000 and grew modestly in 2014, suggesting that access to hospice care has 

increased.

 Average length of stay held steady at about 88 days between 2013 and 2014, after a long 

period of growth. 

 Total Medicare payments to hospices were about $15.1 billion in 2014, about the same as 

2013. 
186 Other services

Chart 11-8. Hospice use increased across beneficiary groups 

from 2000 to 2014

Average annual

Share of decedents using hospice percentage Percentage

point change point change

2000 2013 2014 2000–2013 2013–2014

All 22.9% 47.3% 47.8% 1.9% 0.5%

FFS beneficiaries 21.5 46.2 46.7 1.9 0.5

MA beneficiaries 30.9 50.6 50.8 1.5 0.2

Dual eligibles 17.5 42.1 42.4 1.9 0.3

Non–dual eligibles 24.5 48.9 49.4 1.9 0.5

Age (years)

<65 17.0 29.2 29.4 0.9 0.2

65–84 24.7 45.3 45.6 1.6 0.3

85+ 21.4 55.0 56.0 2.6 1.0

Race/ethnicity

White 23.8 49.2 49.7 2.0 0.5

Minority 17.3 37.0 37.6 1.5 0.6

Gender

Male 22.4 43.3 43.7 1.6 0.4

Female 23.3 50.9 51.4 2.1 0.5

Beneficiary location

Urban 24.3 48.5 48.9 1.9 0.4

Micropolitan 18.5 44.3 44.7 2.0 0.4

Rural, adjacent to urban 17.6 42.9 43.2 1.9 0.3

Rural, nonadjacent to urban 15.8 38.0 38.7 1.7 0.7 

Frontier 13.2 32.3 32.3 1.5 0.0

Note: FFS (fee-for-service), MA (Medicare Advantage). “Beneficiary location” refers to the beneficiary’s county of residence.

Urban, micropolitan, and rural designations are based on the urban influence codes. The frontier category is defined as 

population density equal to or less than six persons per square mile.

Source: MedPAC analysis of data from the denominator file and the Medicare Beneficiary Database from CMS.

 Hospice use grew in almost all beneficiary groups in 2014, 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 2016 187

Chart 11-9. Number of Medicare-participating hospices has 

increased due to growth in for-profit hospices

2000 2012 2013 2014

All hospices 2,255 3,727 3,925 4,092

For profit 672 2,199 2,418 2,590

Nonprofit 1,324 1,320 1,309 1,302

Government 257 208 198 200

Freestanding 1,069 2,643 2,844 3,027

Hospital based 785 568 553 535

Home health based 378 492 503 506

SNF based 22 23 25 24

Urban 1,424 2,670 2,885 3,016

Rural 788 983 992 991

Note: SNF (skilled nursing facility). Numbers may not sum to totals because of missing data for a small number of providers.

Source: MedPAC analysis of Medicare cost reports, Provider of Services file, and the standard analytic file of hospice claims from 

CMS.

 There were nearly 4,100 Medicare-participating hospices in 2014. Most of them were forprofit hospices.

 Between 2000 and 2014, the number of Medicare-participating hospices grew by more than 

1,800 providers. For-profit hospices accounted almost entirely for that growth.

 Growth in the number of providers has occurred predominantly among freestanding and 

home health–based providers. The number of hospital-based providers has declined.

 The number of hospices in rural areas changed little between 2013 and 2014.
188 Other services

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

2014

Percent of cases with

Share length of stay

Diagnosis of total cases greater than 180 days

Cancer (except lung cancer) 21% 10%

Circulatory, except heart failure 16 24

Alzheimer’s and similar diseases 14 37

Heart failure 10 21

Lung cancer 8 9

Chronic airway obstruction, NOS 6 28

Respiratory disease 5 14

Nervous system, except Alzheimer’s 4 32

Other 3 13

Genitourinary disease 3 8

Organic psychoses 3 24

Dementia 2 28

Digestive disease 2 9

Adult failure to thrive or debility, NOS 1 23

All 100 20

Note: NOS (not otherwise specified). Cases include all patients who received hospice care in 2014, not just decedents.

“Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim. The percentage of cases with length of stay 

greater than 180 days reflects the share of hospice patients who received hospice care in 2014 whose lifetime length of 

hospice stay exceeded 180 days at the end of 2014 (or at the time of death or discharge in 2014 if the beneficiary was not 

enrolled in hospice at the end of 2014). “Share of total cases” column may not sum to 100 percent because of rounding.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file from CMS and the Medicare Beneficiary Database.

 In 2014, the most common terminal diagnosis among Medicare hospice patients was cancer

(all types), accounting for about 29 percent of cases. The next most common diagnoses 

were heart failure and other circulatory conditions (26 percent of cases) and neurological 

conditions (Alzheimer’s disease, nervous system disorders, organic psychoses, and

dementia) (23 percent of cases).

 Length of stay varies by diagnosis. Nearly one-quarter or more of hospice patients in 2014 

with circulatory conditions, Alzheimer’s disease, chronic airway obstruction, nervous system 

disorders other than Alzheimer’s, organic psychoses, and dementia had lengths of stay 

exceeding 180 days. Long hospice stays were least common among beneficiaries with 

genitourinary disease, digestive disease, and cancer.
A Data Book: Health care spending and the Medicare program, June 2016 189

Chart 11-11. Hospice length of stay has changed little since 

2012, after a more than decade-long period of 

growth in the longest stays 

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

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 grew from nearly 54 days in 2000 to 88 days in 

2012 and has held steady at about 88 days through 2014. 

 In 2014, the 10 percent of hospice decedents with the longest stays (i.e., the 90th

percentile) received 247 days or more of hospice care, similar to the two prior years. Before

2012, most growth in hospice length of stay occurred among decedents with the longest 

stays. Between 2000 and 2012, the 90th percentile in length of stay grew from 141 days to 

246 days.

 Short stays in hospice have changed little since 2000. The median length of stay in hospice 

was about 17 days from 2000 to 2014. Hospice length of stay at the 25th percentile has

been 5 or 6 days and at the 10th percentile has been 2 or 3 days since 2000.
190 Other services

Chart 11-12. Hospice length of stay among decedents, by

beneficiary and hospice characteristics, 2014

Average length Length of stay percentiles (in days)

of stay (in days) 10th 50th 90th

Beneficiary

Diagnosis

Cancer 53 3 18 130

Neurological 148 3 33 447

Heart/circulatory 89 2 14 262

Debility or adult failure to thrive 102 3 20 307

COPD 121 2 25 363

Other 48 2 7 124

Site of service

Home 90 4 26 238

Nursing facility 110 3 21 329

Assisted living facility 154 5 51 441

Hospice

For profit 107 3 21 314

Nonprofit 67 2 13 179

Freestanding 91 2 17 257

Home health based 71 2 16 192

Hospital based 58 2 13 152

Note: COPD (chronic obstructive pulmonary disease). Average length of stay is calculated for Medicare beneficiaries who died 

in 2014 and used hospice that year, and it reflects the total number of days the decedent was enrolled in the Medicare 

hospice benefit during his or her lifetime. “Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data, Medicare Beneficiary Database, Medicare 

hospice cost reports, and Provider of Services file data from CMS.

 Hospice average length of stay among decedents varies by both beneficiary and provider 

characteristics. Most of this variation reflects differences in length of stay among patients 

with the longest stays (i.e., at the 90th percentile). Length of stay varies much less for 

patients with shorter stays (i.e., at the 10th or 50th percentile).

 Beneficiaries with neurological conditions, COPD, or debility or adult failure to thrive have 

the longest stays, while beneficiaries with cancer have the shortest stays on average.

 Beneficiaries who receive hospice services in assisted living facilities and nursing facilities 

have longer stays on average than beneficiaries who receive care at home.

 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 2016 191

Chart 11-13. More than half of Medicare hospice spending in

2014 was for patients with stays exceeding 180

days

Medicare hospice spending, 2014

(in billions)

All hospice users in 2014 $15.1

Beneficiaries with LOS > 180 days 8.8

Days 1–180 2.8

Days 181–365 2.8

Days 366+ 3.2

Beneficiaries with LOS ≤ 180 days 6.1

Note: LOS (length of stay). LOS reflects the beneficiary’s lifetime LOS as of the end of 2014 (or at the time of death or discharge 

in 2014 if the beneficiary was not enrolled in hospice at the end of 2014). All spending reflected in the chart occurred only 

in 2014. Break-out groups do not sum to total because of rounding and because they exclude about $0.1 billion in 

payments to hospices for physician visits.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data and the common Medicare enrollment file from 

CMS. 

 In 2014, Medicare hospice spending on patients with stays exceeding 180 days was nearly 

$9 billion, more than half of all Medicare hospice spending that year.

 About $3.2 billion, or about 20 percent, of Medicare hospice spending in 2014 was on 

hospice care for patients who had already received at least one year of hospice.
192 Other services

Chart 11-14. Hospice aggregate Medicare margins, 2007–2013

Share of Medicare margin

hospices

(2013) 2007 2010 2011 2012 2013

All 100% 5.8% 7.4% 8.8% 10.0% 8.6%

Freestanding 72 8.7 10.7 11.8 13.3 12.0

Home health based 13 2.3 3.2 6.1 5.7 2.2

Hospital based 14 –10.9 –16.6 –16.0 –16.8 –16.7

For profit 62 10.4 12.3 14.8 15.4 14.7

Nonprofit 33 1.6 3.0 2.4 3.7 1.2

Government 5 N/A N/A N/A N/A N/A

Urban 74 6.3 7.7 9.1 10.3 8.9

Rural 26 1.4 5.2 6.0 7.3 6.1

Below cap 89.3 6.1 7.7 9.1 10.4 8.8

Above cap 10.7 2.5 3.2 4.1 5.2 7.0

Above cap (including 

cap overpayments) 10.7 20.5 17.4 18.4 21.3 20.2

Note: N/A (not available). Margins for all provider categories exclude overpayments to above-cap hospices except where 

specifically indicated. Margins are calculated based on Medicare-allowable, reimbursable costs. The percentage of 

freestanding and provider-based (home health–based and hospital-based) hospices does not sum to 100 percent

because skilled nursing facility–based hospices are not broken out separately. The percentage of hospices may not sum 

to 100 percent for other categories due to rounding.

Source: MedPAC analysis of Medicare hospice cost reports, 100 percent hospice claims standard analytic file, and Medicare 

Provider of Services data from CMS.

 The aggregate Medicare margin was 8.6 percent in 2013, down from 10.0 percent in 2012.

The implementation of the sequester beginning April 2013 accounts for this decline in the

margin. The sequester reduced hospice revenues in the 2013 cost report year by about 1.3 

percent.

 Margin estimates do not include nonreimbursable costs associated with bereavement 

services and volunteers (which, if included, would reduce margins by at most 1.4 and 0.3 

percentage points, respectively). Margins also do not include the costs and revenues 

associated with fundraising.

 Freestanding hospices had higher margins than provider-based (home health– and hospitalbased) hospices, in part, because of differences in their indirect costs. Provider-based 

hospices’ indirect costs are higher than those of freestanding providers and are likely 

inflated because of the allocation of overhead from the parent provider.

 In 2013, for-profit hospice margins were strong at 14.7 percent. The aggregate margin for 

nonprofit hospices was 1.2 percent. The subset of nonprofit hospices that were freestanding 

had a higher margin, 5.2 percent (not shown in chart).

 Hospices that exceeded the cap (Medicare’s aggregate average per beneficiary payment 

limit) had a margin of more than 20 percent before the return of the cap overpayments.
A Data Book: Health care spending and the Medicare program, June 2016 193

Chart 11-15. Medicare margins were higher among hospices with

more long stays, 2013

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.

Source: MedPAC analysis of Medicare hospice cost reports and 100 percent hospice claims standard analytic file from CMS.

 Medicare’s per diem payment system for hospice provides an incentive for longer lengths of 

stay.

 Hospices with more patients who had stays greater than 180 days generally have higher 

margins. In 2013, hospices in the lowest length-of-stay quintile had a margin of –8.1 percent 

compared with an 18.1 percent margin for hospices in the second highest length-of-stay 

quintile. 

 Margins were somewhat lower in the highest length-of-stay quintile (14.2 percent) compared 

with the second highest quintile (18.1 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 20 percent before the 

return of overpayments (see Chart 11-14).

8.1

1.8

12.8

18.1

14.2

-10

-5

0

5

10

15

20

1 2 3 4 5

Margin (in percent)

Share of providers' patients with stays greater than 180 days, by quintiles
194 Other services

Chart 11-16. Hospices that exceeded Medicare’s annual

payment cap, selected years

2002 2010 2011 2012 2013

Share of hospices 

 exceeding the cap 2.6% 10.1% 9.8% 11.0% 10.7%

Average payments over

 the cap per hospice

 exceeding the cap

 (in thousands) $470 $426 $424 $510 $460

Payments over the cap

 as a percent of overall

 Medicare hospice spending 0.6% 1.1% 1.1% 1.4% 1.3%

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 declined slightly from 11.0 percent in 

2012 to 10.7 percent in 2013. 

 Medicare payments over the cap represented 1.3 percent of total Medicare hospice 

spending in 2013.

 On average, above-cap hospices exceeded the cap by about $460,000 per provider in 2013, 

down from about $510,000 per provider in 2012.
A Data Book: Health care spending and the Medicare program, June 2016 195

Chart 11-17. Hospice live-discharge rates, 2012–2014

2012 2013 2014

Live discharge as a share of 

all discharges 18.5% 18.4% 17.2%

Reason for live discharge

No longer terminally ill 38 42 43

Beneficiary revocation 45 40 39

Transfer hospice providers 10 11 12

Move out of service area 5 5 5

Discharge for cause 2 2 2

Providers’ rate of live discharge as a

share of all discharges, by percentile

10th percentile 9.3 9.3 8.5

25th percentile 13.0 13.2 12.3

50th percentile 19.4 19.4 18.7

75th percentile 30.8 30.2 30.1

90th percentile 50.0 47.4 50.0

Note: The information on reason for live discharge for 2012 is based on data reported for the last six months of 2012. A 

“discharge for cause” may occur under certain circumstances if the patient's behavior is disruptive, abusive, or 

uncooperative. Percentages may not sum to 100 due to rounding.

Source: MedPAC analysis of 100 percent hospice claims standard analytic file. 

 In 2014, about 17.2 percent of hospice discharges were live discharges, down from 18.4 

percent in 2013. 

 In 2014, the most common reasons for live discharge were that the beneficiary was no 

longer terminally ill (43 percent) and the beneficiary revoked his or her hospice election and 

returned to conventional care (39 percent). Live discharges resulting from a patient 

transferring hospice providers, moving out of the hospice provider’s service area, or being 

discharged for cause occurred less frequently.

 Live-discharge rates vary across providers. The 10 percent of hospices with the highest livedischarge rates (i.e., the 90th percentile) had live discharges account for half of their 

discharges in 2014.
196 Other services

Chart 11-18. Margins were higher among hospices with a greater 

share of their patients in nursing facilities, 2013

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.

1.8

6.6

9

16.7

0

2

4

6

8

10

12

14

16

18

1 2 3 4

Medicare margin (in percent)

Share of providers' patients in nursing facilities, by quartiles
A Data Book: Health care spending and the Medicare program, June 2016 197

Chart 11-19. Medicare spending for clinical laboratory services,

2005–2014

 Calendar year

Note: Spending is for services paid under the clinical laboratory fee schedule. Hospital-based services are furnished in labs 

owned or operated by hospitals. Total spending appears on top of each bar. The components of each bar may not sum to 

the total at the top of each bar due to rounding. The spending data include only program payments; there is no beneficiary 

cost sharing for clinical lab services. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2015.

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

CUSTOMARY SOURCE OF DATA FOR THIS CHART) HAD NOT YET BEEN RELEASED FOR 2016. THIS CHART 

REFLECTS DATA FROM THE 2015 MEDICARE TRUSTEES' REPORT. THE READER IS ADVISED TO CONSULT THE 

2016 TRUSTEES' REPORT DIRECTLY, WHEN AVAILABLE, FOR THE MOST CURRENT VERSION OF THESE DATA.

 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 9.7 percent in 2014 because, beginning in 2014,

most lab tests provided in hospital outpatient departments are no longer paid separately under 

the clinical lab fee schedule. Instead, most of these tests are packaged with their associated 

visits or procedures under the hospital outpatient prospective payment system. 

 In 2014, independent and physician-office labs accounted for 67 percent of Medicare spending 

for all lab services; hospital-based labs accounted for the remaining 33 percent. Clinical lab 

services accounted for 1.4 percent of total Medicare spending in 2014 (data not shown).

3.6 3.7 4.0 4.3 4.7 4.8 4.6 5.1 5.2 5.5

3.4 3.5

3.6

3.7

3.5 3.6 3.8

4.0 4.0 2.7

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

Dollars (in billions)

Independent and physician office Hospital based

7.0

7.3

7.6

8.0 8.2 8.4 8.5

9.2 9.2

8.3

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