A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2017
A DATA BOOK 

Health Care Spending 

and the 

Medicare Program 

J UNE 2017

iii 

Introduction 

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

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

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

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

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

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

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

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

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

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

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

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. 

Notes on data 

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

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

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

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

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

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

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

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

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

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

v 

Table of contents 

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

Sections 

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

1-1 Medicare was the largest single purchaser of personal health care, 2015 .................................................. 3

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

1-3 Aggregate Medicare spending for FFS beneficiaries, by sector, 2006–2015 ............................................... 5

1-4 Per capita Medicare spending for FFS beneficiaries, by sector, 2006–2015 ................................................ 6

1-5 Medicare’s share of spending on personal health care varied by type of service, 2015 .............................. 7

1-6 Historically, health care spending has risen as a share of GDP ..................................................................... 8

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

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

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

1-9 Changes in spending per enrollee, Medicare and private health insurance, 1970–2015 .......................... 11

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

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

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

1-12 Medicare HI Trust Fund is projected to be insolvent in 2028 under Trustees’ 

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

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

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

1-15 Medicare HI and SMI benefits and cost sharing per FFS beneficiary, 2013 ............................................. 17

 

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

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

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

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

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

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

2-4 Enrollment in the Medicare program is projected to grow rapidly in the next 20 years .......................... 24

2-5 Characteristics of the Medicare population, 2013 ....................................................................................... 25

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

3-1 Sources of supplemental coverage among noninstitutionalized Medicare beneficiaries, 2013 ............... 29

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

by beneficiaries’ characteristics, 2013 .......................................................................................................... 30

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

by source of payment, 2013 .......................................................................................................................... 31
vi 

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

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

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

by type of supplemental coverage, 2013 ...................................................................................................... 33

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

by insurance and health status, 2013 ............................................................................................................ 34

3-7 Cost of employer-sponsored commercial insurance has grown twice as fast as Medicare costs 

per capita ........................................................................................................................................................ 35

4 Dual-eligible beneficiaries............................................................................................ 37 

4-1 Dual-eligible beneficiaries accounted for a disproportionate share of Medicare spending, 2013 ........... 39

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

age 65 and disabled, 2013 ............................................................................................................................. 40

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

poorer health status, 2013 .............................................................................................................................. 41

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

beneficiaries, 2013 ......................................................................................................................................... 42

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

and non-dual-eligible beneficiaries, 2013 .................................................................................................... 43

4-6 Both Medicare and total spending were concentrated among dual-eligible beneficiaries, 2013 ............. 44

 

5 Quality of care in the Medicare program................................................................... 45 

5-1 SNFs improved on some measures but not others from 2011 to 2015 ..................................................... 47

5-2 Home health agencies’ performance on quality measures from 2004 to 2015 ......................................... 48

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

avoidable rehospitalizations from 2011 to 2015 .......................................................................................... 49

5-4 Dialysis quality of care: Some measures show progress, others need improvement, 2010–2014 ........... 50

5-5 Medicare Advantage quality measures were generally stable between 2014 and 2016 ........................... 51

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

Medicare spent between $2.4 billion and $6.5 billion on these services ................................................... 53

5-7 Between 34 and 72 low-value services provided per 100 FFS beneficiaries in 2014 .............................. 55

5-8 At a minimum, Medicare spent between $2.4 billion and $6.5 billion on low-value care in 2014 ......... 56

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

Short-term hospitals 

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

Medicare program, 2010–2015 .................................................................................................................... 59 

6-2 Percent change in hospital employment, 2014‒2016 .................................................................................. 60

6-3 Growth in Medicare’s FFS payments for hospital inpatient and 

outpatient services, 2006–2015 ..................................................................................................................... 61

6-4 Share of Medicare acute care hospital inpatient discharges by hospital group, 2015 ............................... 62

6-5 Change in share of discharges by major diagnostic categories, 2006 to 2015 .......................................... 63
vii 

6-6 Cumulative change in all-payer hospital outpatient visits and inpatient admissions, 2006–2015 ........... 64

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

FFS beneficiary, 2006–2015 ......................................................................................................................... 65

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

by length of stay, 2006–2015 ........................................................................................................................ 66

6-9 Trends in Medicare inpatient and non-Medicare inpatient length of stay, 2006–2015 ............................ 67

6-10 Share of inpatient admissions preceded by emergency department visit by location, 2006–2015 .......... 68

6-11 Share of Medicare Part A fee-for-service beneficiaries with at least one hospitalization, 2006–2015.... 69

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

inpatient stays, 2010 to 2015 ......................................................................................................................... 70

6-13 Hospital patient experience measures, 2011‒2015 ..................................................................................... 71

6-14 Potentially preventable readmission rates for selected conditions, 2010–2015 ........................................ 72

6-15 Hospital occupancy rates, 2006–2015 .......................................................................................................... 73

6-16 Medicare inpatient payments, by source and PPS hospital group, 2015 ................................................... 74

6-17 Medicare inpatient disproportionate share payments and uncompensated care 

payments, 2012–2017 ................................................................................................................................... 75

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

 2006–2015 ...................................................................................................................................................... 76

6-19 Overall Medicare margin, 2006–2015 ......................................................................................................... 77

6-20 Overall Medicare margin, by urban and rural location, 2006–2015 .......................................................... 78

6-21 Hospital total all-payer margin, 2006–2015 ................................................................................................ 79

6-22 Hospital total all-payer margin, by urban and rural location and critical access hospitals, 2006–2015 .. 80

6-23 Hospital total all-payer margin, by teaching status, 2006‒2015 ................................................................. 81

6-24 Medicare margins by teaching and disproportionate share status, 2015 .................................................... 82 

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

6-26 Change in the private-payer ratio of payments to costs for hospital services, 1987–2015 ....................... 84 

6-27 Markup of hospital charges above costs for Medicare services, 2006–2015 ............................................ 85

Inpatient psychiatric facilities

6-28 Medicare payments to inpatient psychiatric facilities, 2006–2016 ............................................................ 86

6-29 Inpatient psychiatric facilities, 2006–2015 .................................................................................................. 87

6-30 One diagnosis accounted for almost three-quarters of Medicare IPF cases in 2015 ................................. 88

6-31 Characteristics of Medicare IPF users, 2015 ............................................................................................... 89

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

Physicians and other health professionals

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

and other health professionals, 2005–2015 .................................................................................................. 93

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

than input prices and payment updates, 2000–2015 ................................................................................... 94 

7-3 Growth in the volume of clinician services per fee-for-service beneficiary, 2000–2015 ......................... 95

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

compared with privately insured individuals, 2013–2016 .......................................................................... 96

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

more difficulty finding one in primary care, 2013–2016 ............................................................................ 97

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

individuals, and minorities in both groups reported unwanted delays more frequently, 2016 ................. 98
viii 

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

White beneficiaries, 2016 .............................................................................................................................. 99

7-8 Changes in physicians’ professional liability insurance premiums, 2009–2016 ..................................... 100 

7-9 The shares of primary care services billed by APNs and physician assistants have grown, 

2011 and 2015 .............................................................................................................................................. 101

 Hospital outpatient services 

7-10 Spending on hospital outpatient services covered under the outpatient PPS, 2006–2016 ..................... 102

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

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

by type of service, 2015 .............................................................................................................................. 104

7-13 Hospital outpatient services with the highest Medicare expenditures, 2015 ........................................... 105

7-14 Effects of SCH transfer payments on hospitals’ outpatient revenue, 2013–2015 ................................... 106

7-15 Number of observation hours increased, 2006–2015 ................................................................................ 107

Ambulatory surgical centers

7-16 Number of Medicare-certified ASCs increased by 11 percent, 2008–2015 ............................................ 108

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

8-1 Number of post-acute care providers remained stable in 2016 ................................................................ 111

8-2 Growth in Medicare’s fee-for-service post-acute care expenditures has slowed since 2012 ................. 112

Skilled nursing facilities

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

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

8-4 SNF admissions increased but stays were shorter in 2015 compared with 2014 .................................... 114

8-5 Freestanding SNF Medicare margins remained high in 2015 .................................................................. 115

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

SNFs in 2015 ............................................................................................................................................... 116

8-7 Financial performance of relatively efficient SNFs in 2015 reflects a combination of lower 

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

Home health services

8-8 Spending on home health care, 2001–2015 ............................................................................................... 118

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

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

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

Inpatient rehabilitation facilities

8-12 Number of IRF FFS patients increased in 2015 ........................................................................................ 122

8-13 Most common types of inpatient rehabilitation facility cases, 2015 ........................................................ 123

8-14 Inpatient rehabilitation facilities’ Medicare margin by type of facility, 2004–2015 ............................... 124

8-15 Low standardized costs led to high margins for both hospital-based and freestanding IRFs, 2015 ...... 125 
ix 

Long-term care hospitals

8-16 The top 25 MS–LTC–DRGs made up two-thirds of LTCH discharges in 2015 .................................... 126

8-17 The number of Medicare LTCH cases and users continued to decrease between 2014 and 2015 ........ 127

8-18 LTCHs’ per case costs increased more than payments in 2015 ...............................................................128

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

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

9-1 Enrollment in MA plans, 1997–2017 .............................................................................................. 133 

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

9-3 Average monthly rebate dollars, by plan type, 2010–2017 ............................................................. 135

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

9-5 MA and cost plan enrollment by state and type of plan, 2017 ........................................................ 137

9-6 MA plan benchmarks, bids, and Medicare program payments relative to FFS spending, 2017 ...... 138

9-7 Enrollment in employer group MA plans, 2006–2017 ................................................................... 139

9-8 Number of special needs plan enrollees, 2008–2017 ...................................................................... 140

9-9 Number of SNPs and SNP enrollment rose from 2016 to 2017 ..................................................... 141 

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

CMS–HCC model, 2015 .................................................................................................................. 142

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

status, December 2015 ..................................................................................................................... 143

9-12 Distribution of MA plans and enrollment by CMS overall star ratings, March 2017 .................... 144

10 Prescription drugs ...................................................................................................... 147 

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

outpatient departments ................................................................................................................................ 149

10-2 Top 10 Part B drugs paid based on ASP, by type of provider (dollars in millions), 2014 and 2015 ..... 150

10-3 Change in Medicare payments and utilization for separately payable Part B drugs, 2009–2014 .......... 151

10-4 In 2015, 88 percent of Medicare beneficiaries were enrolled in Part D plans or had other 

sources of creditable drug coverage ........................................................................................................... 152

10-5 Changes in parameters of the Part D defined standard benefit over time ................................................ 154

10-6 Characteristics of stand-alone Medicare PDPs .......................................................................................... 156

10-7 Characteristics of MA–PDs ........................................................................................................................ 157

10-8 Change in average Part D premiums, 2013–2017 ..................................................................................... 158

10-9 More premium-free (for LIS enrollees) PDPs in 2017 ............................................................................. 159

10-10 In 2017, most Part D enrollees are in plans that use a five-tier formulary structure ............................... 160

10-11 In 2017, PDPs and MA–PDs apply some utilization management to more than 40 percent 

of listed drugs ............................................................................................................................................... 161

10-12 Characteristics of Part D enrollees, 2014 ................................................................................................... 162

10-13 Part D enrollment trends, 2007–2014 ........................................................................................................ 163

10-14 Part D enrollment by region, 2014 ............................................................................................................. 165

10-15 Components of Part D spending growth .................................................................................................... 167

10-16 The majority of Part D spending was incurred by slightly over one-quarter of all 

Part D enrollees, 2014 ................................................................................................................................. 168

10-17 Characteristics of Part D enrollees, by spending levels, 2014 .................................................................. 169
x 

10-18 Part D spending and use per enrollee, 2014 ............................................................................................... 170

10-19 Trends in Part D spending and use per enrollee, 2007–2014 ................................................................... 171

10-20 Top 15 therapeutic classes of drugs covered under Part D, by spending and volume, 2014 ................. 172

10-21 Drug spending and use and the characteristics of beneficiaries filling the most prescriptions, 2014 .... 174

10-22 Part D spending and use, 2014 ................................................................................................................... 175 

10-23 Part D patterns of prescribing by provider type, 2014 .............................................................................. 176 

10-24 Part D patterns of prescribing for selected specialties, 2014 .................................................................... 178

11 Other services ............................................................................................................. 181

Dialysis

11-1 Number of dialysis facilities is growing, and most facilities are for profit and freestanding ............. 183 

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

dialysis facilities, 2014 and 2015 ......................................................................................................... 184 

11-3 The ESRD population is growing, and most ESRD patients undergo dialysis .................................. 185 

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

ESRD population .................................................................................................................................. 186 

11-5 Characteristics of Medicare fee-for-service dialysis patients, 2015.................................................... 187 

11-6 Aggregate margins varied by type of freestanding dialysis facility, 2015 .......................................... 188 

Hospice

11-7 Number of hospice users and hospice spending increased while average length of stay declined 

slightly in 2015 ..................................................................................................................................... 189 

11-8 Hospice use increased across beneficiary groups from 2000 to 2015 ................................................ 190 

11-9 Number of Medicare-participating hospices has increased due to growth in for-profit hospices ...... 191 

11-10 Hospice cases and length of stay, by diagnosis, 2015 ......................................................................... 192 

11-11 Hospice length of stay among decedents decreased slightly in 2015 due to a decrease in 

length of stay among patients with the longest stays ........................................................................... 193 

11-12 Hospice length of stay among decedents, by beneficiary and hospice characteristics, 2015 ............. 194 

11-13 Nearly 60 percent of Medicare hospice spending in 2015 was for patients with stays 

exceeding 180 days .............................................................................................................................. 195 

11-14 Hospice aggregate Medicare margins, 2008–2014 ............................................................................. 196 

11-15 Medicare margins were higher among hospices with more long stays, 2014 .................................... 197 

11-16 Hospices that exceeded Medicare’s annual payment cap, selected years ........................................... 198 

11-17 Hospice live-discharge rates, 2013–2015 ............................................................................................ 199 

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

nursing facilities, 2014 ......................................................................................................................... 200 

Clinical laboratory

11-19 Medicare spending for clinical laboratory services, 2005–2015 ........................................................ 201 
 

S E C T I O N 

National health care and 

Medicare spending 

A Data Book: Health care spending and the Medicare program, June 2017 3

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

personal health care, 2015 

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 1970–2015,” released December 

2016. 

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

spending accounted for by private health insurance (35 percent in 2015) is greater than 

Medicare’s share (22 percent in 2015). 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 $2.7 trillion spent on 

personal health care in 2015, Medicare accounted for 22 percent, or $605 billion (as noted 

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

administrative and business costs). 

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

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

• Medicare and private health insurance spending includes premium contributions from 

enrollees. 

Medicare

22%

Medicaid

18%

Other third-party 

payers

8%

Private health 

insurance 

35%

Out of pocket

13%

Other health 

insurance 

programs

4%

Total = $2.7 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 2015 = $638 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 2016. 

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

• In 2015, Medicare spending totaled $638 billion for benefit expenses. Managed care was 

the largest spending category (27 percent), followed by inpatient hospital services (22 

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

under the physician fee schedule (11 percent). 

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

2015 than it was in 2006, falling from 31 percent to 22 percent. Spending on beneficiaries 

enrolled in managed care plans grew from 16 percent to 27 percent over the same period. 

Medicare managed care enrollment increased 140 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

22%

Home 

health

3%

Hospice

2%

Managed care

27%

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 2017 5

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

by sector, 2006–2015 

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 2016. 

 

• Medicare spending for FFS beneficiaries has increased significantly since 2006 across all 

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

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

has increased. 

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

averaged 1.5 percent per year from 2006 to 2014. Spending then declined by 1.9 percent 

between 2014 and 2015 (calculated on unrounded numbers). The decline in that 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, in 

aggregate, 10 percent from 2006 to 2015. 

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

averaging 9 percent per year from 2006 to 2015. Aggregate spending on outpatient hospital 

services increased 111 percent from 2006 to 2015. 

125 126 130 131 133 137 139 141 141 138

58 58 60 61 65 68 69 69 70 71

35 38 42 45 47 50 46 47 47 48

21 22 24 26 29 31 34 36

41 44

0

20

40

60

80

100

120

140

160

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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, 2006–2015 

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 2016. 

• Medicare spending per beneficiary in FFS Medicare has increased substantially since 2006 

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

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

level of spending, averaged 2 percent per year from 2006 to 2009 and then was slightly 

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

for inpatient hospital services increased, in aggregate, 5 percent from 2006 to 2015. 

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

throughout the period, averaging 9 percent per year from 2006 to 2015. Spending per 

beneficiary for outpatient hospital services increased, in aggregate, 110 percent from 2006 

to 2015. 

3,502 3,565 3,686 3,737 3,721 3,775 3,757 3,773 3,754 3,688

1,768 1,800 1,867 1,933 2,010 2,084 2,107 2,082 2,116 2,128

972 1,078 1,186 1,275 1,317 1,364 1,246 1,243 1,243 1,268

630 692 754 828 888 956 1,033 1,098 1,242 1,322

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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 2017 7

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

care varied by type of service, 2015 

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

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

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

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

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

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

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

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

Expenditure and Program: Calendar Year 2015,” released December 2016. 

• While Medicare’s share of total personal health care spending was 22 percent in 2015 (see 

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

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

higher share of spending on home health and hospice services (40 percent). 

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

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

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

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

people with limited income and assets. 

25 23

40

24

16

29

18

12

36

32

15

10

57

66

24

44

68

61

0

10

20

30

40

50

60

70

80

90

100

Hospital Clinician Home health

and hospice

Nursing home

and CCR

facilities

Durable

medical

equipment

Retail

prescription

drugs

Share of spending (in percent)

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

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

share of GDP 

Note: GDP (gross domestic product). 

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

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

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

as well as by Medicare. As shown in the chart above, health care spending as a share of 

GDP remained relatively constant between 2009 and 2013. 

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

increasing from 7.9 percent to 17.8 percent. Both private health insurance spending and 

Medicare spending more than tripled over that same time period, increasing from 1.8 

percent to 5.9 percent and from 1.0 percent to 3.6 percent, respectively, as a share of GDP. 

0

2

4

6

8

10

12

14

16

18

20

1975 1980 1985 1990 1995 2000 2005 2010 2015

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 2017 9

Chart 1-7. Despite recent slowdown in per beneficiary 

spending growth, total Medicare spending growth 

rate is projected to rise 

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

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2016 and Congressional Budget Office’s 

2017 Baseline. 

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

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

to 1 percent between 2010 and 2015. 

• For 2016 to 2025, the Trustees and CBO project that growth in per beneficiary spending will 

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

growth rate of 4 percent. 

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

Over the last few years, the enrollment growth rate rose from about 2 percent per year 

historically to 3 percent and is projected to continue growing throughout the next decade. 

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

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

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

annual GDP growth of 5 percent. 

2 1 2 

3 3 3 

10 

6 

7 

1 

4 4 

0

2

4

6

8

10

12

14

1980s 1990s 2000s 2010–2015 Trustees CBO

Average annual change (in percent)

Spending per beneficiary

Enrollment

12

9

4

7

6

7

Historical Projected, 2016−2025
10 National health care and Medicare spending

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

increase as a share of GDP 

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

assumptions. 

 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2016. 

• 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 3.6 percent of GDP in 2015 to 5.5 

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

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

generation reach age 65 and become eligible to receive benefits. 

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

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

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

averaged 6.1 percent per year over the same time frame (data not shown). Between 2016 and 

2040, Medicare spending is projected to continue growing faster than GDP, averaging 6.5 

percent per year compared with an annual average growth rate of 4.6 percent for the 

economy as a whole. Then, between 2041 and 2085, Medicare spending is projected to grow 

only slightly faster than GDP, averaging 5.0 percent per year compared with an annual 

average growth rate of 4.9 percent for the economy as a whole (data not shown). 

1.0

1.7

2.4 2.6

3.6

4.5

5.5 5.7 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
A Data Book: Health care spending and the Medicare program, June 2017 11

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

private health insurance, 1970–2015 

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

Advantage plans. 

Source: CMS Office of the Actuary, National Health Expenditure Accounts 2013 and 2015. 

• 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 somewhat more pronounced since 

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

introduction of the prospective payment system for hospital inpatient services that began in 

1985. In their view, that payment system has allowed Medicare greater success than private 

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

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

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

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

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

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

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

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

spending. 

-5

0

5

10

15

20

25

30

35

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Change in spending per enrollee (percent)

Calendar year

Medicare PHI

Medicare PHI

1970–1979 13.1 14.9 

1980–1989 10.0 13.3 

1990–1999 6.0 5.7 

2000–2009 7.3 7.4 

2010–2015 1.3 3.2 

1970–2015 8.1 9.5 

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

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

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

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

administrative expenses) by fiscal year. 

Source: Congressional Budget Office's January 2017 Baseline; the annual report of the Boards of Trustees of the Medicare trust 

funds 2016. 

 

• 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 2016 and 

2025 will grow at an average annual rate of 6.8 percent or 6.1 percent, respectively. 

Medicare spending will reach $1 trillion in 2022 under the Trustees’ projections and in 2021 

under CBO’s projections. 

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

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

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

beneficiaries, among other factors. 

0

200

400

600

800

1,000

1,200

1,400

2005 2010 2015 2020 2025

Dollars (in billions)

Fiscal year

Trustees

CBO

Actual Projected 
A Data Book: Health care spending and the Medicare program, June 2017 13

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

small group of beneficiaries, 2013 

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

sum to 100 percent due to rounding. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use files 2013. 

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

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

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

costly 50 percent of beneficiaries accounted for only 4 percent of FFS spending. 

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

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

year of life. 

Least costly 50%

4

Next 25%

13

Next 15%

24

Next 5%

18

Next 4%

25

Costliest 1% 17

0

10

20

30

40

50

60

70

80

90

100

Percent of beneficiaries Percent of program spending

Percent

84
14 National health care and Medicare spending

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

in 2028 under Trustees’ intermediate assumptions 

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

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

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

held in the HI Trust Fund. 

 *Under the low-cost assumption, trust fund costs would be below income beginning in 2016 and continue through the 75-

year projection period. 

 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2016. 

 

• 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 2028 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 need to be immediately increased from its 

current rate of 2.90 percent to 3.63 percent to balance the HI Trust Fund over the next 75 

years. Alternatively, Part A spending would need to be immediately reduced by 16 percent. 

Costs exceed income Costs below income HI trust fund assets exhausted

High cost

Intermediate

Low cost

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 ............2090*

Estimate
A Data Book: Health care spending and the Medicare program, June 2017 15

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

Medicare spending 

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

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

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

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

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

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

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2016. 

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

and to 6.0 percent by 2075. 

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

income. They are expected to remain a substantial share of Medicare financing, between 37 

and 47 percent, throughout the 75-year budget period. 

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

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

national priorities. 

0

1

2

3

4

5

6

7

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

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 

2086
16 National health care and Medicare spending

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

workers per HI beneficiary is declining 

 Medicare HI enrollment Workers per HI beneficiary

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

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2016. 

 

• 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 59 million 

beneficiaries today. 

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

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

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

years of the program to 3.0 today and is projected by the Medicare Trustees to fall to 2.4 by 

2029. 

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

0

20

40

60

80

100

1970 1990 2010 2030

Enrollment (in millions)

2.0

2.5

3.0

3.5

4.0

4.5

5.0

1970 1990 2010 2030

Workers per HI beneficiary
A Data Book: Health care spending and the Medicare program, June 2017 17

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

per FFS beneficiary, 2013

Average benefit in 2013 

(in dollars)

Average cost sharing in 2013 

(in dollars)

HI $4,819 $426 

SMI 4,958 1,275 

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

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

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

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

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

 

• In calendar year 2013, the Medicare program made $4,819 in HI (Part A) benefit payments 

and $4,958 in SMI (Part B) benefit payments on average per FFS beneficiary. 

• Beneficiaries owed an average of $426 in cost sharing for HI and $1,275 in cost sharing for 

SMI in calendar year 2013. (Cost sharing excludes all monthly premiums.) 

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

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

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

coverage. 

 

S E C T I O N 

Medicare beneficiary 

demographics 

A Data Book: Health care spending and the Medicare program, June 2017 21

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

of the Medicare population and program spending, 

2013 

Percent of beneficiaries Percent of spending 

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

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

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

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

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2013. 

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

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

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

remaining population and spending. 

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

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

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

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

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

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

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

Disabled

16.3%

ESRD

0.9%

Aged

82.7%

Disabled

18.5%

ESRD

5.6%

Aged

75.6%

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

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

2013 

Percent of beneficiaries Percent of spending 

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

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2013. 

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

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

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

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

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

Under 

65

16.7%

65–74

45.9%

75–84

24.9%

85+

12.5% Under 

65

21.0%

65–74

34.7%

75–84

27.5%

85+

16.8%

Average per capita = $11,239
A Data Book: Health care spending and the Medicare program, June 2017 23

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

accounted for a disproportionate share of 

 Medicare spending, 2013 

Percent of beneficiaries Percent of spending 

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

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

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2013. 

• In 2013, most beneficiaries reported fair to excellent health. Fewer than 10 percent reported 

poor health. 

• Medicare spending is strongly associated with self-reported health status. In 2013, per 

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

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

poor health (data not shown). 

Poor health

8.3%

Good or 

fair 

health

46.5%

Excellent 

or very 

good 

health

44.6%

Poor 

health

17.9%

Good or 

fair 

health

56.0%

Excellent 

or very 

good 

health

25.3%

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

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

grow rapidly 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 2016. 

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

million in 2013 to about 81 million in 2030. 

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

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

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

20.1

28.0

33.7

39.3

47.4

63.7

80.9

88.4

92.2

98.7

106.0

112.6

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 2017 25

Chart 2-5. Characteristics of the Medicare population, 2013 

Percent of the Percent of the 

 Medicare Medicare 

Characteristic population Characteristic population 

 

Total (53.9 million) 100% Living arrangement

 Institution 4% 

Sex Alone 26 

 Male 46 With spouse 47 

 Female 54 Other 21 

 

Race/ethnicity Education 

White, non-Hispanic 75 No high school diploma 20 

 African American, High school diploma only 27 

 non-Hispanic 9 Some college or more 52 

 Hispanic 10 

Other 6 Income status

 Below poverty 16 

Age 100–125% of poverty 8 

 <65 17 125–200% of poverty 20

 65–74 46 200–400% of poverty 30 

 75–84 25 Over 400% of poverty 25 

 85+ 13 

 Supplemental insurance status 

Health status Medicare only 16 

 Excellent or very good 45 Managed care 30 

 Good or fair 47 Employer-sponsored insurance 25 

 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 2013, poverty was defined as income of $11,173 for people living alone and $14,095 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 2013. 

• Most Medicare beneficiaries are female and White. 

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

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

• Twenty 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.

S E C T I O N 

Medicare beneficiary and 

other payer financial liability

 A Data Book: Health care spending and the Medicare program, June 2017 29

Chart 3-1. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, 2013 

Note: Beneficiaries are assigned to the supplemental coverage category they were in for the most time in 2013. They could 

have had coverage in other categories during 2013. “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 2013 or who had Medicare 

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2013. 

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

or replaces the Medicare benefit package. In 2013, about 86 percent of beneficiaries had 

supplemental coverage or participated in Medicare managed care. 

• About 40 percent of beneficiaries had private sector supplemental coverage such as medigap 

(about 17 percent) or employer-sponsored retiree coverage (about 23 percent). 

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

• About 33 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

16.9%

Employersponsored 

insurance

22.6%

Medicaid

12.0% Other public sector

1.0%

Medicare managed 

care

33.5%

No supplemental 

coverage

13.9%
30 Medicare beneficiary and other payer financial liability

Chart 3-2. Sources of supplemental coverage among 

noninstitutionalized Medicare beneficiaries, by 

beneficiaries’ characteristics, 2013 

 Number of Employer- Medicare Other 

 beneficiaries sponsored Medigap managed public Medicare 

 (thousands) insurance insurance Medicaid care sector only 

 

All beneficiaries 45,483 23% 17% 12% 33% 1% 14% 

Age 

 <65 7,484 7 4 36 28 2 23 

 65–69 11,050 20 19 8 33 1 19 

 70–74 9,480 27 19 6 37 1 10 

 75–79 7,181 28 19 7 36 1 9 

 80–84 5,059 28 21 7 34 1 9 

 85+ 5,289 30 21 8 32 1 9 

Income category 

 <$10,000 5,773 6 6 44 30 1 13 

 $10,000–$19,999 12,359 10 13 21 37 2 16 

 $20,000–$29,999 8,343 25 17 3 37 1 17 

 $30,000–$39,999 5,938 28 21 1 34 0 15 

 $40,000–$59,999 5,738 33 22 0 34 0 11 

 $60,000–$89,999 4,012 43 18 0 28 0 11 

≥$90,000 3,320 41 29 0 22 0 8 

Eligibility status 

 Aged 37,854 26 19 7 35 1 12 

 Disabled 7,229 7 4 37 28 2 22 

 ESRD 345 16 13 22 24 2 22 

Residence 

 Urban 34,988 23 15 11 37 1 12 

 Rural 10,495 22 23 14 21 1 19 

Sex 

 Male 20,341 23 16 11 33 1 17 

 Female 25,142 23 18 13 34 1 12 

Health status 

 Excellent/very good 20,668 26 20 6 35 1 12 

 Good/fair 21,098 21 15 15 33 1 15 

 Poor 3,526 12 10 29 29 2 19 

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

most time in 2013. They could have had coverage in other categories during 2013. “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 excludes beneficiaries living in institutions 

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

2013 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 2013. 

• 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 $40,000, are eligible because of disability or ESRD, are rural 

dwelling, are male, and report poor health. 
 A Data Book: Health care spending and the Medicare program, June 2017 31

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

noninstitutionalized FFS Medicare beneficiaries, by 

source of payment, 2013 

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

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

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

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2013. 

• 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 $15,000 in 2013. Medicare was the largest source of 

payment: It paid 65 percent of the health care costs for FFS beneficiaries living in the 

community, an average of $9,748 per beneficiary. The level of Medicare spending in this 

chart differs from the level in Chart 2-1 because this chart excludes beneficiaries in 

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

beneficiaries. 

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

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

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

per beneficiary. 

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

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

Medicare

65%

Beneficiaries' 

direct spending

13%

Private 

supplements

15%

Public 

supplements

7%

Per capita total spending = $14,948
32 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, 2013 

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

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

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2013. 

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

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

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

beneficiaries with the lowest total spending averaged $439. 

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

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

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

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

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

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

10 percent of beneficiaries with the highest total spending. 

439 1,777 4,460

10,214

23,623

74,130

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

<10 10–25 25–50 50–75 75–90 >90

Dollars

Groups of beneficiaries ranked by total spending (percentile ranges)

Medicare

Supplemental payers

Out of pocket
 A Data Book: Health care spending and the Medicare program, June 2017 33

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

among noninstitutionalized FFS beneficiaries, by 

type of supplemental coverage, 2013 

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

2013. They could have had coverage in other categories during 2013. “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. 

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

excludes beneficiaries who were not in FFS Medicare or lived in institutions such as nursing homes. It excludes beneficiaries 

who were not in both Part A and Part B throughout their enrollment in 2013 or had Medicare as a second payer. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2013. 

• 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—79 percent higher than those with no supplemental coverage in 2013. 

• 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 or Medicaid supplemental coverage, combined public and private 

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

covered by medigap, medigap with employer-sponsored insurance, or only by Medicare, 

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

9,457 10,183 9,410

19,036

8,336

16,495

3,239 1,708 3,469

131

833

125

872

387

373

1,944

863

1,666

2,156

2,333

4,151

829

2,253

2,717

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
34 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, 2013 

Note: ESI (employer-sponsored supplemental insurance). The amount of out-of-pocket spending on services for Medicare-only 

beneficiaries who have fair or poor health increased substantially over the amount on the analogous chart from our June 2016 

data book. The reason for this increase was that the data sample we used in this chart had fewer beneficiaries reporting zero outof-pocket spending than the sample we used for the June 2016 data book. Likewise, the amount of out-of-pocket spending on 

services for beneficiaries who have both medigap and ESI coverage and report good, very good, or excellent health in this chart is 

substantially higher than in the analogous chart from our June 2016 data book. The reason for this increase is that the sample we 

used in this chart had one observation with an extremely high level of out-of-pocket spending. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2013.

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

insurance and health status in 2013. For example, beneficiaries who had only traditional Medicare coverage 

(“Medicare only”) and reported fair or poor health averaged $1,409 in out-of-pocket spending on premiums 

and $3,020 on services in 2013. Those who had Medicare-only coverage and reported good, very good, or 

excellent health averaged $1,657 in out-of-pocket spending on premiums and $1,953 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, except for those who had medigap and employersponsored supplemental coverage. This result for those who had medigap and employer-sponsored 

coverage is likely an artifact of a small sample size. 

• Despite having supplemental coverage, beneficiaries who had ESI or medigap often 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. 

1,409 1,657

2,866 3,120 4,232

4,518

6,468

4,189

99 117

2,166 1,549

3,020 1,953

3,306

1,914

3,752

2,031

2,499

4,555

1,006 642

2,942

2,565

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

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

− + − + − + − + − +
 A Data Book: Health care spending and the Medicare program, June 2017 35

Chart 3-7. Cost of employer-sponsored commercial insurance 

has grown twice as fast as Medicare costs per capita 

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

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

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

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

spending for 2016 is a projection. 

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

price growth for Medicare services. 

• Per capita costs in FFS Medicare grew by 23 percent from 2007 to 2016. This 23 percent growth rate 

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

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

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

a shrinking of the coverage gap. 

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

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

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

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

grew at a slightly slower rate than HMO premiums. 

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

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

0%

10%

20%

30%

40%

50%

60%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Percent

Employer-sponsored HMO premium

growth for a single person

Employer-sponsored PPO premium

growth for a single person

Medicare per capita FFS cost growth

(Part A, Part B, Part D), before

imposition of the sequester

S E C T I O N 

Dual-eligible 

beneficiaries 

A Data Book: Health care spending and the Medicare program, June 2017 39

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

disproportionate share of Medicare spending, 2013 

Percent of FFS beneficiaries Percent of FFS spending 

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

exceeded the months they were enrolled in supplemental insurance. 

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2013. 

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

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

health care. 

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

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

represented 32 percent of aggregate Medicare FFS spending. 

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

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

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

shown). 

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

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

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

shown). 

Dual 

eligible

18%

Non-dual 

eligible

82%

Dual 

eligible

32%

Non-dual 

eligible

68%
40 Dual-eligible beneficiaries

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

non-dual-eligible beneficiaries to be under age 65 

and disabled, 2013 

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. 

Source: MedPAC analysis of Medicare Current Beneficiary Survey, Cost and Use file 2013. 

• 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 2013, 44 percent of dual-eligible beneficiaries were under age 65 

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

Under 65 

(disabled)

44%

65-74

25%

75-84

18%

85+

13%

Under 65 

(disabled)

13%

65-74

49%

75-84

26%

85+

12%
A Data Book: Health care spending and the Medicare program, June 2017 41

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

non-dual-eligible beneficiaries to report poorer 

health status, 2013 

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 2013. 

 

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

poorer health status. In 2013, 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 2013. 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

45%

Excellent 

or very 

good 

health

48%
42 Dual-eligible beneficiaries

Chart 4-4. Demographic differences between dual-eligible 

beneficiaries and non-dual-eligible beneficiaries, 2013 

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

Sex 

 Male 40% 46% 

 Female 60 54 

Race/ethnicity 

 White, non-Hispanic 54 78 

 African American, non-Hispanic 19 8 

 Hispanic 17 9 

 Other 10 5 

Limitations in ADLs 

 No limitations in ADLs 42 67 

 Limitations in 1–2 ADLs 27 22 

 Limitations in 3–6 ADLs 32 11 

Residence 

 Urban 73 78 

 Rural 27 22 

Living arrangement 

 Institution 15 2 

 Alone 31 26 

 With spouse 14 54 

 With children, nonrelatives, others 39 19 

Education 

 No high school diploma 43 17 

 High school diploma only 30 27 

 Some college or more 27 56 

Income status 

 Below poverty 59 10 

 100–125% of poverty 20 7 

 125–200% of poverty 17 21 

 200–400% of poverty 4 34 

 Over 400% of poverty <1 29 

Supplemental insurance status 

 Medicare or Medicare/Medicaid only 93 19 

 Medicare managed care 3 34 

 Employer-sponsored insurance 1 29 

 Medigap <1 16 

 Medigap/employer 0 1 

 Other* 3 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 2013, poverty was defined as annual income of $11,173 for people 

living alone and $14,095 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 2013. 

• Dual-eligible beneficiaries qualify for Medicaid due in part to low incomes. In 2013, 59 percent of dualeligible beneficiaries lived below the federal poverty level, and 96 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 2017 43

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

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

 Dual-eligible Non-dual-eligible 

Service beneficiaries beneficiaries 

Average FFS Medicare payment for all beneficiaries 

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

Inpatient hospital 6,340 2,821 

Physiciana 3,445 2,377 

Outpatient hospital 2,283 1,307 

Home health 771 387 

Skilled nursing facilityb 1,608 573 

Hospice 473 231 

Prescribed medicationc

 4,740 1,322 

Share of FFS beneficiaries using service 

Share using any type of service 97.9% 86.1% 

Inpatient hospital 25.4 14.7 

Physiciana 93.6 81.6 

Outpatient hospital 78.5 61.1 

Home health 13.5 8.1 

Skilled nursing facilityb 9.3 4.1 

Hospice 3.9 1.9 

Prescribed medicationc

 80.5 53.6 

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

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

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

official estimates from CMS Office of the Actuary. Total payments may not equal the sum of line items due to omitted 

“other” category. 

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

b Individual short-term facility (usually skilled nursing facility) stays for the MCBS population. c Data from Medicare Advantage–Prescription Drug plans and stand-alone prescription drug plans. 

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use file 2013. 

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

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

• For each type of service, average Medicare FFS per capita spending 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. 
44 Dual-eligible beneficiaries

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

among dual-eligible beneficiaries, 2013 

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

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

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

Source: MedPAC analysis of the Medicare Current Beneficiary Survey, Cost and Use files 2013. 

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

number. The costliest 20 percent of dual-eligible beneficiaries accounted for 69 percent of 

Medicare spending and 53 percent of total spending on dual-eligible beneficiaries in 2013. In 

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

percent of Medicare spending and 22 percent of total spending on dual-eligible 

beneficiaries. 

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

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

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

8

50

22

24

30

25

34

15

28

35

5

25

0

10

20

30

40

50

60

70

80

90

100

Medicare spending for dualeligible beneficiariesShare of dual-eligible

beneficiaries

Total spending for dual-eligible

beneficiaries

Percent
S E C T I O N 

Quality of care in the 

Medicare program 

A Data Book: Health care spending and the Medicare program, June 2017 47

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

from 2011 to 2015 

Measure 2011 2012 2013 2014 2015 

Discharged to the community 33.2%

 

35.6%

 

37.5% 37.6% 38.8% 

Potentially avoidable readmissions 

 During SNF stay 12.4 11.4 11.1 10.8 10.4 

 During 30 days after discharge from SNF 5.9 5.6 5.5 5.6 5.0 

Rate of improvement in one or more mobility ADLs 43.6 43.6 43.6 43.4 43.5 

Rate of no decline in mobility 87.2 87.3 87.2 87.1 87.1 

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

High readmission rates indicate worse quality. 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 2011–2015. 

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

the SNF stay improved between 2011 and 2015. A greater share of beneficiaries was 

discharged to the community (38.8 percent compared with 33.2 percent). A lesser share of 

beneficiaries was readmitted to an acute care hospital during the SNF stay (10.4 percent 

compared with 12.4 percent) or in the 30 days after discharge (5.0 percent compared with 

5.9 percent). 

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

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

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

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

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

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

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

between 2011 and 2015. The mobility measures are composites of the patients’ abilities in 

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

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

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

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

shows the share of stays with improvement in one, two, or three ADLs: 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. 
48 Quality of care in the Medicare program 

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

measures from 2004 to 2015 

Measure 2004 2008 2013 2014 2015 

Hospitalization rate 27.7% 28.8% 26.5% 27.8% 25.4% 

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

 Walking 35.9 41.9 54.4 56.0 66.9 

 Transferring 49.2 48.1 50.5 51.3 63.3 

Note: The measure for walking changed in 2011; 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. 

• The average risk-adjusted rate of hospitalization for home health stays has decreased in 

recent years, but remains over 25 percent. 

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

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

include home health episodes that end with a hospitalization. The share of an agency’s 

beneficiaries with improvement in walking had meaningful improvement (more than 10 

percentage points) from 2014 to 2015. The share of an agency’s beneficiaries with 

improvement in transferring also increased more than 10 percentage points from 2014 to 

2015. 

 
A Data Book: Health care spending and the Medicare program, June 2017 49

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

the community and potentially avoidable 

rehospitalizations from 2011 to 2015 

Measure 2011 2012 2013 2014 2015 

Potentially avoidable rehospitalizations 

during IRF stay 2.9% 2.6% 2.5% 2.5% 2.4% 

Potentially avoidable rehospitalizations 

during 30 days after discharge from IRF 5.0 4.6 4.6 4.5 4.2 

Discharged to the community 74.0 75.2 75.8 76.2 76.0 

Discharged to a SNF 6.9 6.7 6.7 6.9 6.8 

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

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

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

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

• Between 2011 and 2015, the national average rate of risk-adjusted potentially avoidable 

rehospitalizations during the IRF stay declined from 2.9 percent to 2.4 percent. (Lower rates 

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

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

between 2011 and 2015 from 5.0 percent to 4.2 percent. 

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

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

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

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

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

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

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

• Between 2011 and 2015, the national average for the risk-adjusted community discharge 

rate increased from 74.0 percent to 76.0 percent (higher rates are better). Our measure of 

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

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

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

essentially unchanged. 

 
50 Quality of care in the Medicare program 

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

progress, others need improvement, 2010–2014 

Outcome measure 2010 2012 2014 

Percent of in-center hemodialysis patients: 

 Receiving adequate dialysis 96% 97% 97% 

 Managing anemia 

 Mean hemoglobin 10 to <12 g/dL 60 71 70 

 Mean hemoglobin ≥12 g/dL* 30 7 5 

 Mean hemoglobin <10 g/dL 10 22 26 

 Dialyzed with an AV fistula 56 60 62 

Percent of peritoneal dialysis patients: 

 Receiving adequate dialysis 88 90 91 

 Managing anemia 

 Mean hemoglobin 10 to <12 g/dL 60 64 61 

 Mean hemoglobin ≥12 g/dL* 27 7 6 

 Mean hemoglobin <10 g/dL 14 29 33 

Percent of all dialysis patients wait-listed for a kidney 18 18 17 

Renal transplant rate per 100 dialysis-patient years 4.1 3.7 3.6 

Annual mortality rate per 100 patient years* 18.4 17.2 16.6 

Total hospital admissions per patient year* 2.0 1.9 1.7 

Hospital days per patient year 12.8 12.0 11.0 

 

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

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

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

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

 *Lower values suggest higher quality. 

Source: Compiled by MedPAC with data from Fistula First, the United States Renal Data System, and 2012 and 2014 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 2010 and 2014, use of arteriovenous 

fistulas, considered the best type of vascular access, increased from 56 percent to 62 percent 

of hemodialysis patients. Between 2010 and 2014, overall adjusted mortality rates decreased 

by 9.3 percent (from 18.4 percent to 16.6 percent). 

• Between 2010 and 2014, the proportion of hemodialysis patients receiving adequate dialysis 

remained high. Between 2010 and 2014, 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 2010 and 2014, 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 2017 51

Chart 5-5. Medicare Advantage quality measures were 

generally stable between 2014 and 2016 

HMO averages 

(cost plans included) Local PPO averages 

Measures 2014 2015 2016 2014 2015 2016 

HEDIS® administrative measures 

 Osteoporosis management a 29.2bc 37.9a 40.8c 22.7bc 39.3a 31.9c

 Rheumatoid arthritis management 76.1c

 76.7c 77.5c 80.6c 81.1c 79.7c

HEDIS® hybrid measures 

 BMI documented 90.1bc 93.3bc 93.7c

 86.5bc 90.0bc 89.9c

 Colorectal cancer screening 65.1bc 66.9bc 68.0 61.8bc 63.4c

 66.9b

 Controlling blood pressured

 65.8b 71.1 69.7 63.9b 69.0 67.1 

Eye exam to check for damage from diabetesa

 68.8 69.2a 70.2a 67.3 69.3a 69.4a

Kidney function testing for members with diabetesa

 91.4bc 92.2a 95.8abc 89.6bc 90.3a 94.7abc

Diabetics not controlling blood sugar 

 (lower rate better)a

 24.3c

 24.2a 25.1a 25.1bc 24.6ab 25.4a

Measures from HOSe

 Advising physical activity 50.3c 51.4bc 53.3bc 48.4c

 49.4c 55.1bc

 Reducing the risk of falling 62.3c 62.2c 58.3bc 56.5c 57.1c 53.6bc

Other measures based on HOS 

 Improving or maintaining physical health 68.8b 68.3 67.7 68.3b 68.3 68.0 

 Improving or maintaining mental health 79.1bc 78.7c 84.6bc 80.3bc 80.1c

 85.6bc

 Measures from CAHPS®

 Annual flu vaccine 72.3b 71.7c 71.9c

 73.8 74.1c 73.8c

 Ease of getting needed care and seeing specialists 83.6bc 83.0c 82.6c

 85.3bc 84.9c 84.4c

 Getting appointments and care quickly 76.0c 75.7c 75.5c

 77.2bc 76.8c 76.8c

 Overall rating of health care quality 86.0 85.4bc 85.8 86.4 86.4c

 86.0 

 Overall rating of plan 85.8 85.0b 84.8c

 85.1 84.3b 83.5c

 Care coordination 85.1 84.9c 85.0c

 85.8 85.7c 86.0c

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 such as claims; 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 Commission reporting. The 2015 

local PPO rate for osteoporosis management is a correction of the previously reported rate. 

a NCQA advises caution in the evaluation of the rates for measures for diabetic care in 2016 because of coding changes for 

identifying beneficiaries with a diagnosis of diabetes. For 2015, NCQA advised caution in the evaluation of the rates for 

diabetic care and for the osteoporosis management rate because of 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 

prior-year results. 

e Results shown for HEDIS measures taken from the HOS (the two 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) 
52 Quality of care in the Medicare program 

Chart 5-5. Medicare Advantage quality measures were 

generally stable between 2014 and 2016 (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. For example, 

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 five items in the table, have a 

weight of 1.5. 

• The table includes two HEDIS intermediate-outcome measures used in the star ratings: 

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

blood sugar. Neither had statistically significant improvement in the most recent data 

compared with the prior year (though the NCQA has advised caution in the interpretation of 

the current measures for diabetes care because of changes in coding affecting diabetes 

diagnoses). For the HOS-based outcome measures, both HMOs and PPOs performed 

better in 2016 than 2015 in the measure for improving or maintaining mental health. There 

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

with PPOs better by a small margin. 

• Among HMOs, 4 of the 18 listed measures show statistically significant changes between 

2015 and 2016. Two of the four measures improved by 4 percent (kidney function testing for 

members with diabetes and advising physical activity); one improved by 7 percent (the HOS 

improvement of mental health measure); and one measure declined by 6 percent (reducing 

the risk of falling). (Note that percent change is reported rather than percentage point 

change.) Among local PPOs, 5 of the 18 listed measures showed statistically significant 

changes in 2016 over 2015: the same 4 as for HMOs plus the colorectal cancer screening 

measure. For local PPOs, the kidney function testing measure improved by 5 percent, and 

the HOS mental health improvement measure improved by 7 percent (for this latter 

measure, the same percentage improvement as for HMOs). Two measures showed greater 

improvement among local PPOs: the kidney function testing measure, at 5 percent versus 4 

percent for HMOs; and the advising physical activity measure, at 12 percent for local PPOs 

and 4 percent for HMOs. For local PPOs, the colorectal cancer screening measure improved 

by 6 percent and is now very close to the rate for HMOs. The one measure that declined 

among local PPOs—reducing the risk of falling—declined by 6 percent, the same 

percentage as among HMOs. 

• In 2016, 12 of the 18 listed measures showed statistically significant differences in 

performance between HMOs and PPOs. Six of the 12 measures had a difference of 3 

percent or more (which can be thought of as a meaningful difference) between the two plan 

types. Half of the six measures were better among HMOs, and half were better among local 

PPOs. HMOs had better performance in osteoporosis management (22 percent better 

among HMOs), BMI documented (4 percent better), and reducing the risk of falling (8 

percent better). The measures for which local PPOs showed better performance of at least 3 

percent were rheumatoid arthritis management, advising physical activity, and annual flu 

vaccination. 
A Data Book: Health care spending and the Medicare program, June 2017 53

Chart 5-6. Between 34 and 72 low-value services provided per 

100 FFS beneficiaries in 2014; Medicare spent 

between $2.4 billion and $6.5 billion on these services 

Measure 

Broader version of measures Narrower version of measures 

Count per 100 

beneficiaries

Share of 

beneficiaries 

affected 

Spending 

(millions) 

Count per 100 

beneficiaries 

Share of 

beneficiaries 

affected 

Spending 

(millions) 

Imaging for nonspecific 

low back pain 12.0 8.9% $232 3.4 3.1% $66 

PSA screening at age ≥75 years 9.0 6.2 79 5.1 4.2 44 

Colon cancer screening 

for older adults 8.0 7.5 405 0.3 0.3 3 

Spinal injection for low back pain 6.6 3.3 1,261 3.4 2.0 643 

Carotid artery disease screening in 

asymptomatic adults 5.1 4.6 268 4.2 3.8 221 

Preoperative chest radiography 4.6 4.1 67 1.1 1.1 17 

PTH testing in early CKD 4.5 2.6 83 3.9 2.3 71 

Stress testing for stable 

coronary disease 4.3 4.1 1,198 0.5 0.5 137 

T3-level testing for patients with 

hypothyroidism 3.8 2.2 23 3.8 2.2 23 

Head imaging for headache 3.6 3.3 242 2.4 2.2 160 

Cervical cancer screening at 

age >65 years 2.2 2.2 44 1.9 1.9 39 

Homocysteine testing in 

cardiovascular disease 1.5 1.2 12 0.4 0.3 3 

Head imaging for syncope 1.2 1.1 78 0.8 0.7 51 

Preoperative echocardiography 0.8 0.8 62 0.2 0.2 19 

Preoperative stress testing 0.6 0.6 177 0.2 0.2 60 

Screening for carotid artery disease 

for syncope 0.6 0.6 33 0.4 0.4 23 

CT for rhinosinusitis 0.6 0.5 39 0.2 0.2 17 

Vitamin D testing in absence of 

hypercalcemia or decreased kidney 

function 0.5 0.4 8 0.5 0.4 8 

Imaging for plantar fasciitis 0.5 0.4 9 0.4 0.3 6 

BMD testing at frequent intervals 0.4 0.4 9 0.3 0.3 6 

Cancer screening for patients with CKD 

on dialysis 0.4 0.3 9 0.1 0.1 1 

PCI/stenting for stable 

coronary disease 0.3 0.3 1,284 0.1 0.1 216 

Arthroscopic surgery for knee 

osteoarthritis 0.2 0.2 204 0.1 0.1 108 

Vertebroplasty 0.2 0.2 338 0.2 0.2 327 

Preoperative PFT 0.2 0.2 2 0.1 0.1 1 

Hypercoagulability testing after DVT 0.2 0.1 5 0.1 0.1 2 

IVC filter placement 0.1 0.1 33 0.1 0.1 33 

Carotid endarterectomy for 

asymptomatic patients 0.1 0.1 165 0.03 0.03 66 

EEG for headache 0.1 0.1 4 0.04 0.04 2 

Renal artery stenting 0.1 0.1 152 0.02 0.02 51 

Pulmonary artery catheterization in ICU 0.01 0.01 0.2 0.01 0.01 0.2 

Total 72.2 37.4 6,526 34.2 22.5 2,425 

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

Chart 5-6. Between 34 and 72 low-value services provided per 

100 FFS beneficiaries in 2014; Medicare spent 

between $2.4 billion and $6.5 billion on these services 

(continued) 

Note: FFS (fee-for-service), PSA (prostate-specific antigen), PTH (parathyroid hormone), CKD (chronic kidney disease), CT 

(computed tomography), BMD (bone mineral density), PCI (percutaneous coronary intervention), PFT (pulmonary function 

test), DVT (deep vein thrombosis), IVC (inferior vena cava), EEG (electroencephalography), ICU (intensive care unit). 

“Count” refers to the number of unique services. Numbers may not sum to totals due to rounding. The totals for share of 

beneficiaries affected do not equal the column sums because some beneficiaries received services covered by multiple 

measures. Spending includes Medicare Part A and Part B program spending and beneficiary cost sharing for services 

detected by measures of low-value care. Spending is based on a standardized price for each service from 2009 that was 

updated to 2014. 

Source: MedPAC analysis of 100 percent of Medicare claims using measures developed by 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 care in 

which the risk of harm from the service outweighs its potential benefit. 

• The 31 measures of low-value care in this chart were developed by a team of researchers. 

The measures are drawn from evidence-based lists—such as Choosing Wisely—and the 

medical literature. We applied these measures to 100 percent of Medicare claims data from 

2014. These 31 measures do not represent all instances of low-value care; the actual 

number (and corresponding spending) may be much higher. 

• The researchers developed two versions of each measure: a broader 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 instances of inappropriate use. 

• Based on the broader versions of the measures, there were about 72 instances of low-value 

care per 100 beneficiaries in 2014, and about 37 percent of beneficiaries received at least 

one low-value service. Medicare spending for these services was $6.5 billion. Based on the 

narrower versions of the measures, there were about 34 instances of low-value care per 100 

beneficiaries, and almost 23 percent of beneficiaries received at least one low-value service. 

Medicare spending for these services totaled about $2.4 billion. 
A Data Book: Health care spending and the Medicare program, June 2017 55

Chart 5-7. Between 34 and 72 low-value services provided per 

100 FFS beneficiaries in 2014 

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

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

• We assigned each of the 31 measures of low-value care from Chart 5-6 to 1 of 6 clinical 

categories. 

• Imaging and cancer screening accounted for 60 percent of the volume of low-value care per 

100 beneficiaries among the broader versions of the measures. The “imaging” category 

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

artery disease in asymptomatic adults. The cancer screening category includes prostatespecific antigen testing for men age 75 or older and colorectal cancer screening for older 

adults. 

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

testing accounted for 61 percent of the volume of low-value care per 100 beneficiaries. 

0

10

20

30

40

50

60

70

80

Broader measures Narrower measures

Count per 100 beneficiaries

Cardiovascular testing and procedures

Preoperative testing

Other surgery

Diagnostic and preventive testing

Cancer screening

Imaging

Total: 72

Total: 34
56 Quality of care in the Medicare program 

Chart 5-8. At a minimum, Medicare spent between $2.4 billion 

and $6.5 billion on low-value care in 2014 

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

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

payment rates. The standardized price is the median payment amount per service in 2009, adjusted for the increase in 

payment rates between 2009 and 2014. This method was developed by Schwartz et al. (2014). 

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

• Cardiovascular testing and procedures and other surgery accounted for 71 percent of total 

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

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

• The “cardiovascular testing and procedures” category includes stress testing for stable 

coronary disease and percutaneous coronary intervention with balloon angioplasty or stent 

placement for stable coronary disease. The “other 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 adults. 

• 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. Also, we are not capturing all low-value care through 

these 31 measures. 

0

1

2

3

4

5

6

7

Broader measures Narrower measures

Medicare spending (billions of dollars)

Cardiovascular testing and procedures

Preoperative testing

Other surgery

Diagnostic and preventive testing

Cancer screening

Imaging

Total: $6.5

Total: $2.4
 

S E C T I O N 

Acute inpatient services 

Short-term hospitals 

Inpatient psychiatric facilities 

A Data Book: Health care spending and the Medicare program, June 2017 59

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

participating in the Medicare program, 2010–2015 

 

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 2015, with 24 acute 

care hospitals closing (less than 1 percent of all acute care hospitals participating in the 

Medicare program) and 13 hospitals starting participation in the Medicare program. 

• In 2015, rural hospital closures accounted for half of all hospital closures. Roughly a dozen 

rural hospitals have closed in each of the three most recent years (2013 to 2015). Rural 

hospital closures could in part reflect declining inpatient volume at many rural hospitals. 

 

3

6 7

12

13

12

29

14

17

14

9

13

11

16

22

30

24 24

0

5

10

15

20

25

30

35

2010 2011 2012 2013 2014 2015

Number of hospitals

Rural closed hospitals All newly opened hospitals All closed hospitals
60 Acute inpatient services

Chart 6-2. Percent change in hospital employment, 2014‒2016 

 

Source: MedPAC analysis of Bureau of Labor Statistics, Current Employment Statistics data set as of March 2017. 

• The Bureau of Labor Statistics survey of current employment data concludes that the 

number of individuals employed within the hospital industry directly increased 6.6 percent 

from January 2014 to December 2016. 

• In the most recent year (from 2015 to 2016), hospital employment increased 2.1 percent, the 

rest of the health care sector increased 2.4 percent, and employment across the rest of the 

economy (non-farm minus health care) increased 1.3 percent. 

• From 2014 to 2016, the number of hospital staff in health care clinical and technical 

occupations overall increased 5 percent (data not shown). Within this category, larger than 

average increases occurred for physician assistants (18 percent); pharmacists (8 percent); 

and registered nurses (6 percent). Licensed practical nurses/licensed vocational nurses 

were among the few occupations in this category with a decline in employment (‒8 percent). 

• From 2014 to 2016, the number of hospital staff in nonclinical occupations increased for just a 

few occupational categories: community and social services (10 percent); computer and math 

science (9 percent); and business and finance (6 percent). By contrast, the number of 

employed individuals declined in occupational categories such as management (‒2 percent); 

building and grounds (‒1 percent); and food service (‒1 percent). Some of these functions 

may have been outsourced in recent years. 

 

0%

1%

2%

3%

4%

5%

6%

7%

8%

Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16

Percent change

Hospital

Other health care

Non-farm minus health care

5.5%

6.6%

7.4%
A Data Book: Health care spending and the Medicare program, June 2017 61

Chart 6-3. Growth in Medicare’s FFS payments for hospital 

 inpatient and outpatient services, 2006–2015 

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 $149 billion and outpatient spending was 

$56 billion in 2015. From 2014 to 2015, inpatient spending increased 1.2 percent, while 

outpatient spending increased nearly 7.4 percent. 

• From 2008 to 2011, the growth in inpatient and outpatient spending began to increase from 

previous years. However, in 2011 inpatient spending growth slowed as outpatient spending 

grew significantly. 

• Outpatient spending has increased as a share of total Medicare hospital spending in the 

past 10 years. In 2006, outpatient spending accounted for almost 18 percent of all hospital 

spending; in 2015, outpatient spending grew to over 27 percent of total Medicare hospital 

spending. 

135 136 139 141 143 144 146 147 147 149

29 31 32 34 37 40 43 46 53 56

0

50

100

150

200

250

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Billions of dollars

Calendar year

Inpatient

Outpatient
62 Acute inpatient services

Chart 6-4. Share of Medicare acute care hospital inpatient 

 discharges by hospital group, 2015 

 

 Hospitals Medicare discharges 

 Share of Number Share of 

Hospital group Number total (thousands) total 

 

All PPS and CAHs 4,624 100% 9,586 100% 

CAHs 1,340 29.0 326 3.4 

PPS hospitals 3,284 71.0 9,260 96.6 

Urban (PPS only) 2,452 53.0 8,269 86.3 

 Large urban 1,340 29.0 4,505 47.0 

 Other urban 1,112 24.1 3,764 39.3 

Rural (PPS only) 832 18.0 991 10.3 

 Rural referral 94 2.0 232 2.4 

 Sole community 375 8.1 489 5.1 

 Medicare dependent 141 3.1 106 1.1 

 Other rural, <50 beds 113 2.4 45 0.5 

 Other rural, ≥50 beds 109 2.4 119 1.2 

Tax status (PPS only) 

 Voluntary 1,887 41.0 6,461 67.4 

 Proprietary 877 19.0 1,691 17.6 

 Government 520 11.3 1,108 11.6 

Teaching status (PPS only) 

 Major teaching 302 6.5 1,629 17.0 

 Other teaching 750 16.2 3,490 36.4 

 Nonteaching 2,232 48.3 4,141 43.2 

 

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. Components 

may not sum to totals due to rounding. 

Source: MedPAC analysis of PPS impact files and Medicare cost report data from CMS. 

• In 2015, 3,284 hospitals provided almost 9.3 million discharges under Medicare’s acute 

inpatient PPS, and 1,340 CAHs provided 326,000 discharges. The number of PPS 

discharges increased slightly from 2014 to 2015, in part because of an increase in the 

number of Medicare beneficiaries (data not shown). 

• Approximately 13.2 percent of PPS hospitals are covered by three special payment 

provisions (rural referral centers (RRCs), sole community hospitals (SCHs), and Medicaredependent hospitals (MDHs)) intended to help rural facilities that are not CAHs; these 

facilities account for 8.6 percent of all discharges. 

• About 90 percent of rural hospitals were paid through the CAH, RRC, SCH, or MDH 

program in 2015. Collectively, these four types of hospitals accounted for 88 percent of all 

rural Medicare discharges (not shown in chart). 
A Data Book: Health care spending and the Medicare program, June 2017 63

Chart 6-5. Change in share of discharges by major diagnostic 

categories, 2006 to 2015 

 Share of Share of Percentage 

MDC all discharges all discharges point 

number MDC name 2006 2015 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 9 5 

 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 2 –1 

 Total 92 93 1 

Note: MDC (major diagnostic category). Numbers may not sum to totals due to rounding. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• In 2015, 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 2015, a 

decline of 7 percentage points from 2006. 

• Musculoskeletal system cases accounted for 14 percent of all inpatient discharges in 2015, 

up 2 percentage points from 2006. 

• Infectious and parasitic disease cases accounted for 9 percent of all inpatient discharges in 

2015, up 5 percentage points from 2006. 

• Kidney and urinary tract cases accounted for 8 percent of all inpatient discharges in 2015, 

up 2 percentage points from 2006. 
64 Acute inpatient services

Chart 6-6. Cumulative change in all-payer hospital outpatient 

visits and inpatient admissions, 2006–2015 

Note: Cumulative change is the total percent increase from 2006 through 2015. Data are admissions to and outpatient visits at 

about 5,000 community hospitals. 

Source: American Hospital Association, AHA Hospital Statistics. 

• In 2015, community hospitals provided a total of nearly 722 million outpatient visits and 33 

million inpatient admissions across all patients (not shown in chart). 

• All-payer hospital outpatient service use grew rapidly from 2006 to 2015, while inpatient 

service use declined overall. From 2006 to 2015, the number of outpatient visits increased 

about 20 percent. By contrast, over the same period, the number of all-payer inpatient 

admissions declined 6 percent. 

• All-payer outpatient and inpatient service use both increased from 2014 to 2015. Over this 

period, the number of outpatient visits increased 4.8 percentage points, and the number of 

inpatient admissions increased 0.5 percentage points, the first annual increase in inpatient 

admissions in since 2008. 

0.0 -0.1

1.1 0.4 -0.6 -1.5

-2.7

-5.0

-6.5 -6.0

0.0 0.6

4.1

7.1

8.7 9.4

12.6 13.1

15.6

20.4

-10

-5

0

5

10

15

20

25

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cumulative percent change

Fiscal year

Total inpatient admissions

Total outpatient visits
A Data Book: Health care spending and the Medicare program, June 2017 65

Chart 6-7. Cumulative change in Medicare outpatient visits 

 and inpatient discharges per FFS beneficiary, 

 2006–2015 

Note: FFS (fee-for-service). Data are for short-term general and surgical hospitals, including critical access and children’s 

hospitals. 

Source: MedPAC analysis of Medicare Provider Analysis and Review and hospital outpatient claims data from CMS. 

• In 2015, Medicare accounted for approximately 52 million outpatient visits and 10 million 

inpatient admissions (not shown in chart). 

• From 2006 to 2015, the number of Medicare outpatient visits per beneficiary increased 

about 47 percent. By contrast, over the same period, the number of Medicare inpatient 

admissions per beneficiary declined nearly 20 percent. 

• Together, these two trends suggest a shift in services from the inpatient to the outpatient 

setting. The growth in outpatient services also reflects a shift in some services from those 

provided in physician offices to those being billed as outpatient hospital services. 

• From 2014 to 2015, the number of Medicare outpatient services per FFS beneficiary 

increased 3.2 percentage points, and Medicare inpatient discharges per FFS beneficiary 

increased 0.3 percentage points. Compared with growth in recent prior years, outpatient 

visits increased slightly slower and inpatient discharges increased for the first time in eight 

years. On net, from 2014 to 2015, the demand for all hospital services increased. 

0.0% -0.9% -2.0%

-5.7% -8.1% -10.0%

-13.9%

-16.9% -19.8% -19.5%

0.0%

5.8%

9.3%

14.2%

19.2%

25.4%

32.1%

39.1%

44.2%

47.4%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cumulative percent change

Fiscal year

Inpatient discharges per FFS Part A beneficiary

Outpatient visits per FFS Part B beneficiary
66 Acute inpatient services

Chart 6-8. Cumulative change in Medicare inpatient 

discharges per FFS beneficiary, by length of stay, 

2006–2015 

Note: FFS (fee-for-service). Data are for short-term general and surgical hospitals, including critical access and children’s 

hospitals. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• From 2013 to 2015, the number of two-day inpatient discharges increased 4 percent 

(number not shown in chart), the only length-of-stay category to experience an increase 

during a period when the number of inpatient discharges overall was declining rapidly. This 

finding might reflect changes in Medicare’s guidance in 2013 regarding the appropriateness 

of admissions. In 2015, there were approximately 1.8 million 2-day discharges, representing 

16 percent of all discharges (data not shown). 

• From 2013 to 2015, the number of one-day inpatient discharges declined nearly 10 percent 

per FFS beneficiary. In 2015, there were approximately 1.2 million 1-day inpatient 

discharges, representing 11 percent of all discharges (data not shown). 

• From 2013 to 2015, the number of three-day inpatient discharges declined 2 percent. In 

2015, there were approximately 1.9 million 3-day discharges, representing 18 percent of all 

discharges (data not shown). 

-35%

-7%

-8%

-20%

-24%

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cumulative percent change

Fiscal year

1-day discharges

2-day discharges

3-day discharges

4-day discharges

Discharges of 5 or more days
A Data Book: Health care spending and the Medicare program, June 2017 67

Chart 6-9. Trends in Medicare inpatient and non-Medicare 

inpatient length of stay, 2006–2015 

Note: Length of stay is calculated from discharges and patient days for more than 3,000 hospitals covered by the acute inpatient 

prospective payment system. Chart excludes critical access hospitals. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• In 2015, the average length of inpatient stays for Medicare beneficiaries was approximately 

one-half a day longer than for non-Medicare inpatients. In 2006, the difference was more 

than a full day. 

• The average length of inpatient stays for Medicare beneficiaries was flat between 2014 and 

2015. 

• While Medicare length of stay fell between 2006 and 2015, the average length of stay for 

non-Medicare inpatients increased. Between 2006 and 2015, Medicare inpatient length of 

stay fell 7.7 percent and the inpatient length of stay for all non-Medicare inpatients increased 

3.3 percent. 

4.94 4.92 4.89 4.80 4.72 4.71 4.65 4.63 4.57 4.56

3.91 3.92 3.96 3.95 3.90 3.89 3.88 3.93 4.02 4.04

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Inpatient days

Fiscal year

Medicare beneficiaries

Non-Medicare inpatients
68 Acute inpatient services

Chart 6-10. Share of inpatient admissions preceded by 

emergency department visit by location, 2006–2015 

 Average annual 

 Percent percent change Percent change 

 2015 2006–2014 2014–2015 

All hospitals 72.5% 1.7% 1.7% 

 Urban 72.1 1.7 1.7 

 Large urban 73.5 1.5 1.2 

 Other urban 70.6 2.0 2.4 

 Rural 75.7 1.9 1.6 

 Rural referral 75.8 1.9 2.1 

 Sole community 75.1 1.9 1.4 

 Medicare dependent 78.3 1.9 2.4 

 Other rural, <50 beds 65.6 1.0 –0.4 

 Other rural, ≥50 beds 79.4 2.1 1.6 

 

Tax status 

 Voluntary 72.5 1.6 1.7 

 Proprietary 73.8 1.9 1.7 

 Government 70.5 2.1 1.4 

 Teaching status 

 Major teaching 64.8 1.5 1.8 

 Other teaching 71.5 1.8 1.8 

 Nonteaching 76.4 1.8 1.5 

Note: Years are fiscal years. Analysis excludes Medicare Advantage claims and claims for non–inpatient prospective payment 

system hospitals such as critical access hospitals and hospitals located in Maryland. 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. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• In 2015, approximately 73 percent of inpatient admissions entered the hospital through the 

emergency department (ED). 

• From 2014 to 2015, the share of inpatient admissions entering the hospital through the ED 

increased nearly 2 percent, the same as the average annual rate of increase from 2006 to 

2014. 

• The share of inpatient admissions preceded by an ED visit is consistently higher for rural 

hospitals than for urban hospitals. In 2015, nearly 76 percent of inpatient admissions 

provided at rural hospitals were preceded by an ED visit. By contrast, approximately 72 

percent of inpatient admissions provided at urban hospitals were preceded by an ED visit. 
A Data Book: Health care spending and the Medicare program, June 2017 69

Chart 6-11. Share of Medicare Part A fee-for-service 

 beneficiaries with at least one hospitalization, 

2006–2015 

Note: Analysis excludes Medicare Advantage claims and claims for non–inpatient prospective payment system hospitals such 

as critical access hospitals and hospitals located in Maryland. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• From 2006 to 2015, the share of Medicare fee-for-service beneficiaries with Part A coverage 

who had at least one inpatient hospitalization declined 4.4 percentage points, from more 

than 23 percent of beneficiaries to 19 percent of beneficiaries. 

• From 2014 to 2015, the share of Medicare fee-for-service beneficiaries with Part A coverage 

who had at least one inpatient hospitalization was unchanged. 

• Medicare fee-for-service beneficiaries with Part A coverage who used inpatient hospital 

services in 2015 had an average of 1.69 inpatient claims over the course of the year (not 

shown in chart), a decline of approximately 2 percent from 1.73 inpatient claims per year in 

2006. 

• A portion of the long-term decline in beneficiaries’ utilization of inpatient services could 

reflect the increase in the number of cases in which beneficiaries are served in outpatient 

observation status. 

23.4% 22.9% 22.6%

21.8% 21.5% 21.2%

20.2% 19.7%

19.0% 19.0%

10%

12%

14%

16%

18%

20%

22%

24%

26%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent

Fiscal year
70 Acute inpatient services

Chart 6-12. Number of Medicare outpatient observation visits 

per 1,000 beneficiaries relative to short inpatient 

stays, 2010 to 2015 

Source: Medicare hospital cost reports and Medicare outpatient claims data. 

• In 2015, Medicare paid for approximately 2 million outpatient observation visits (data not 

shown). 

• From 2010 to 2015, the increase in the number of outpatient observation visits (16 visits per 

1,000 beneficiaries) was similar to the combined decline in inpatient discharges lasting 

between 1 and 3 days (19 discharges per 1,000 beneficiaries). This finding suggests that 

outpatient observation visits may account for a portion of the decline in short inpatient 

discharges. 

• In 2015, the average length of an outpatient observation visit was 28.1 hours (not shown in 

chart). 

• In 2015, nearly 240,000 outpatient observation visits were 48 hours or longer, representing 

approximately 12 percent of all observation stays (not shown in chart). 

43 46

52 54 57 59

150 145

137 133 130 131

0

20

40

60

80

100

120

140

160

180

2010 2011 2012 2013 2014 2015

Stays or visits per 1,000 beneficiaries

Fiscal year

Outpatient observation visits Inpatient stays of 1 to 3 days
A Data Book: Health care spending and the Medicare program, June 2017 71

Chart 6-13. Hospital patient experience measures, 2011‒2015 

H‒CAHPS® measure 2011 2012 2013 2014 2015 

Percentage point 

change, 

2011−2015 

Hospital rating 69% 70% 71% 71% 72% 3 

Communication with nurses 77 78 79 79 80 3 

Communication with doctors 81 81 82 82 82 1 

Responsiveness of hospital staff 65 67 68 68 68 3 

Communication about medicines 62 64 64 65 65 3 

Cleanliness of hospital environment 72 73 74 74 74 2 

Quietness of hospital environment 59 60 61 62 62 3 

Discharge information 83 85 86 86 87 4 

Recommend the hospital 70 71 71 71 72 2 

Care transition* -- -- 51 52 52 -- 

Note: H‒CAHPS® (Hospital Consumer Assessment of Healthcare Providers and Systems®). H‒CAHPS is a standardized 32-item 

survey of patients' evaluations of hospital care. The survey items are combined to calculate measures of patient experience for

each hospital. The H‒CAHPS measures included in the table are “top-box,” or the most positive, response to H‒CAHPS 

survey items. The top-box response is “Always” for four H‒CAHPS composite measures (communication with nurses, 

communication with doctors, responsiveness of hospital staff, and communication about medicines) and two individual items 

(cleanliness of hospital environment and quietness of hospital environment), “Yes” for the discharge information composite, “‘9’ 

or ‘10’ (high)” for the hospital rating item, “Definitely yes” for the recommend the hospital item, and “Strongly agree” for the care 

transition composite. Each year’s results are based on a sample of hospital surveys of their patients from January to 

December. About 4,239 hospitals are included, and, on average, these hospitals had patient-level survey response rates of 29 

percent. 

 *The care transition measure was added to the H‒CAHPS survey in 2013, and CMS began publicly reporting it in 2014. 

Source: CMS summary of H‒CAHPS public report of survey results tables. 

• In 2008, CMS began publicly reporting H‒CAHPS results on the Hospital Compare 

website. In 2013, Medicare began the value-based purchasing program, which makes 

incentive payments to hospitals based on the outcomes of certain quality measures. This 

program incorporates results from H‒CAHPS. 

• The share of patients who rated their hospital a 9 or 10 on a 10-point scale increased from 

69 percent in 2011 to 72 percent in 2015. 

• All nine hospital patient experience measures improved from 2011 to 2015. Five of the 

measures (hospital rating, communication with nurses, responsiveness of hospital staff, 

communication about medicines, quietness of hospital environment) had a difference of 3 

percentage points. Discharge information improved by 4 percentage points. 
72 Acute inpatient services

Chart 6-14. Potentially preventable readmission rates for 

 selected conditions, 2010–2015 

 Percentage point 

Reason for change 

initial admission 2010 2011 2012 2013 2014 2015 2010–2015 

All 12.9% 12.4% 11.9% 11.3% 11.0% 10.5% –2.4

AMI 17.3 16.9 16.1 15.0 14.3 13.7 –3.6

Heart failure 19.5 19.2 18.4 17.6 17.0 16.4 –3.1

Pneumonia 13.1 12.6 12.1 11.5 11.5 10.6 –2.5

COPD 16.8 16.5 15.9 15.1 14.7 14.2 –2.6 

Note: AMI (acute myocardial infarction), COPD (chronic obstructive pulmonary disease). Rates are adjusted for changes in the 

mix of patients. 

Source: MedPAC analysis of 2010 through 2015 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 2015, not just those covered by the readmission reduction program. Across all 

conditions, potentially preventable readmission rates declined 2.4 percentage points, from 

12.9 percent of discharges in 2010 to 10.5 percent in 2015. 

• The three conditions covered under the HRRP beginning in 2013 have experienced declines 

in potentially preventable readmission rates. Readmissions for AMI declined 3.6 percentage 

points from 2010 to 2015. Over the same period, readmissions for heart failure declined 3.1 

percentage points, and readmissions for pneumonia cases declined 2.5 percentage points. 

COPD was not included in the HRRP until 2015, but from 2010 to 2015, COPD 

readmissions declined 2.6 percentage points.
A Data Book: Health care spending and the Medicare program, June 2017 73

Chart 6-15. Hospital occupancy rates, 2006–2015 

Note: “Hospital occupancy rates” were defined as total bed days (including swing bed days) and observation bed days used, 

minus nursery bed days used, over total bed days available. A consistent cohort of approximately 3,300 prospective 

payment system and critical access hospitals was used in this analysis. 

Source: MedPAC analysis of Medicare’s Hospital Cost Reports. 

• In the aggregate, hospital occupancy rates have been relatively stable over the past decade. 

From 2006 to 2014, occupancy rates declined slowly, by 3 percentage points, but in 2015, 

occupancy rates increased slightly to 62 percent across all hospitals. 

• Occupancy rates are generally higher for urban than rural hospitals. In 2015, the aggregate 

occupancy rate for urban hospitals was 65 percent, and the aggregate occupancy rate for 

rural hospitals was 41 percent. 

• The decline in occupancy rates from 2006 to 2015 has been greater for rural hospitals than 

for urban hospitals. During this period, rural occupancy rates declined almost 6 percentage 

points, whereas urban occupancy rates declined almost 2 percentage points. 

 

67 67 67 66 65 65 64 64 64 65

47 47 47 46 44 44 42 41 41 41

64 64 64 63 62 62 61 61 61 62

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Occupancy rate (percent)

Fiscal year

Urban

Rural

All hospitals
74 Acute inpatient services

Chart 6-16. Medicare inpatient payments, by source and PPS 

hospital group, 2015 

 Share of total payments 

 

 Additional Total 

 rural payments 

Hospital group Base IME DSH UC Outlier hospital* (millions) 

All PPS hospitals 80.0% 5.4% 2.9% 6.6% 3.6% 1.5% $113,514 

 

Urban IPPS 80.0 5.8 3.0 6.9 3.8 0.6 104,391 

Rural IPPS 80.8 0.9 1.1 3.9 1.0 11.3 9,123 

 

Large urban 78.2 7.1 3.2 7.5 4.3 0.0 59,830 

Other urban 82.3 4.0 2.9 6.0 3.2 1.4 44,210 

Rural referral 88.8 0.9 2.2 6.8 1.6 0.0 2,058 

SCH (federal rate) 81.6 4.6 1.5 8.0 1.8 2.9 1,071 

SCH (HSP rate) 74.2 0.1 0.0 0.0 0.3 25.4 3,938 

Medicare dependent 80.0 0.0 1.5 4.8 1.1 13.1 830 

Other rural, <50 beds 79.5 0.1 1.5 7.2 3.0 8.7 326 

Other rural, ≥50 beds 85.5 1.2 1.9 8.0 1.4 2.4 885 

 

Voluntary 80.8 5.7 2.7 6.0 3.6 1.4 80,271 

Proprietary 83.9 2.2 3.1 7.4 2.7 1.1 18,350 

Government 71.4 7.7 3.4 9.4 4.8 2.7 14,893 

Major teaching 66.4 15.8 3.5 8.6 5.6 0.0 28,761 

Other teaching 82.6 3.6 2.9 6.6 3.2 1.0 41,802 

Nonteaching 86.8 0.0 2.4 5.4 2.7 2.9 42,583 

Note: PPS (prospective payment system), IPPS (inpatient 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 IPPS and excludes critical access hospitals. “Medicare-dependent” category includes 

facilities paid at either the HSP or the federal rate. Component percentages may not sum to 100 due to rounding. Simulated 

payments reflect 2015 payment rules applied to actual number of cases in 2015. Direct graduate medical education 

payments are excluded. 

*“Additional rural hospital” payments are the total payments made to hospitals beyond the federal base rate, including SCH 

add-on payments, Medicare-dependent hospital add-on payments, and low-volume add-on payments. For SCHs paid the 

HSP, this category also includes the payments they received indirectly—attributable to the costs associated with residency 

programs, low-income patients, and outlier cases. 

Source: MedPAC analysis of claims and impact file data from CMS. 

• Medicare inpatient payments in 2015 to hospitals covered by the acute IPPS exceeded $113 billion. 

About $104 billion (92 percent) went to urban hospitals, and approximately $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 CAHs results in payments significantly above what 

CAHs would have been paid under the IPPS. 

• Base payments accounted for 80 percent of all inpatient payment in 2015. 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 20 percent of all inpatient payments. 

• In 2015, uncompensated care payments for each eligible hospital were based on each hospital’s 

number of Medicaid and Medicare supplemental security income patient days. 

• Outlier payments accounted for 3.6 percent of total inpatient payments in 2015, or about $4.1 billion.
A Data Book: Health care spending and the Medicare program, June 2017 75

Chart 6-17. Medicare inpatient disproportionate share payments 

and uncompensated care payments, 2012–2017 

Note: DSH (disproportionate share). Chart includes hospitals covered by the inpatient prospective payment system. Chart excludes 

hospitals not eligible for DSH payments: critical access hospitals, hospitals in Maryland, and sole community hospitals paid 

hospital-specific rates. Data represent DSH and uncompensated care payment levels finalized by CMS. Components may 

not sum to totals due to rounding. 

Source: CMS hospital inpatient prospective payment systems (IPPS) for acute care hospitals and long-term care hospital 

prospective payment system final rules from fiscal years 2012 to 2017. 

• In 2012 and 2013, hospitals received approximately $12 billion in aggregate Medicare DSH payments 

annually. The traditional DSH payment formula was based on hospitals’ share of Medicaid patients and 

Medicare patients with Social Security Disability Insurance. 

• Beginning in 2014, DSH payments were calculated as 25 percent of the operating DSH payment the 

hospital would have received under the traditional DSH formula (noted above). Aggregate DSH 

payments have been approximately $3 billion to $4 billion per year since the policy change. For fiscal 

year (FY) 2018, CMS has proposed $4.0 billion in DSH payments. The increase in DSH payments 

between 2017 and 2018 is due to CMS-estimated growth in inpatient discharges for FY 2018, and the 

annual update to IPPS payment rates (data not shown). 

• Beginning in 2014, DSH-eligible hospitals are also eligible to receive uncompensated care payments. 

These payments are calculated as a fixed pool of dollars equal to 75 percent of the DSH payment 

received under the traditional DSH formula, minus an amount that increases in proportion to the decline 

in the share of the uninsured population. These payments are distributed based on the share of 

uncompensated care each hospital provides. The amount of uncompensated care payments declined 

more than $3 billion between 2014 and 2017 because of declines in the uninsured population. 

• From FY 2013 to 2014, inpatient DSH payments declined approximately $9 billion, but hospitals were 

eligible to receive $9 billion in uncompensated care payments that were paid separately from the 

inpatient payment system. 

• On net, the sum of DSH and uncompensated care payments declined $2.1 billion between 2012 and 

2017 because the decline in the uninsured population more than offset the growth in the DSH 

percentage (due to Medicaid expansion) and the growth in Medicare discharges. 

3.2 3.3 3.4 3.6

9.0 7.6 6.4 6.0

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

9.7 9.6
76 Acute inpatient services

Chart 6-18. Discharge destination of Medicare fee-for-service 

 beneficiaries served in acute care hospitals, 

 2006–2015 

 

 Percentage 

 Point change 

Destination 2006 2014 2015 2006–2015 

Home self-care 52.3% 46.0% 45.5% –6.8 

Skilled nursing or swing bed 18.8 21.0 21.2 2.4 

Home with organized home health care 13.8 16.8 16.9 3.1 

Inpatient rehabilitation facility 3.4 3.8 3.9 0.5 

Died in hospital 3.8 3.3 3.3 –0.5 

Hospice 1.6 2.9 3.0 1.4 

Transferred to other acute care hospital 2.5 2.2 2.1 –0.4 

Other setting (e.g., ICF, nursing facility) 2.0 1.6 1.6 –0.4 

Long-term care hospital 0.9 1.2 1.2 0.3 

Left against medical advice 0.6 0.8 0.8 0.2 

Inpatient psychiatric facility 0.4 0.5 0.4 0.0 

 

Note: ICF (intermediate care facility). Numbers may not sum due to rounding. These data include hospitals reimbursed by the 

Medicare inpatient prospective payment system and critical access hospitals. 

Source: Medicare inpatient claims data. 

• In 2015, about 46 percent of all Medicare fee-for-service patients were discharged from an 

acute care hospital to home under self-care, without any organized post-acute care. The 

share of beneficiaries discharged home under self-care has decreased since 2006 with 

greater use of post-acute care providers, particularly home health care, skilled nursing care, 

and hospice. 

• In 2015, about 43 percent of all Medicare fee-for-service patients discharged from an acute 

care hospital were discharged to post-acute care services (skilled nursing facility (SNF), 

home health care agency, inpatient rehabilitation facility, or long-term care hospital). The 

share of beneficiaries discharged to post-acute care services increased about 6 percentage 

points between 2006 and 2015. 

• About one in five beneficiaries is discharged to skilled nursing care, either in a SNF or 

hospital swing bed. The share of beneficiaries discharged to SNF-level care increased 2.4 

percentage points between 2006 and 2015. 

• An increasing share of beneficiaries are being discharged home with organized home health 

care, increasing from 13.8 percent of discharges in 2006 to 16.9 percent in 2015. 

• Discharges to hospice care have shown substantial growth, rising from 1.6 percent of 

discharges in 2006 to 3.0 percent of discharges in 2015. A little more than half of these 

hospice discharges are to medical facility‒level care rather than home care. 

• The share of patients dying in the hospital or being transferred to another acute care 

hospital declined between 2006 and 2015.
A Data Book: Health care spending and the Medicare program, June 2017 77

Chart 6-19. Overall Medicare margin, 2006–2015 

Note: A margin is calculated as revenue minus costs, divided by revenue. Data are based on Medicare-allowable costs and 

exclude critical access hospitals. Overall Medicare margins cover the costs and payments of acute inpatient, outpatient, 

inpatient psychiatric and rehabilitation unit, skilled nursing facility, and home health services, as well as graduate medical 

education, bad debts, Medicare payments for health information technology, and uncompensated care payments. 

Maryland hospitals are excluded from this analysis. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• The overall Medicare margin incorporates payments and costs for acute inpatient, 

outpatient, skilled nursing, home health care, and inpatient psychiatric and rehabilitative 

services, as well as direct graduate medical education, bad debts, Medicare payments for 

health information technology, and—starting in 2014—uncompensated care payments. The 

overall margin follows a trend similar to that of the Medicare inpatient margin. 

• The overall Medicare margin in 2006 was ‒4.8 percent. In fiscal year 2015, it was 

–7.1 percent. 

• In 2015, 25 percent of hospitals had overall Medicare margins of 3.9 percent or higher, and 

another 25 percent had margins of –17.3 percent or lower (not shown in chart). About 34 

percent of hospitals had positive overall Medicare margins in 2015. 

-4.8

-6.1

-7.3

-5.3

-4.9

-5.7

-5.4

-5.0

-5.7

-7.1

-8

-7

-6

-5

-4

-3

-2

-1

0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Margin (percent)

Fiscal year
78 Acute inpatient services

Chart 6-20. Overall Medicare margin, by urban and rural 

location, 2006–2015 

Note: A margin is calculated as revenue minus costs, divided by revenue. Data are based on Medicare-allowable costs and 

exclude critical access hospitals. Overall Medicare margins cover the costs and payments of acute inpatient, outpatient, 

inpatient psychiatric and rehabilitation unit, skilled nursing facility, and home health services, as well as graduate medical 

education, bad debts, Medicare payments for health information technology, and uncompensated care payments. 

Maryland hospitals are excluded from this analysis. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• Overall Medicare margins historically were higher for urban hospitals than for rural hospitals; 

however, over the last decade, overall Medicare margins for rural hospitals have exceeded those for 

urban hospitals. In 2015, the difference between urban and rural hospital margins was about 2.4 

percentage points. 

• 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 (not shown in chart). 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 2015, the overall Medicare margin for urban hospitals was 

–7.3 percent, compared with –4.9 percent for rural hospitals. 

• The overall Medicare margin includes inpatient and outpatient services, but not laboratory services. 

The rural margin rose to 1.4 percent by 2013 in part because of low-volume add-on payments and 

health information technology payments. However, in 2014 the rural margin fell to –3.4 percent 

because some unprofitable services that had been paid as laboratory services shifted into the 

outpatient payment system. These outpatient tests were a disproportionately large share of rural 

hospital payments, causing rural margins to fall faster than urban margins. Because of special rural 

add-on payments, rural margins continue to be higher than urban hospitals’ margins. 

-4.9

-6.3

-7.4

-5.4 -5.2

-6.0 -5.8 -5.7 -6.0

-7.3

-4.2

-4.9

-5.9

-4.2

-2.8 -2.7

-1.3

1.4

-3.4

-4.9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Margin (percent)

Fiscal year

Urban

Rural
A Data Book: Health care spending and the Medicare program, June 2017 79

Chart 6-21. Hospital total all-payer margin, 2006–2015 

Note: A margin is calculated as revenue minus costs, divided by revenue. Total margin includes all patient care services funded by 

all payers, plus nonpatient revenue. Analysis excludes critical access hospitals and Maryland hospitals. 

 *The significant drop in total margin includes investment losses stemming from the decline of the U.S. stock market in 2008. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• The total hospital margin for all payers⎯Medicare, Medicaid, other government, and private 

payers⎯reflects the relationship of all hospital revenues to all hospital costs, including 

inpatient, outpatient, post-acute, and nonpatient services. The total margin also includes 

nonpatient revenue such as investment income. Other types of margins we track—Medicare 

inpatient margin and overall Medicare margin—are operating margins that do not include 

investment income. 

• The 2008 decline of the U.S. stock market resulted in significant investment losses for 

hospitals, which resulted in a corresponding decline in total margin. From 2013 to 2015, allpayer margins were close to 7 percent, a level higher than the prior two decades. 

5.3

6.0

1.8

4.3

6.3

6.0

6.4

7.2 7.1

6.8

0

1

2

3

4

5

6

7

8

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Margin (percent)

Fiscal year

*
80 Acute inpatient services

Chart 6-22. Hospital total all-payer margin, by urban and rural 

location and critical access hospitals, 2006–2015 

Note: A margin is calculated as revenue minus costs, divided by revenue. Total margin includes all patient care services funded 

by all payers, plus nonpatient revenue such as investment revenues. Analysis excludes Maryland hospitals. 

 *Significant drop in total margin includes investment losses resulting from the U.S. stock market decline of 2008. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• Since 2009, urban hospitals have had higher total (all-payer) margins than rural hospitals. In 

2015, total margins were 7.0 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 general, all-payer margins for critical access hospitals have historically been lower than 

for other urban or rural hospitals. 

 

5.7 5.8

2.1

3.8

5.3

4.7 5.0 4.9 4.8 4.8

5.3

6.0

1.7

4.3

6.4

6.0

6.6

7.4 7.3 7.0

4.4

4.9

2.8

2.8

3.3 3.4 3.6 3.6 3.4

4.3

0

1

2

3

4

5

6

7

8

9

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Margin (percent)

Fiscal year

Rural

Urban

Critical access hospitals

*
A Data Book: Health care spending and the Medicare program, June 2017 81

Chart 6-23. Hospital total all-payer margin, by teaching status, 

2006‒2015 

Note: “Major teaching” hospitals are defined by a ratio of interns and residents to beds of 0.25 or greater, while “other teaching” 

hospitals have a ratio of greater than 0 and less than 0.25. A margin is calculated as revenue minus costs, divided by 

revenue. Total margin includes all patient care services funded by all payers, plus nonpatient revenue. Analysis excludes 

critical access hospitals and Maryland hospitals. 

 *Significant drop in total margin includes investment losses resulting from the U.S. stock market decline of 2008. 

Source: MedPAC analysis of Medicare cost report data from CMS. 

• The total all-payer margins for major teaching hospitals have consistently been lower than 

those for other teaching and nonteaching hospitals. In 2015, the total margin for major 

teaching hospitals stood at 5.3 percent, compared with other teaching hospitals and 

nonteaching hospitals at 7.5 percent. 

• Following several years of increasing margins, in 2008, total (all-payer) margins declined 

significantly because of losses in investment revenues. As a result, total margins for major 

teaching hospitals were negative in 2008. Since 2008, total margins for major teaching 

hospitals have recovered and remain above their historic average. 

5.5

5.9

3.0 4.7

6.5 6.3

6.9 7.1

6.2 7.5 7.5

7.0

2.4

5.4

7.4 7.1 7.1

8.3 8.6

7.5

4.2

5.1

-0.5

2.5

4.9

4.3

5.2

6.2

5.1 5.3

-2

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Margin (percent)

Fiscal year

Nonteaching

Other teaching

Major teaching

*

*

*
82 Acute inpatient services

Chart 6-24. Medicare margins by teaching and disproportionate 

share status, 2015 

 Overall 

 Share of Medicare 

Hospital group hospitals margin 

All hospitals 100% –7.1% 

Major teaching 11 –5.2 

Other teaching 22 –5.8 

Nonteaching 66 –9.6 

Both IME and DSH 30 –5.1 

IME only 3 –13.3 

DSH only 54 –8.6 

Neither IME nor DSH 13 –15.0 

Note: IME (indirect medical education), DSH (disproportionate share). Components may not sum to 100 percent due to 

rounding. Maryland hospitals are excluded from this analysis. 

Source: MedPAC analysis of 2015 Medicare cost report data from CMS. 

• By contrast with all-payer total margins, major teaching hospitals had the highest overall 

Medicare margins in 2015. Their better financial performance was largely due to the 

additional payments they received from the IME and DSH adjustments to their inpatient 

payments. 

• Hospitals that received neither IME nor DSH payments had the lowest Medicare margins. In 

2015, the overall Medicare margin of these hospitals was –15.0 percent, well below the 

margins of major teaching hospitals (–5.2 percent) and the all-hospital average (–7.1 

percent). 

• Major teaching hospitals have higher Medicare margins than other hospitals, but they have 

lower total (all-payer) margins than other hospitals (see Chart 6-23). 

 
A Data Book: Health care spending and the Medicare program, June 2017 83

Chart 6-25. Financial pressure leads to lower costs 

 Level of financial pressure, 2012–2014 

 High pressure Low pressure 

 (non-Medicare Medium (non-Medicare 

 margin ≤ 1%) pressure margin > 5%) 

Number of hospitals 697 392 1,704 

Financial characteristics, 2015 (medians) 

Non-Medicare margin 

 (private, Medicaid, uninsured) –3.2% 3.8% 13.6% 

Standardized cost per discharge 

(as a share of the national median) 

 For-profit and nonprofit hospitals 91 99 102 

 Nonprofit hospitals 93 99 103 

 For-profit hospitals 90 95 100 

Annual growth in cost per 

discharge, 2012–2015 3% 3% 2% 

Overall 2015 Medicare margin (medians) 4.1% –3.3% –9.1% 

Patient characteristics (medians) 

Total hospital discharges in 2015 3,432 5,645 7,807 

Medicare share of inpatient days 41% 38% 38% 

Medicaid share of inpatient days 9% 9% 7% 

Medicare case-mix index 1.36 1.50 1.59 

 

Note: Standardized costs are adjusted for hospital case mix, wage index, outliers, transfer cases, interest expense, and the 

effect of teaching and low-income Medicare patients on hospital costs. The sample includes all hospitals that had 

complete cost reports on file with CMS by October 2016. “High-pressure hospitals” are defined as those with a median 

non-Medicare profit margin of 1 percent or less from 2012 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 2012 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. 

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 2015, low-pressure hospitals had a lower percentage point increase in costs (2 percent) 

than other hospitals, but still ended with higher costs per discharge (102 percent of the 

average). 
84 Acute inpatient services

Chart 6-26. Change in the private-payer ratio of 

payments to costs for hospital services, 1987−2015 

Note: Data are for community hospitals (including critical access hospitals and Maryland hospitals) and cover all hospital 

services. The private-payer ratio of payments to costs includes self-pay patients. Data for 2006 to 2010 exclude Medicare 

and Medicaid managed care patients from the private-payer ratio of payments to costs. In 2012, hospitals began 

excluding data related to bad debt and charity care from their reported charges and payments. 

Source: MedPAC analysis of data from the American Hospital Association Annual Survey of Hospitals. 

• The private-payer ratio of payments to costs reflects hospitals’ weighted average profit 

margin on all service lines of business, such as inpatient, outpatient, and hospital-owned 

physician practices. In 2015, the private-payer ratio of payments to costs was 1.51. This 

ratio includes payments and costs attributed to uninsured patients who pay for their own 

services (self-pay). 

• The private-payer payment-to-cost ratio for hospital services has fluctuated over time in part 

because of shifts in the relative bargaining power of hospitals and insurers. In 1992, 

hospitals’ private-payer payment-to-cost ratio was 1.32. However, with the expansion of 

health management organizations and movements to narrow networks, the private-payer 

payment-to-cost ratio declined to 1.15 by 1999. It subsequently rose to the 2015 level of 

1.51. 

• From 2012 to 2015, the private-payer ratio of payments to costs was relatively flat at around 

1.50. During this period, total hospital profits increased from 6.4 percent in 2012 to 30-year 

highs near 7 percent in 2013, 2014, and 2015 (see Chart 6-21), in part because of a decline 

in uncompensated care as more patients gained insurance. 

1.20

1.32

1.15

1.32

1.51

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

19871988198919901991199219931884199519961997199819992000200120022003200420052006200720082009201020112012201320142015

Ratio of payments to costs

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2017 85

Chart 6-27. Markup of hospital charges above costs for 

 Medicare services, 2006–2015

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 181 percent in 2006 to 

252 percent in 2015. Hospital charges ($686 billion) were over three times costs ($195 

billion) in 2015 (data not shown). 

• Rapid growth in charges may have little impact on hospital financial performance because 

few patients pay full charges. However, charge growth may significantly affect uninsured 

patients, who may pay full charges. More rapid growth in charges (relative to growth in 

costs) may reflect hospitals’ attempts to maximize revenue from private payers (who often 

structure their payments as a discount off charges). 

• The markup of charges over costs in 2015 is generally higher for urban hospitals (262 

percent) than for rural hospitals (176 percent) (not shown in chart). 

• Among urban hospitals in 2015, the markup of charges over costs was higher for for-profit 

hospitals (489 percent) than for nonprofit hospitals (254 percent). Rural for-profit hospitals 

have a higher markup of charges over costs (388 percent) than nonprofit hospitals (196 

percent) (not shown in chart). 

181 185 193

207

218

229 227 234

244 252

0

50

100

150

200

250

300

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent

Fiscal year
86 Acute inpatient services

Chart 6-28. Medicare payments to inpatient psychiatric facilities, 

2006–2016 

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 percent per year between 2006 and 2016. 

 

4.1 4.0 4.0 4.1 4.2 4.3 4.4 4.4 4.5 4.5 4.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Dollars (in billions)

Fiscal year
A Data Book: Health care spending and the Medicare program, June 2017 87

Chart 6-29. Inpatient psychiatric facilities, 2006–2015 

 Average annual change 

 2006– 2014– 

Type of IPF 2006 2008 2010 2012 2014 2015 2014 2015 

 

All 1,647 1,634 1,596 1,568 1,589 1,557 –0.4% –2.0% 

 

Urban 1,307 1,289 1,259 1,237 1,248 1,226 –0.6 –1.8 

Rural 340 345 337 331 340 329 0.0 –3.2 

 

Freestanding 396 419 447 450 474 477 2.3 0.6 

Hospital-based units 1,251 1,215 1,149 1,118 1,115 1,080 –1.4 –3.1 

 

Nonprofit 902 866 807 762 739 718 –2.5 –2.8 

For profit 348 357 386 436 492 498 4.4 1.2 

Government 397 411 403 370 358 341 –1.3 –4.7 

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 2006 and 2014, the number of IPFs that filed Medicare cost reports fell, on 

average, 0.4 percent per year. Between 2014 and 2015, the number of IRFs fell 2.0 percent. 

• A growing share of Medicare IPF users receives care in for-profit facilities. Between 2006 

and 2014, the number of for-profit IPFs grew, on average, more than 4 percent per year. 

Over the same period, the number of nonprofit IPFs fell 2.5 percent per year, on average. 

The number of nonprofit IPFs continued to decline in 2015. 

 
88 Acute inpatient services

Chart 6-30. One diagnosis accounted for almost three-quarters 

 of Medicare IPF cases in 2015 

MS–DRG Diagnoses Percentage 

 

 885 Psychosis 73.1% 

 884 Organic disturbances and mental retardation 6.9 

 057 Degenerative nervous system disorders without MCC 5.8 

 897 Alcohol/drug abuse or dependency, no rehabilitation, without MCC 5.0 

 881 Depressive neurosis 3.2 

 882 Neurosis except depressive 1.2 

 895 Alcohol/drug abuse or dependency with rehabilitation, without MCC 1.2 

 880 Acute adjustment reaction and psychosocial dysfunction 0.7 

 056 Degenerative nervous system disorders with MCC 0.5 

883 Disorders of personality and impulse control 0.5 

 886 Behavioral and developmental disorders 0.4 

 894 Alcohol/drug use—left AMA 0.3 

 896 Alcohol/drug abuse or dependency without rehabilitation, with MCC 0.2 

 876 OR procedure with principal diagnosis of mental illness 0.1 

 081 Nontraumatic stupor and coma without MCC 0.1 

 887 Other mental disorders 0.1 

 080 Nontraumatic stupor and coma with MCC 0.0 

 

 Nonpsychiatric MS–DRGs 0.8 

 Total 100.0 

Note: IPF (inpatient psychiatric facility), MS–DRG (Medicare severity–diagnosis related group), MCC (major comorbidity or 

complication), AMA (against medical advice), OR (operating room). Totals may not sum to 100 percent due to rounding. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• Medicare patients in IPFs are generally assigned 1 of 17 psychiatric MS–DRGs. 

• The most frequently occurring IPF diagnosis—accounting for about 73 percent of IPF 

discharges in 2015—was psychosis. This broad category includes patients with principal 

diagnoses of schizophrenia, bipolar disorder, and major depression. 

• In 2015, the next most common discharge diagnosis, accounting for almost 7 percent of IPF 

cases, was organic disturbances and mental retardation. 

 
A Data Book: Health care spending and the Medicare program, June 2017 89

Chart 6-31. Characteristics of Medicare IPF users, 2015

 

 Share of users 

 Share of with more than 

Characteristic all IPF users one IPF stay 

Current eligibility status* 

 Aged 41.4% 28.9% 

 Disabled 58.5 71.0 

 ESRD only 0.1 0.1 

 

Age (years) 

 <45 23.2 30.8 

 45–64 34.8 39.6 

 65–79 26.2 20.9 

 80+ 15.8 8.6 

 

All 100.0 27.7 

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 2015 qualified 

for Medicare because of a disability. These beneficiaries tend to be younger and poorer than 

the typical fee-for-service beneficiary. 

• Approximately 28 percent of Medicare beneficiaries who used an IPF in 2015 had more than 

one IPF stay during the year. These beneficiaries were far more likely than all IPF users to 

be disabled. 

 

S E C T I O N 

Ambulatory care

Physicians and other 

health professionals 

Hospital outpatient services 

Ambulatory surgical centers 

Imaging services 

A Data Book: Health care spending and the Medicare program, June 2017 93

Chart 7-1. Medicare spending per fee-for-service beneficiary on 

services in the fee schedule for physicians and other 

health professionals, 2005–2015 

Note: Dollar amounts are Medicare spending only and do not include beneficiary cost sharing. The category “disabled” excludes 

beneficiaries who qualify for Medicare because they have end-stage renal disease. All beneficiaries ages 65 and over are 

included in the “aged” category. 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2016. 

• 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 $70.3 billion in 2015. 

• Except for a small decrease in spending between 2012 and 2013 (data not shown), 

spending per fee-for-service beneficiary for fee schedule services has increased annually. 

From 2005 to 2015, spending per beneficiary grew at a cumulative rate of 25 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 (ages 65 and over). In 2015, for example, per capita 

spending for disabled beneficiaries was $1,843 compared with $2,137 for aged 

beneficiaries. 

1,724

1,837

1,963

2,115 2,102 2,137

1,397 1,440

1,581

1,722 1,760 1,843

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2005 2007 2009 2011 2013 2015

Spending per beneficiary (dollars)

Aged

Disabled
94 Ambulatory care

Chart 7-2. Growth in the volume of clinician services has 

caused fee schedule spending to increase faster 

than input prices and payment updates, 2000–2015 

Note: MEI (Medicare Economic Index). 

Source: The annual report of the Boards of Trustees of the Medicare trust funds 2016. Centers for Medicare & Medicaid Services. 

2014. Estimated sustainable growth rate and conversion factor, for Medicare payments to physicians in 2015. Fact sheet. 

https://www.cms.gov/medicare/medicare-fee-for-service-payment/sustainablegratesconfact/downloads/sgr2015p.pdf. 

• From 2000 to 2015, Medicare spending per fee-for-service beneficiary for services paid 

under the fee schedule for physicians and other health professionals increased by a 

cumulative 71 percent. 

• Spending per beneficiary grew much more rapidly over the period than both the fee 

schedule payment rate updates and the MEI, which measures changes in input prices. 

Payment updates grew cumulatively by 10 percent, and the MEI increased 30 percent. 

• Growth in the volume of services contributed much more to the increase in Medicare 

spending than payment rate updates. Both factors—volume growth and updates—combined 

to increase Medicare revenue for physicians and other health professionals. 

0

10 12

19

30

37

43 45

50

55

61

67

69 67

70 71

2

5

8

11

14

18 20 22 24 26 26 27 28 29 30

5

0

1 3 5 5 5 5 7 8 999 10 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 2015

Cumulative percent change

Spending per beneficiary

MEI

Updates
A Data Book: Health care spending and the Medicare program, June 2017 95

Chart 7-3. Growth in the volume of clinician services per 

fee-for-service beneficiary, 2000–2015 

Note: E&M (evaluation and management). “Volume” refers to the units of service multiplied by relative value units from the fee 

schedule for physicians and other health professionals. Volume for all years is measured on a common scale, using 

relative value units for 2015. 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 2015, 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 2015, the volume of some services furnished by physicians and other health 

professionals grew much more than others. 

• The volume of tests grew by 88 percent, the volume of “other procedures” (i.e., other than 

major procedures) grew by 74 percent, and the volume of imaging grew by 70 percent. The 

comparable growth rates for evaluation and management services and major procedures 

were only 42 percent and 40 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. 

88

70

74

42

40

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 2015

Cumulative percent change

Tests

Imaging

Other procedures

E&M

Major procedures
96 Ambulatory care

Chart 7-4. Medicare beneficiaries reported comparable ability to 

get timely appointments with physicians compared 

with privately insured individuals, 2013–2016 

 Medicare (ages 65 and older) Private insurance (ages 50–64) 

Survey question 2013 2014 2015 2016 2013 2014 2015 2016 

Unwanted delay in getting an appointment: Among those who needed an appointment, “How often did

you have to wait longer than you wanted to get a doctor’s appointment?” 

For routine care 

Never 73%b 72%a 72%a 68% 69% 69%a 69%a 67% 

Sometimes 20b 20ab 19ab 22 23 23a 23a 23 

Usually 3b 3 4 4 4 4 4 5 

Always 3 3 3 3 3 3b 3 4 

 

For illness or injury 

Never 82b 83ab 82ab 79a 77b 79ab 77ab 75a

Sometimes 14b 12ab 13ab 16a 17 16ab 17a 19a

Usually 2 2 3b 2a 3 2b 3 3a

Always 1 1a 2 2a 2b 2a 2 3a

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 2016 within the same insurance coverage 

category. 

Source: MedPAC-sponsored annual telephone surveys conducted 2013–2016. 

• Most Medicare beneficiaries have one or more doctor appointments in a given year. Their 

ability to schedule timely appointments is one indicator of access that we examine. 

• Medicare beneficiaries (ages 65 and older) report similar access to physicians for 

appointments as compared with privately insured individuals ages 50 to 64. For example, in 

2016, 68 percent of Medicare beneficiaries compared with 67 percent of privately insured 

individuals reported “never” having to wait longer than they wanted to get an appointment for 

routine care. 

• Medicare beneficiaries reported slightly more timely appointments for injury and illness as 

compared with their privately insured counterparts. 

• Appointment scheduling for illness and injury is better than for routine care appointments for 

both Medicare beneficiaries and privately insured individuals. 
A Data Book: Health care spending and the Medicare program, June 2017 97

Chart 7-5. Medicare and privately insured patients who were 

looking for a new physician reported more difficulty 

finding one in primary care, 2013–2016 

 Medicare (ages 65 and older) Private insurance (ages 50–64) 

Survey question 2013 2014 2015 2016 2013 2014 2015 2016 

Looking for a new physician: “In the past 12 months, have you tried to get a new ...?” (Percent 

answering “Yes”) 

Primary care physician 7% 8% 7%a 8%a 8% 8% 9%a 10%a

Specialist 14 17 16 18 16b 17 18 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 70 67 67 64 67 63 63 63 

Small problem 11 16 18 15 15 16 18 16 

Big problem 17 15 14 20 18 19 17 20 

 

Specialist 

No problem 86 85 87ab 82 87b 85 82a 79 

Small problem 8 7 7 10 6 9 8 9 

Big problem 5 7 6 8a 7 6b 9 11a

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 2016 within the same insurance coverage category. 

Source: MedPAC-sponsored annual telephone surveys, conducted 2013–2016. 

• In 2016, only 8 percent of Medicare beneficiaries and 10 percent of privately insured individuals 

reported looking for a new primary care physician. This finding suggests that most people were either 

satisfied with their current physician or did not need to look for one. 

• Of the 8 percent of Medicare beneficiaries who looked for a new primary care physician in 2016, 35 

percent reported problems finding one: 20 percent reported their problem as “big,” and 15 percent 

reported their problem as “small.” Although this number indicates that only about 3 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 10 percent of privately insured individuals who looked for a new primary care physician in 

2016, 36 percent reported problems finding one: 20 percent reported their problem as “big,” and 16 

percent reported their problem as “small.” 

• In 2016, Medicare beneficiaries and privately insured individuals were more likely to report problems 

accessing a new primary care physician than a new specialist. 
98 Ambulatory care

Chart 7-6. Medicare beneficiaries’ access to physician care 

was comparable to privately insured individuals, and 

minorities in both groups reported unwanted delays 

more frequently, 2016 

 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 68% 70%b 64%b 67% 67% 68% 

Sometimes 22 22 23 23 24 22 

Usually 4 4 4 5 5 5 

Always 3 3ab 5b 4 4a 4 

 

For illness or injury 

Never 79a 80ab 76b 75a 76a 72 

Sometimes 16a 16a 16 19a 19a 20 

Usually 2a 1a 2 3a 3a 3 

Always 2a 1ab 3b 3a 2ab 4b 

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 2016. 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 2016. 

• In 2016, Medicare beneficiaries (ages 65 and older) reported access to physicians for 

appointments comparable with privately insured individuals ages 50 to 64. 

• Access varied by race, with minorities more likely than Whites to report access problems in 

both insurance categories. For example, in 2016, 80 percent of White Medicare 

beneficiaries reported “never” having to wait longer than they wanted to get an appointment 

for an illness or injury compared with 76 percent of minority beneficiaries. 
A Data Book: Health care spending and the Medicare program, June 2017 99

Chart 7-7. Minorities in Medicare are more likely to report 

problems finding a new specialist than White 

beneficiaries, 2016 

 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 8%a 8%a 9% 10%a 10%a 9% 

 Specialist 18 19b 14b 18 20b 13b

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 64 64 64 63 62 66 

Small problem 15 15 16 16 17 13 

Big problem 20 20 21 20 20 20 

Specialist 

No problem 82a 83b 74b 79 81 75 

Small problem 10 9 15 9 9 10 

Big problem 8a 7 11 11a 10 12 

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 2016. 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 2016. 

• Among the small percentage of Medicare beneficiaries looking for a specialist, minorities 

were more likely than Whites to report problems finding one. 

 
100 Ambulatory care

Chart 7-8. Changes in physicians’ professional liability 

insurance premiums, 2009–2016 

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 

fee schedule for physicians and other health professionals. 

• The change in PLI premiums over the last 16 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 again during the second 

quarter of 2014. 

-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 -1.1

-0.7

-5

-4

-3

-2

-1

0

1

2

3

4

5

2009 2010 2011 2012 2013 2014 2015 2016

Percent change
A Data Book: Health care spending and the Medicare program, June 2017 101

Chart 7-9. The shares of primary care services billed by APNs 

and physician assistants have grown, 2011 and 2015 

 Total units of service 2011 = 133.4 million Total units of service 2015 = 143.8 million 

Note: APN (advanced practice nurse). Primary care services are specified services—office visits, home visits, visits to patients 

in extended care facilities, transitional care management, chronic care management, annual wellness visits, and 

“welcome to Medicare” visits—when billed by nurse practitioners; clinical nurse specialists; physician assistants; or 

physicians with a specialty designation of family medicine, general internal medicine, geriatric medicine, or pediatric 

medicine. 

Source: MedPAC analysis of claims data for 100 percent of beneficiaries. 

• The distribution of primary care services among the clinicians who bill Medicare for these 

services—primary care physicians (PCPs), APNs, and physician assistants—has changed 

over time. 

• In 2011, primary care services totaled 133.4 million units of service. PCPs billed for most of 

the services (113.5 million, or 85 percent), followed by APNs (13.4 million, or 10 percent), 

and physician assistants (6.5 million, or 5 percent). 

• By 2015, total primary care services had grown to 143.8 million units of service, an increase 

of 8 percent compared with 2011. PCPs continued to account for most of these services, but 

their billed services decreased to 108.2 million, or 75 percent of the total. Primary care 

services billed by APNs grew to 24.5 million, or 17 percent. Primary care services billed by 

physician assistants increased to 11.1 million, or 8 percent. 

• Units of service billed by primary care physicians include some services—not identifiable as 

such in claims data—provided by APNs and physician assistants but billed as “incident to” 

or under the direct supervision of physicians. Medicare pays for such services as if 

physicians had personally furnished them. 

Primary 

care 

physician

85%

APN

10%

Physician 

assistant

5%

Primary 

care 

physician

75%

APN

17%

Physician 

assistant

8%
102 Ambulatory care

Chart 7-10. Spending on hospital outpatient services covered 

under the outpatient PPS, 2006–2016 

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 2006 to 2016 increased by 107 percent, 

reaching an estimated $58.0 billion. The Office of the Actuary projects continued growth in 

total spending, averaging 9.3 percent per year from 2016 to 2018. 

• In 2001, the first full year of the outpatient PPS, spending under the PPS was $20.1 billion, 

including $12.1 billion by the program and $8.0 billion in beneficiary cost sharing (data not 

shown). The Office of the Actuary estimates that spending under the outpatient PPS was $58 

billion in 2016 ($45.8 billion in program spending, $12.2 billion in beneficiary copayments). We 

estimate that the outpatient PPS accounted for about 7 percent of total Medicare program 

spending in 2016. 

• 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; in 2015, it was about 21 percent. 

20.2 21.9 23.6 26.3 28.6 31.1 34.0 36.4

41.2 43.9 45.8 7.8 8 7.8

7.7

8.2

8.7

9.2

10.2

11.5

12.0 12.2

0

10

20

30

40

50

60

70

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016*

Dollars (in billions)

Beneficiary cost sharing

Program payments
A Data Book: Health care spending and the Medicare program, June 2017 103

Chart 7-11. 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 

2016 3,370 96 93 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 has remained stable 

since then. The share offering emergency services has remained stable over the period we 

are able to measure accurately. 
104 Ambulatory care

Chart 7-12. Payments and volume of services under the 

Medicare hospital outpatient PPS, by type of 

service, 2015 

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. 

Source: MedPAC analysis of standard analytic file of outpatient claims for 2015. 

• 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 2015, 

procedures accounted for 48 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 (48 percent) in 2015, followed by 

evaluation and management services (18 percent), separately paid drugs and blood 

products (16 percent), and imaging services (15 percent). 

• Relative to previous years, tests accounted for a much smaller share of volume in 2015. In 

2015, CMS began to package many tests as part of a larger payment bundle rather than pay 

for them separately as had been done in previous years. We include only separately paid 

items in this analysis, so increased packaging of tests creates an apparent decrease in the 

volume of tests. 

Tests

2%

Passthrough 

drugs

1%

Procedures

48%

Imaging

15%

E&M

18%

Separately 

paid drugs/

blood 

products

16%

Tests

2%

Pass-through 

drugs

3%

Procedures

18%

Imaging

11%

E&M 17%

Separately 

paid 

drugs/blood 

products

49%
A Data Book: Health care spending and the Medicare program, June 2017 105

Chart 7-13. Hospital outpatient services with the highest 

Medicare expenditures, 2015 

 Share of Volume Payment 

APC title payments (thousands) rate 

Total 48% 

All emergency visits 7 13,324 $297 

Clinic visits 5 28,770 96 

Level II endovascular procedures 3 191 9,628 

Extended assessment & management composite 3 1,549 1,235 

Level II implantation of cardioverter-defibrillators 3 48 30,818 

Diagnostic cardiac catheterization 2 381 2,576 

Level II cardiac imaging 2 861 1,141 

Level II intraocular procedures 2 514 1,753 

Level III pacemaker and similar procedures 2 90 9,493 

Lower gastrointestinal endoscopy 1 1,108 790 

Level II echocardiogram without contrast 1 1,860 423 

Level III radiation therapy 1 1,499 508 

Level III electrophysiologic procedures 1 49 14,362 

Level III endovascular procedures 1 41 14,846 

Level II laparoscopy 1 156 3,779 

Level III nerve injections 1 814 672 

Level I plain film including bone density measurement 1 9,459 59 

Level III drug administration 1 4,947 108 

Level III cystourethroscopy and other genitourinary procedures 1 266 2,085 

Level V drug administration 1 1,679 285 

Level I upper gastrointestinal procedures 1 820 746 

Combined abdomen and pelvis CT with contrast 1 1,280 376 

Level I endovascular procedures 1 109 4,539 

Level IV drug administration 1 2,730 173 

Level II drug administration 1 8,698 53 

Level IV cystourethroscopy and other genitourinary procedures 1 150 3,114 

PET imaging 1 357 1,286 

Average APC 449 167 

Note: APC (ambulatory payment classification), CT (computed tomography), PET (positron emission tomography). The payment 

rate for “all emergency visits” is a weighted average of payment rates from 10 APCs. The shares of payments for the 27 

APC categories do not add to the total share of payments (48 percent) because of rounding. The average APC figures in 

the last line represent averages for all APCs. 

 

Source: MedPAC analysis of 100 percent analytic files of outpatient claims for calendar year 2015. 

• Although the outpatient prospective payment system covers thousands of services, 

expenditures are concentrated in a few categories that have high volume, high payment 

rates, or both. 
106 Ambulatory care

Chart 7-14. Effects of SCH transfer payments on hospitals’ 

outpatient revenue, 2013–2015 

 2013 2014 2015 

 Share of 

 payments Share of Share of

 from Number payments Number payments 

 Number of hold-harmless of from of from 

Hospital group hospitals and SCH transfer hospitals SCH transfer hospitals SCH transfer 

 

All hospitals 2,997 0.1% 2,950 0.0% 2,894 0.0% 

 

Urban 2,137 –0.4 2,111 –0.4 2,147 –0.4 

Rural SCHs 368 6.2 373 5.6 353 5.6 

Rural ≤100 beds 366 0.7 346 –0.4 294 –0.4 

Other rural 126 –0.4 120 –0.4 100 –0.4 

 

Major teaching 260 –0.3 273 –0.3 284 –0.3 

Other teaching 708 –0.2 700 –0.2 693 –0.2 

Nonteaching 2,029 0.5 1,977 0.4 1,917 0.3 

Note: SCH (sole community hospital). 

Source: MedPAC analysis of Medicare Cost Report files from CMS. 

• In 2006, CMS implemented a policy (the “SCH transfer”) that increased outpatient 

prospective payment (PPS) rates to rural SCHs by 7.1 percent above the standard PPS 

rates. This policy is made budget neutral by reducing payments to all other hospitals. 

• SCHs and rural hospitals that had 100 or fewer beds received hold-harmless (HH) payments 

through the end of calendar year 2012. The HH payments sunset on January 1, 2013. 

• This table reflects the effects of the HH and SCH transfer policies for hospital categories in 

2013, 2014, and 2015. We obtained the data for this table from the hospitals’ 2013, 2014, 

and 2015 cost reports. Many hospitals have 2013 cost reports that cover fiscal year 2013, 

which means that their cost reports covered part of 2012 and 2013. For those hospitals, 

payments through the HH policy affected their 2013 cost reports even though that policy 

expired at the end of calendar year 2012. 

• HH payments and the SCH transfer represented 0.1 percent of total outpatient PPS 

payments for all hospitals in 2013. However, the percentage of total outpatient payments 

from these policies was 6.2 percent for rural SCHs and 0.7 percent for small rural hospitals. 

The SCH transfer payments to rural SCHs represented 5.6 percent of their outpatient 

revenue in 2014 and 2015. Also, the SCH transfer policy reduced outpatient payments to 

small rural hospitals by 0.4 percent in both 2014 and 2015. 
A Data Book: Health care spending and the Medicare program, June 2017 107

Chart 7-15. Number of observation hours increased, 

 2006–2015 

Source: MedPAC analysis of Limited Data Set claims for the outpatient prospective payment system 2006–2015. 

• 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 nearly 55 million in 2015. 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 54.9

0.0

10.0

20.0

30.0

40.0

50.0

60.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Observation hours (millions)
108 Ambulatory care

Chart 7-16. Number of Medicare-certified ASCs increased by 

 11 percent, 2008–2015 

 2008 2009 2010 2011 2012 2013 2014 2015 

Medicare payments (billions of dollars) $3.1 $3.2 $3.3 $3.4 $3.6 $3.7 $3.8 $4.1 

 

New centers (during year) 282 220 192 195 173 170 180 149 

Closed or merged centers (during year) 81 112 110 118 108 107 94 76 

Net total number of centers (end of year) 4,921 5,029 5,111 5,188 5,253 5,316 5,402 5,475 

 

Net percent growth in number 

of centers from previous year — 2.2% 1.6% 1.5% 1.3% 1.2% 1.6% 1.4% 

 

Percent of all centers that are: 

 For profit 95% 95 95 95 95 95 95 96 

 Nonprofit 4 3 3 3 3 3 3 2 

 Government 1 2 1 1 1 2 2 2 

 Urban 92 92 92 92 93 93 93 93 

 Rural 8 8 8 8 7 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 2015. 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 4.0 percent per year, on average, 

from 2008 through 2015. Payments per ASC fee-for-service beneficiary grew by 3.5 percent 

per year during this period (data not shown). Between 2014 and 2015, total payments rose 

by 7.9 percent, and payments per beneficiary grew by 5.2 percent. 

• The number of Medicare-certified ASCs grew at an average annual rate of greater than 1 

percent from 2008 through 2015. Each year from 2008 through 2015, an average of 195 

new facilities entered the market, while an average of 101 closed or merged with other 

facilities. 

• The slower growth in the number of ASCs from 2010 through 2015 may reflect the 

substantially higher rates that Medicare pays for ambulatory surgical services provided in 

hospital outpatient departments than in ASCs, the very slow growth of national health care 

spending and Medicare spending, and the significant increase in hospital employment of 

physicians. 
S E C T I O N 

Post-acute care

Skilled nursing facilities 

Home health services 

Inpatient rehabilitation facilities 

Long-term care hospitals 

A Data Book: Health care spending and the Medicare program, June 2017 111

Chart 8-1. Number of post-acute care providers remained 

stable in 2016 

 Average 

 annual 

 percent Percent 

 change change 

 2009 2011 2013 2014 2015 2016 2009−2016 2015−2016 

 

Home health 

agencies 10,568 12,054 12,613 12,461 12,346 12,313 2.2% −0.3% 

 

Inpatient 

rehabilitation 

facilities 1,196 1,165 1,161 1,177 1,182 1,188 −0.1 0.5 

 

Long-term 

care hospitals 427 437 432 422 426 427 0.0 0.2 

 

Skilled nursing 

facilities 15,062 15,120 15,163 15,173 15,223 15,263 0.2 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 in 2016 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 427 in 2016. 

• 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). 
112 Post-acute care

Chart 8-2. Growth in Medicare’s fee-for-service post-acute care 

expenditures has slowed since 2012 

Note: These calendar year‒incurred data represent only program spending; they do not include beneficiary copayments. 

Source: CMS Office of the Actuary 2017. 

• 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. Spending grew about 2 percent between 

2014 and 2015. 

• FFS spending on inpatient rehabilitation facilities declined between 2004 and 2008, 

reflecting policies intended to ensure that patients who do not need this intensity of services 

are treated in less-intensive settings. However, spending on inpatient rehabilitation 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 58.9 59.3 60.3

13.6 15.0 15.5

17.6

19.5 21.0 22.8

24.9 26.2 27.8

31.2

28.3 28.7 29.1 29.6

9.1 9.7 10.3 11.6 13.0 14.1 15.7 17.3 19.0 19.6 18.6 18.2 18.1 18.0 18.4

4.8 5.8 6.2 6.4 6.3 6.1 5.9 5.9 6.0 6.1 6.4 6.7 6.9 7.2 7.5

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 5.0 4.8 0

10

20

30

40

50

60

70

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

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 2017 113

Chart 8-3. Freestanding SNFs and for-profit SNFs accounted 

for the majority of facilities, Medicare stays, and 

Medicare spending 

 Medicare payments 

 Facilities Medicare-covered stays (billions) 

Type of SNF 2010 2015 2010 2015 2010 2015 

Totals 15,207 15,052 2,418,442 2,359,374 $26.2 $27.2 

Freestanding 94% 95% 93% 95% 96% 97% 

Hospital based 6 5 7 5 4 3 

Urban 70 72 81 83 83 85 

Rural 30 28 19 17 17 15 

For profit 70 70 70 71 74 75 

Nonprofit 25 24 25 24 22 21 

Government 5 6 5 4 3 4 

Note: SNF (skilled nursing facility). Totals may not sum to 100 percent due to rounding and missing values. 

Source: MedPAC analysis of the Provider of Services and Medicare Provider Analysis and Review files, 2010 and 2015. 

• The mix of where beneficiaries receive SNF services has shifted toward freestanding, urban, 

and for-profit facilities. 

• In 2015, freestanding facilities accounted for 95 percent of stays and 97 percent of 

Medicare’s payments. 

• Urban facilities accounted for 72 percent of facilities, 83 percent of stays, and 85 percent of 

Medicare payments in 2015. 

• In 2015, for-profit facilities accounted for 70 percent of facilities and higher shares of stays 

and Medicare payments (71 percent and 75 percent, respectively). 

 
114 Post-acute care

Chart 8-4. SNF admissions increased but stays were shorter in 

2015 compared with 2014 

 Percent 

 change 

Volume measure 2010 2012 2013 2014 2015 2014‒2015 

Covered admissions per 

 1,000 FFS beneficiaries 72 68 67 66 68 3.2% 

Covered days (in thousands) 1,938 1,861 1,835 1,808 1,792 –0.9 

Covered days per admission 27.1 27.4 27.6 27.6 26.5 –4.0 

Note: SNF (skilled nursing facility), FFS (fee-for-service). Data include 50 states and the District of Columbia. Yearly figures 

presented in the table are rounded, but the percent-change column was calculated using unrounded data. 

Source: Calendar year data from CMS, Office of Information Products and Data Analytics, 2017. 

• In 2015, 4.4 percent of beneficiaries used SNF services, down slightly from 2011 (data not 

shown). 

• Between 2014 and 2015, admissions per 1,000 FFS beneficiaries increased 3.2 percent, 

consistent with the increase 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 faster rate (–4.0 percent), so there were 

fewer covered days per admission (26.5 days). 
A Data Book: Health care spending and the Medicare program, June 2017 115

Chart 8-5. Freestanding SNF Medicare margins remained high 

in 2015 

 2004 2006 2008 2010 2012 2013 2014 2015 

All 13.8% 12.8% 16.7% 19.4% 14.1% 13.2% 12.7% 12.6% 

 

Rural 16.1 13.5 17.9 19.4 13.1 11.9 10.6 10.5 

Urban 13.3 12.7 16.4 19.4 14.2 13.4 13.1 13.0 

 

Nonprofit 4.1 3.7 7.7 11.2 6.0 5.4 4.4 4.4 

For profit 15.9 14.9 18.7 21.3 16.1 15.2 15.0 15.0 

Note: SNF (skilled nursing facility). 

Source: MedPAC analysis of freestanding SNF cost reports 2004–2015. 

• Though lower than in recent years, the Medicare margin for freestanding SNFs in 2015 

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 2015, on average, urban facilities had higher Medicare margins than rural facilities. Forprofit SNFs had considerably higher Medicare margins than nonprofit SNFs, reflecting their 

larger size, their lower cost growth, and their higher share of the more profitable therapy 

case-mix groups (the ultra-high and very high groups). 

• In 2015, total margins (the margin across all payers and all lines of business) for 

freestanding facilities remained positive (1.6 percent, data not shown). 
116 Post-acute care

Chart 8-6. Cost and payment differences explain variation in 

 Medicare margins for freestanding SNFs in 2015 

 

 Highest margin Lowest margin Ratio of highest 

 quartile quartile quartile to 

Characteristic (n = 3,144) (n = 3,143) lowest quartile 

Cost measures 

 Standardized cost per day $261 $373 0.7 

 Standardized cost per discharge $10,973 $14,148 0.8 

 Average daily census (patients) 89 65 1.4 

 Average length of stay (days) 43 37 1.2 

Revenue measures 

 Medicare payment per day $505 $435 1.2 

 Medicare payment per discharge $22,183 $16,120 1.4 

 Share of days in intensive therapy 87% 78% 1.1 

 Share of medically complex days 3 4 0.8 

 Medicare share of facility revenue 25 14 1.8 

Patient characteristics 

 Case-mix index 1.40 1.31 1.1 

 Share of dual-eligible beneficiaries 30% 20% 1.5 

 Share of minority beneficiaries 10 4 2.5 

 Share of very old beneficiaries 23 27 0.9 

 Medicaid share of days 64 56 1.1 

Facility mix 

 Share for profit 88% 57% N/A 

 Share urban 79 66 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 2015. 

• 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 21.0 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 (1.2 times 

the revenues per day of low-margin SNFs). 

• Facilities with the highest Medicare margins had higher case-mix indexes, higher shares of 

beneficiaries who were dually eligible for Medicare and Medicaid, and higher shares of 

minority beneficiaries. 
A Data Book: Health care spending and the Medicare program, June 2017 117

Chart 8-7. Financial performance of relatively efficient SNFs in 

2015 reflects a combination of lower cost per day 

and higher payment per day 

 Relatively Other 

 efficient SNFs SNFs 

Performance in 2015

 Community discharge rate 48.9% 38.6% 

Readmission rate 8.7% 10.3% 

Standardized cost per day $283 $308 

Medicare revenue per day $504 $459 

 Medicare margin 19.4% 11.6% 

 Total margin 3.4% 1.5% 

Facility case-mix index 1.43 1.36 

Medicare average length of stay 33 days 39 days 

Occupancy rate 88% 86% 

Average daily census 101 81 

Share of ultra-high therapy days 64% 53% 

Share of medically complex days 4.3% 4.2% 

 

Medicaid share of facility days 57% 61% 

 Share urban 77% 65% 

Share for profit 79% 68% 

 

Note: SNF (skilled nursing facility). The analysis includes 11,794 freestanding facilities. SNFs were defined as “relatively 

efficient” by their cost per day (2012–2014) and two quality measures (community discharge and readmission rates) for 

the same period (2012–2014). Relatively 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. Nine percent of SNFs qualified as relatively efficient. Costs 

per day were standardized for differences in case mix (using the nursing component relative weights) and wages. Quality 

measures were rates of risk-adjusted community discharge and readmission for patients with potentially avoidable 

conditions during the SNF stay. 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” are those assigned to 

clinically complex or special-care case-mix groups. 

Source: MedPAC analysis of quality measures and Medicare cost report data for 2012–2015. 

• “Relatively efficient SNFs” are defined as consistently providing relatively low-cost and highquality care compared with other SNFs. 

• Compared with other SNFs in 2015, relatively efficient SNFs furnished considerably higher 

quality (higher discharge to community rates and lower readmission rates) and had costs 

per day that were 8 percent lower. 

• Compared with other SNFs in 2015, relatively efficient SNFs treated more complex patients, 

had a higher share of ultra-high therapy days, were larger, had slightly higher occupancy 

rates, and had higher average daily censuses. 

 
118 Post-acute care

Chart 8-8. Spending on home health care, 2001–2015 

Source: CMS Office of the Actuary 2017. 

• In October 2000, the prospective payment system (PPS) replaced the previous Medicare 

payment system for home health care, which was a cost-based system that tied payment to 

the number of visits provided and per beneficiary spending limitations. 

• Home health care spending has risen rapidly under the PPS. Spending rose by about 10 

percent per year between 2001 and 2009; spending peaked in 2010 and declined for a 

period before increasing again in 2015. 

 

9.1 9.7 10.3 

11.6 

13.0 

14.1 

15.7 

17.3 

19.0 19.6 

18.6 18.2 18.0 17.9 18.4 

0

5

10

15

20

25

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dollars (in billions)
A Data Book: Health care spending and the Medicare program, June 2017 119

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

 

 Cumulative 

 Percent change percent change 

 2002 2014 2015 2014‒2015 2002‒2015 

 

Number of users (in millions) 2.5 3.4 3.5 0.9% 37.3% 

Share of FFS beneficiaries 

who used home health care 7.2% 9.1% 9.1% 1.1 27.1 

Episodes (in millions) 4.1 6.6 6.6 0.3 60.6 

Episodes per home 

 health patient 1.6 1.9 1.9 ‒0.6 17.0 

Visits per home health 

 episode 18.9 17.5 17.5 ‒0.4 ‒7.7 

Visits per home health 

 patient 30.8 33.6 33.3 ‒0.9 8.0 

Average payment per 

 episode $2,335 $2,689 $2,742 2.4 17.4 

Note: FFS (fee-for-service). 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 2015, 3.5 million beneficiaries used the home health benefit. 

• The number of visits per episode decreased from 2002 to 2015. 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 2015. Beneficiaries received fewer visits in an episode but had more 

60-day episodes of care. As a result, the average number of visits increased from about 31 

visits per home health user in 2002 to about 33 visits per home health user in 2015.

 
120 Post-acute care

Chart 8-10. Most home health episodes are not preceded by 

 hospitalization or PAC stay 

 Number of episodes (in millions) Percent change 

 2001 2011 2015 2001‒2011 2011‒2015 

 

Episodes preceded by a 

 hospitalization or PAC stay 1.9 2.2 2.2 14.8% 1.0% 

 

Episodes not preceded by a 

 hospitalization or PAC stay 2.1 4.7 4.4 127.4 ‒6.5 

 

Total 3.9 6.9 6.6 74.0 ‒4.1 

 

Note: PAC (post-acute care). “Episodes preceded by a hospitalization or PAC stay” refers to episodes that occurred less than 

15 days after a stay in a hospital (including a long-term care hospital), skilled nursing facility, or inpatient rehabilitation

facility. “Episodes not preceded by a hospitalization or PAC stay” refers to episodes for which there was no hospitalization 

or PAC stay in the previous 15 days. Numbers may not sum due to rounding. 

Source: 2015 home health standard analytic file, 2015 Medicare Provider and Analysis Review file, and 2015 skilled nursing 

facility standard analytic file. 

• The rise in the average number of episodes per beneficiary since 2001 coincides with a 

relative shift away from using home health care as a PAC service. 

• Between 2001 and 2011, the number of episodes not preceded by a hospitalization or PAC 

stay increased by about 127 percent compared with an almost 15 percent increase in 

episodes that were preceded by a hospitalization or PAC stay. During that same period, the 

share of all episodes not preceded by a hospitalization or PAC stay rose from about 54 

percent to 67 percent (data not shown).

• Beneficiaries for whom the majority of home health episodes in 2015 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, to have had more home health episodes, and to have 

had more episodes with a high share of home health aide services compared with those 

home health users coming from a hospitalization or other PAC stay (data not shown). 

Community-admitted users generally had fewer chronic conditions, tended to be older, and 

were more likely to have dementia or Alzheimer’s disease (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2017 121

Chart 8-11. Medicare margins for freestanding home health 

 agencies 

 Percent of 

 agencies 

 2014 2015 2015 

 

All 10.8% 15.6% 100%

Geography 

 Mostly urban 11.2 16.0 85 

 Mostly rural 8.5 13.2 15 

Type of control 

 For profit 12.2 16.7 89

 Nonprofit 6.4 12.1 11

Volume quintile (lowest to highest) 

First 4.0 7.4 20 

 Second 5.4 9.6 20 

 Third 7.6 12.4 20 

 Fourth 10.0 13.8 20 

 Fifth 12.5 17.6 20

Note: Agencies are characterized as urban or rural based on the residence of the majority of their patients. 

Source: MedPAC analysis of 2014–2015 Medicare Cost Report files from CMS. 

• In 2015, freestanding home health agencies (HHAs) (85 percent of all HHAs) had an 

aggregate margin of 15.6 percent. HHAs that served mostly urban patients in 2015 had an 

aggregate margin of 16.0 percent; HHAs that served mostly rural patients had an aggregate 

margin of 13.2 percent. The 2015 margin is consistent with the historically high margins the 

home health industry has experienced since the PPS was implemented in 2000. 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 2015 had an average margin of 16.7 percent, and nonprofit agencies 

had an average margin of 12.1 percent. 

• Agencies that serve more patients have higher margins. The agencies in the lowest volume 

quintile in 2015 had an aggregate margin of 7.4 percent, while those in the highest quintile 

had an aggregate margin of 17.6 percent. 
122 Post-acute care

Chart 8-12. Number of IRF FFS patients increased in 2015 

 Average 

 annual percent Percent 

 change change 

 2008 2013 2014 2015 2008–2014 2014–2015 

Number of IRF cases 356,000 373,000 376,000 381,000 0.9% 1.5% 

Cases per 10,000 100.4 99.1 99.3 101.0 −0.2 1.7 

 FFS beneficiaries 

Payment per case $16,646 $18,258 $18,632 $19,116 1.9 2.6 

Average length of stay 

 (in days) 13.3 12.9 12.8 12.7 –0.6 –0.7 

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 

(data not shown). 

• 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, rising less 

than 1 percent per year, on average, from 2008 to 2014. Between 2014 and 2015, volume 

growth picked up, rising 1.5 percent. 

• In 2015, the number of IRF cases per 10,000 FFS beneficiaries was 101, up 1.7 percent 

from the previous year. Relatively few Medicare beneficiaries use IRF services because, to 

qualify for Medicare coverage, IRF patients must be able to both tolerate and benefit from 

intensive rehabilitation therapy, which typically consists of at least three hours of therapy a 

day for at least five days a week. 

• Medicare payments per IRF case rose, on average, 1.9 percent per year between 2008 and 

2014. Payments per case grew 2.6 percent between 2014 and 2015. 
A Data Book: Health care spending and the Medicare program, June 2017 123

Chart 8-13. Most common types of inpatient rehabilitation 

facility cases, 2015 

Type of case Share of cases 

Stroke 19.8% 

Other neurological conditions 13.0 

Fracture of the lower extremity 11.5 

Debility 10.7 

Brain injury 9.3 

Other orthopedic conditions 7.9 

Major joint replacement of lower extremity 6.8 

Cardiac conditions 6.0 

Spinal cord injury 4.7 

All other 10.5 

Note: “Other neurological conditions” includes multiple sclerosis, Parkinson’s disease, polyneuropathy, and neuromuscular 

disorders. “Fracture of the lower extremity” includes hip, pelvis, and femur fractures. Patients with debility have 

generalized deconditioning not attributable to other conditions. “Other orthopedic conditions” excludes fractures of the hip, 

pelvis, and femur and hip and knee replacements. “All other” includes conditions such as amputations, arthritis, and pain 

syndrome. Numbers may not sum to 100 percent due to rounding. 

Source: MedPAC analysis of Inpatient Rehabilitation Facility–Patient Assessment Instrument data from CMS. 

• In 2015, the most frequently occurring case type among beneficiaries admitted to inpatient 

rehabilitation facilities (IRFs) was stroke, which accounted for 19.8 percent of Medicare feefor-service cases. 

• The number and share of Medicare cases with other neurological conditions has grown 

significantly over the past decade. Between 2004 and 2014, the number of other 

neurological cases grew 98 percent, even as the total number of Medicare IRF cases 

declined 21 percent (data not shown). Between 2004 and 2015, as a share of IRF cases, 

other neurological conditions rose from 5.2 percent to 13.0 percent (2004 data not shown). 
124 Post-acute care

Chart 8-14. Inpatient rehabilitation facilities’ Medicare margin 

 by type of facility, 2004–2015 

 2004 2006 2008 2010 2012 2014 2015 

All IRFs 16.7% 12.5% 9.3% 8.6% 11.2% 12.5% 13.9% 

 

Hospital based 12.2 9.9 3.9 –0.6 0.6 1.1 2.0 

Freestanding 24.7 17.5 18.2 21.4 23.9 25.3 26.7 

Urban 17.0 12.8 9.6 9.0 11.6 12.9 14.2 

Rural 13.2 10.0 6.9 4.7 6.5 6.4 8.6 

Nonprofit 12.8 10.9 5.3 2.1 2.4 2.3 3.6 

For profit 24.4 16.3 16.9 19.6 22.9 24.0 25.0 

 

Note: IRF (inpatient rehabilitation facility). 

Source: MedPAC analysis of cost report data from CMS. 

• Between 2014 and 2015, the aggregate IRF Medicare margin rose from 12.5 percent to 13.9 

percent. After a period of declining, though healthy, margins, the aggregate margin reached a low 

of 8.3 percent in 2009 (data not shown). Since then, the aggregate margin has risen steadily. 

 

• Margins varied by ownership, with for-profit IRFs having substantially higher margins. At the 

same time, Medicare margins in freestanding IRFs far exceeded those of hospital-based 

facilities. Nevertheless, a quarter of hospital-based IRFs had Medicare margins greater than 11 

percent (data not shown), indicating that many hospitals can manage their IRF units profitably. 

Further, despite the comparatively low average margin in hospital-based IRFs, evidence 

suggests that these units make a positive financial contribution to their parent hospitals. 

Commission analysis found that in 2013, the aggregate Medicare margin for acute care hospitals 

with IRF units was a percentage point higher than the margin of hospitals without IRF units (data 

not shown). 

• Higher unit costs are a major driver of low margins in both hospital-based and nonprofit IRFs. 

However, the Commission has found that the mix of case types in IRFs is also correlated with 

profitability. IRFs with the highest margins have a higher share of neurological cases and a lower 

share of stroke cases. Further, we have observed differences in the types of stroke and 

neurological cases admitted to high- and low-margin IRFs. Stroke cases in the highest margin 

IRFs are much less likely to have paralysis than are stroke cases in the lowest margin IRFs. 

Neurological cases in the highest margin IRFs are much more likely to be neuromuscular 

disorders (such as amyotrophic lateral sclerosis) than are neurological cases in the lowest 

margin IRFs (data not shown). 

• The Commission has found that high-margin IRFs have patients who are, on average, less 

severely ill in the acute care hospital than patients admitted to low-margin IRFs. Once admitted 

to and assessed by the IRF, however, the average patient profile changes, with patients treated 

in high-margin IRFs appearing to be more disabled than those in low-margin IRFs. This finding 

suggests the possibility that assessment and coding practices may contribute to greater 

revenues in some IRFs (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2017 125

Chart 8-15. Low standardized costs led to high margins for both 

hospital-based and freestanding IRFs, 2015 

Characteristic Lowest cost quartile Highest cost quartile 

Median cost per discharge 

 All $11,124 $19,443 

 Hospital based 11,756 19,434 

 Freestanding 10,610 19,881 

Median Medicare margin 

 All 28.5% −22.0% 

 Hospital based 22.1 −22.0 

 Freestanding 32.0 −25.7 

Median 

 Number of beds 50 17 

 Occupancy rate 74% 49% 

 Case-mix index 1.30 1.23 

Share of facilities in the quartile that are: 

 Hospital based 36% 94% 

 Freestanding 64 6 

 Nonprofit 29 59 

 For profit 67 23 

 Government 4 18 

 Urban 93 71 

 Rural 7 29 

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 43 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 50 

compared with 17 in the highest cost quartile. In addition, IRFs with the lowest costs had a 

higher median occupancy rate (74 percent vs. 49 percent, respectively). These results 

suggest that low-cost IRFs benefit from economies of scale. 

• Low-cost IRFs were disproportionately freestanding and for profit. Still, 36 percent of IRFs in 

the lowest cost quartile were hospital based and 29 percent were nonprofit. By contrast, in 

the highest cost quartile, 94 percent were hospital based and 59 percent were nonprofit. 
126 Post-acute care

Chart 8-16. The top 25 MS–LTC–DRGs made up two-thirds of 

LTCH discharges in 2015 

MS–LTC 

 –DRG Description Discharges Percentage 

 

 189 Pulmonary edema and respiratory failure 16,685 12.7% 

 207 Respiratory system diagnosis with ventilator support 96+ hours 15,024 11.5 

 871 Septicemia without ventilator support 96+ hours with MCC 8,946 6.8 

 177 Respiratory infections and inflammations with MCC 3,462 2.6 

 592 Skin ulcers with MCC 3,458 2.6 

 539 Osteomyelitis with MCC 3,064 2.3 

 208 Respiratory system diagnosis with ventilator support <96 hours 2,801 2.1 

 682 Renal failure with MCC 2,612 2.0 

 949 Aftercare with CC/MCC 2,540 1.9 

 919 Complications of treatment with MCC 2,265 1.7 

 559 Aftercare, musculoskeletal system and connective tissue with MCC 2,083 1.6 

 314 Other circulatory system diagnoses with MCC 1,940 1.5 

 870 Septicemia with ventilator support 96+ hours 1,852 1.4 

 4 Tracheostomy with ventilator support 96+ hours or primary diagnosis 1,828 1.4 

 except face, mouth, and neck without major OR 

 862 Postoperative and post-traumatic infections with MCC 1,823 1.4 

 166 Other respiratory system OR procedures with MCC 1,758 1.3 

 190 Chronic obstructive pulmonary disease with MCC 1,723 1.3 

 853 Infectious and parasitic diseases with OR procedure with MCC 1,694 1.3 

 193 Simple pneumonia and pleurisy with MCC 1,690 1.3 

 291 Heart failure and shock with MCC 1,641 1.3 

 570 Skin debridement with MCC 1,634 1.2 

 638 Diabetes with CC 1,598 1.2 

 981 Extensive OR procedure unrelated to principal diagnosis with MCC 1,576 1.2 

 560 Aftercare, musculoskeletal system and connective tissue with CC 1,421 1.1 

 602 Cellulitis with MCC 1,376 1.0 

 

 Top 25 MS–LTC–DRGs 86,494 66.0 

 Total 131,134 100.0 

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 2015, 

the top 25 MS–LTC–DRGs accounted for 66 percent of all cases. 

• The most frequent diagnosis in LTCHs in 2015 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 2017 127

Chart 8-17. The number of Medicare LTCH cases and users 

 continued to decrease between 2014 and 2015 

 Average annual change 

 2011– 2013– 2014– 

 2011 2012 2013 2014 2015 2013 2014 2015 

 

Cases 139,715 140,463 137,827 133,984 131,134 –0.7% –2.8% −2.1% 

Cases per 10,000 

FFS beneficiaries 38.3 37.7 36.6 35.7 34.7 –2.2 –2.6 –2.0 

Spending per 

FFS beneficiary $147.9 $148.8 $146.7 $142.7 $141.4 −0.4 −2.8 −0.2 

Payment per case $38,664 $39,493 $40,070 $40,015 $40,718 1.8 −0.1 1.8 

Length of stay (in days) 26.3 26.2 26.5 26.3 26.6 0.4 −0.7 1.0 

Users 122,838 123,652 121,532 118,288 116,088 −0.5 −2.7 −1.9 

Note: LTCH (long-term care hospitals), FFS (fee-for-service). Yearly figures presented in the table are rounded, but the average 

annual changes were calculated using unrounded data. 

Source: MedPAC analysis of Medicare Provider Analysis and Review data from CMS. 

• Controlling for the number of FFS beneficiaries, the number of LTCH cases declined 2.0 

percent between 2014 and 2015. 

• Between 2014 and 2015, the number of beneficiaries who had LTCH stays (“users”) 

decreased by 1.9 percent. 

 
128 Post-acute care

Chart 8-18. LTCHs’ per case costs increased more than 

payments in 2015 

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. 

• Between 2012 and 2015, the average cost per case increased by about 2 percent per year, 

including 2.1 percent between 2014 and 2015. 

4.4

7.5

13.4

26.5

36.0

40.0 38.6 40.0

45.7 47.5 48.0

50.3 51.2 51.3 52.9

3.6 4.9

5.6

14.3

20.3

26.3

30.4 32.1

34.8 35.4 35.9 37.2

39.2

41.2

43.3

0

10

20

30

40

50

60

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Cumulative percent change

Payments per case

Costs per case

TEFRA PPS
A Data Book: Health care spending and the Medicare program, June 2017 129

Chart 8-19. The aggregate average LTCH Medicare margin fell 

each year since 2013 

 Medicare margin 

Type of LTCH 

Share of 

discharges 2010 2011 2012 2013 2014 2015 

 

All 100% 6.7% 6.9% 7.6% 6.8% 5.1% 4.6% 

Urban 95 7.0 7.1 7.7 7.0 5.1 4.6* 

Rural 5 0.0 2.7 3.2 2.5 4.1 2.8* 

Nonprofit 13 −0.3 0.3 −0.3 −1.1 −2.4 −6.0 

For profit 84 8.3 8.4 9.2 8.6 6.9 6.4 

Government 2 N/A N/A N/A N/A N/A N/A 

Note: LTCH (long-term care hospital), N/A (not applicable). Margins for government-owned providers are not shown. They 

operate in a different context from other providers, so their margins are not necessarily comparable. Totals may not sum 

to 100 percent due to rounding. 

 *CMS adopted new core-based statistical area (CBSA) codes for LTCHs beginning in fiscal year 2015; this change 

reclassified several facilities as urban that had previously been classified as rural, and therefore the margin across 

categories of urban and rural facilities between 2014 and 2015 should not be compared. Applying the old CBSA definition 

to 2015, we calculated both an urban margin and a rural margin equal to 4.6 percent in 2015. The decrease in the rural 

margin shown above is solely attributed to the change in facilities classified as urban and rural. 

Source: MedPAC analysis of cost report data from CMS. 

• After implementation of the prospective payment system on October 1, 2002, LTCHs’ 

Medicare margins increased rapidly for all LTCH provider types, climbing to 11.9 percent in 

2005 (data not shown). Margins then fell as growth in payments per case leveled off. 

• From 2009 (data not shown) through 2012, LTCH margins climbed as providers consistently 

held cost growth below that of payment growth. 

• In 2013, the aggregate LTCH margin fell from 7.6 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 5.1 percent in 2014 and 4.6 percent in 2015. 

• Financial performance in 2015 varied across LTCHs. The aggregate Medicare margin for 

for-profit LTCHs (which accounted for 84 percent of all Medicare discharges from LTCHs) 

decreased from 6.9 percent in 2014 to 6.4 percent in 2015. The aggregate margin for 

nonprofit LTCHs fell from –2.4 percent in 2014 to –6.0 percent in 2015. These declines were 

due to cost growth that exceeded growth in payments per case. 

S E C T I O N 

Medicare Advantage 

A Data Book: Health care spending and the Medicare program, June 2017 133

Chart 9-1. Enrollment in MA plans, 1997–2017 

Note: MA (Medicare Advantage). 

Source: Medicare managed care contract reports and monthly summary reports, CMS. 

• Medicare enrollment in MA plans that are paid on an at-risk capitated basis reached 18.5 

million enrollees (32 percent of all Medicare beneficiaries) in 2017. 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 MA plans about $190 billion in 2016 to cover Part A and Part B 

services for MA enrollees (data not shown). 

5.2

6.4

5.5

4.6 4.9

8.1

10.5

11.7

14.1

16.4

18.5

0

2

4

6

8

10

12

14

16

18

20

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Beneficiaries (in millions) 
134 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 

2017 95 74 98 45 99 10 

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 out-of-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 95 percent of Medicare beneficiaries in 2017, and regional PPOs 

are available to 74 percent of beneficiaries; the availability of both plan types is the same or 

higher than in 2013. Since 2006, almost all Medicare beneficiaries have had MA plans available; 

99 percent had an MA plan available in 2017. 

• The number of plans from which beneficiaries may choose in 2017 is higher than last year. In 

2017, beneficiaries can choose from an average of 10 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 2017 was due to the 

reduction in the number of PFFS plans. 
A Data Book: Health care spending and the Medicare program, June 2017 135

Chart 9-3. Average monthly rebate dollars, by plan type, 

2010–2017 

Note: HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private fee-for-service), MA 

(Medicare Advantage). Employer group waiver and special needs plans are excluded. 

Source: MedPAC analysis of bid and plan finder data from CMS. 

• Perhaps the best summary measure of plan benefit value is the average rebate, which plans 

receive to provide additional benefits. Plans are awarded rebates for bidding under their 

benchmarks. The rebates must be returned to the plan members in the form of extra 

benefits. The extra benefits may be supplemental benefits, lower cost sharing, or lower 

premiums. The average rebate for all non-employer, non-SNP plans rose to a high of $89 

per month for 2017.

• HMOs have had, by far, the highest rebates because they tend to bid lower than other types 

of plans. Average rebates for HMOs have risen sharply over the past two years and are at a 

high of $105 per month for 2017. 

• For both local and regional PPOs, the rebates rose from 2010 to 2011, declined through 

2015, and rose to levels higher than 2010 in 2017. 

• Rebates for PFFS plans have declined steadily since 2011. 

 

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

105

49

16

40

89

0

20

40

60

80

100

120

HMO Local PPO PFFS Regional PPO Any MA plan

Average monthly rebate dollars

2010 2011 2012 2013 2014 2015 2016 2017
136 Medicare Advantage 

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

Total enrollees 

 (in thousands) 

 February February February February February Percent change 

Plan type 2013 2014 2015 2016 2017 2016–2017 

Local CCPs 12,580 13,809 14,824 15,588 16,920 9% 

Regional PPOs 1,060 1,221 1,237 1,315 1,353 3 

PFFS 417 309 260 238 190 –20 

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 9 percent over the past year. Enrollment in regional PPOs 

grew by 3 percent, while enrollment in PFFS plans continued to decline. Combined 

enrollment in the three types of plans grew by 8 percent from February 2016 to February 

2017. 
A Data Book: Health care spending and the Medicare program, June 2017 137

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

plan, 2017 

 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 57,481 21% 9% 2% 0% 1% 33% 

Alabama 1,001 16 19 1 0 0 36 

Alaska 88 0 1 0 0 0 1 

Arizona 1,196 35 3 1 0 0 39 

Arkansas 615 9 4 6 3 0 22 

California 5,904 38 2 0 0 0 40 

Colorado 842 30 4 0 0 3 37 

Connecticut 649 24 3 1 0 0 28 

Delaware 190 6 5 0 0 0 11 

Florida 4,229 29 6 8 0 0 43 

Georgia 1,609 10 16 8 0 0 35 

Hawaii 256 18 26 1 0 0 46 

Idaho 300 18 13 0 0 0 32 

Illinois 2,142 10 11 0 0 0 22 

Indiana 1,194 7 15 4 0 0 27 

Iowa 595 6 11 0 0 2 18 

Kansas 506 6 8 0 1 0 16 

Kentucky 891 6 16 6 0 1 29 

Louisiana 828 28 3 2 0 0 33 

Maine 319 17 10 0 1 0 28 

Maryland 976 3 4 0 0 4 11 

Massachusetts 1,263 15 5 1 0 0 21 

Michigan 1,968 13 20 1 0 0 34 

Minnesota 961 13 5 0 0 40 57 

Mississippi 580 9 3 5 0 0 17 

Missouri 1,179 20 7 4 1 0 32 

Montana 213 2 18 0 1 0 21 

Nebraska 327 8 3 0 2 1 13 

Nevada 482 31 5 0 0 0 36 

New Hampshire 277 5 3 1 1 0 10 

New Jersey 1,545 11 10 0 0 0 21 

New Mexico 392 22 11 0 0 0 33 

New York 3,453 27 7 4 1 0 38 

North Carolina 1,854 14 16 2 0 0 32 

North Dakota 123 0 2 0 0 16 18 

Ohio 2,233 20 13 2 0 0 36 

Oklahoma 706 12 5 1 1 0 18 

Oregon 798 29 16 0 0 0 45 

Pennsylvania 2,619 25 15 0 0 0 41 

Puerto Rico 775 72 3 0 0 0 75 

Rhode Island 210 34 2 1 0 0 37 

South Carolina 991 7 5 12 0 0 25 

South Dakota 163 0 5 0 0 16 21 

Tennessee 1,284 24 11 1 0 0 37 

Texas 3,834 19 9 4 0 1 34 

Utah 365 29 6 0 0 0 36 

Vermont 138 2 2 4 1 0 9 

Virgin Islands 20 0 1 0 0 0 1 

Virginia 1,420 7 5 2 2 2 17 

Washington 1,258 26 4 0 0 0 31 

Washington, DC 91 2 7 0 0 7 15 

West Virginia 428 3 21 1 1 4 30 

Wisconsin 1,100 20 12 1 1 5 39 

Wyoming 100 0 1 0 2 1 4 

Note: MA (Medicare Advantage), HMO (health maintenance organization), PPO (preferred provider organization), PFFS (private 

fee-for-service). Cost plans are not MA plans; they submit cost reports rather than bids to CMS. Component percentages 

may not sum to totals due to rounding. 

Source: CMS enrollment and population data February 2017. 
138 Medicare Advantage 

Chart 9-6. MA plan benchmarks, bids, and Medicare program 

 payments relative to FFS spending, 2017 

All plans HMOs Local PPOs Regional PPOs PFFS 

 

Benchmarks/FFS 106% 106% 111% 101% 110% 

Bids/FFS 90 88 101 94 108 

Payments/FFS 100 99 107 98 109 

 

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 2016. 

• Since 2006, plan bids have partly determined the Medicare payments they receive. Plans bid to 

offer Part A and Part B coverage to Medicare beneficiaries (Part D coverage is bid separately). 

The bid includes plan administrative cost and profit. CMS bases the Medicare payment for a 

private plan on the relationship between its bid and its applicable benchmark. 

• The benchmark is an administratively determined bidding target. Benchmarks for each county are 

set by means of a statutory formula based on percentages (ranging from 95 percent to 115 

percent) of each county’s per capita Medicare spending. 

• 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 106 percent of FFS spending when weighted by MA 

enrollment. The ratio varies by plan type because different types of plans tend to draw 

enrollment from different types of geographical areas. 

• Plans’ enrollment-weighted bids (excluding employer plans, which no longer submit bids) 

average 90 percent of FFS spending in 2017. We estimate that HMOs bid an average of 88 

percent of FFS spending, while bids from other plan types average at least 94 percent of FFS 

spending. These numbers suggest that HMOs can provide the same services for less than FFS 

in the areas where they bid. 

• We project that 2017 MA payments will be 100 percent of FFS spending. This figure does not 

include employer plans and does not account for risk coding differences between FFS and MA 

plans that have not been resolved through the coding intensity factor. 

• The ratio of payments relative to FFS spending varies by the type of MA plan. HMO and regional 

PPO payments are estimated to be 99 and 98 percent of FFS, respectively, while payments to 

PFFS and local PPOs average 109 percent and 107 percent of FFS, respectively. 
A Data Book: Health care spending and the Medicare program, June 2017 139

Chart 9-7. Enrollment in employer group MA plans, 2006–2017 

Note: MA (Medicare Advantage). Enrollment numbers are as of May for 2006, November for 2007, and February for 2008 

through 2017. 

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 2017, about 3.7 million enrollees were in employer group plans, or about 20 

percent of all MA enrollees. Employer plan enrollment grew by 16 percent from 2016 and 

has doubled since 2009. 

0.96

1.30 1.56 1.83 1.92 2.08 2.32 2.53

2.96 3.14 3.16

3.68

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Enrollment (in millions)
140 Medicare Advantage 

Chart 9-8. Number of special needs plan enrollees, 2008–2017 

Source: CMS special needs plans comprehensive reports, April 2008–2017. 

• 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 2 million in 2017. 

• 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 and 2017. 

829

918 967

1,069

1,188

1,380

1,576

1,678

1,790

1,959

180

265 214 170 201 266 288 313 332 335

136 119 98 80 47 49 50 50 58 63

0

500

1,000

1,500

2,000

2,500

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Number of special needs plan enrollees

(in thousands)

Dual Chronic Institutional
A Data Book: Health care spending and the Medicare program, June 2017 141

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

to 2017 

Note: SNP (special needs plan). 

Source: CMS special needs plans comprehensive reports, April 2016 and 2017. 

• The number of SNPs increased by 3 percent from April 2016 to April 2017, and the number 

of SNP enrollees increased by 8 percent. All three types of SNPs showed increases in 

enrollment. The number of institutional and dual-eligible SNPs increased, while chronic 

disease SNPs decreased by about 9 percent. The direction of these changes is the same as 

it was last year; enrollment in all three types increased and the number of dual SNPs and 

institutional SNPs increased, from 2016 to 2017, while the number of chronic condition 

SNPs decreased. 

• In 2017, most SNPs (65 percent) are for dual-eligible beneficiaries, while 21 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 almost 2.4 

million in April 2017. 

• The availability of SNPs varies by type of special needs population served (data not shown). 

In 2017, 86 percent of beneficiaries reside in areas where SNPs serve dual-eligible 

beneficiaries (up from 83 percent in 2016), 52 percent live where SNPs serve 

institutionalized beneficiaries (up from 50 percent in 2016), and 44 percent live where SNPs 

serve beneficiaries with chronic conditions (down from 54 percent). 

350 377

79 83

139 123

0

100

200

300

400

500

600

700

April 2016 April 2017

Number of SNPs

Chronic or disabling condition

Institutional

Dual eligible

1,790 1,959

58

332 63

335

0

500

1,000

1,500

2,000

2,500

April 2016 April 2017

SNP enrollment (in thousands)

Chronic or disabling condition

Institutional

Dual eligible
142 Medicare Advantage 

Chart 9-10. Twenty most common condition categories among 

MA beneficiaries, as defined in the CMS–HCC model, 

2015 

 Percent of 

 Percent of beneficiaries 

 beneficiaries with listed condition 

Conditions (defined by HCC) with listed condition and no others 

 

Vascular disease 17.7% 2.1% 

Diabetes with chronic complications 15.2 2.6 

COPD 14.4 1.9 

Diabetes without complications 13.0 4.5 

CHF 11.5 0.5 

Specified heart arrhythmias 11.4 1.3 

Major depressive, bipolar, and paranoid disorders 9.6 1.7 

Morbid obesity 7.0 0.8 

Rheumatoid arthritis and inflammatory connective tissue disease 5.8 1.0 

Breast, prostate, colorectal, and other cancers and tumors 5.2 1.4 

Coagulation defects and other specified hematological disorders 4.1 0.4 

Angina pectoris 3.7 0.3 

Acute renal failure 3.1 0.1 

Other significant endocrine and metabolic disorders 3.0 0.3 

Ischemic or unspecified stroke 2.7 0.2 

Drug/alcohol dependence 2.7 0.2 

Seizure disorders and convulsions 2.6 0.3 

Cardio-respiratory failure and shock 2.3 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). 

Source: MedPAC analysis of Medicare data files from Acumen LLC. 

• CMS uses the CMS–HCC model to risk adjust capitated payments to MA plans so that 

payments better reflect the clinical needs of MA enrollees given the number and severity of 

their clinical conditions. The CMS–HCC model uses beneficiaries’ conditions, which are 

collected into HCCs, to adjust the capitated payments. 

• Vascular disease is the most common HCC, but two diabetes HCCs combined are more 

common than vascular disease. Over 28 percent of MA enrollees are in one of those two 

diabetes HCCs. 
A Data Book: Health care spending and the Medicare program, June 2017 143

Chart 9-11. Medicare private plan enrollment patterns, by age 

and Medicare–Medicaid dual-eligible status, 

December 2015

 As percent of 

Medicare population 

Percent of 

category in FFS 

Percent of 

category in plans 

All beneficiaries 100% 69% 31% 

 Aged (65 or older) 84 68 32 

 Under 65 16 74 26 

Non–dual eligible 82 69 31 

 Aged (65 or older) 73 69 31 

 Under 65 9 74 26 

Dual eligible 18 68 32 

 Aged (65 or older) 10 63 37 

 Under 65 8 75 25 

Dual-eligible beneficiaries by category (all ages) 

Full dual eligibility 13 72 28 

Beneficiaries with partial dual eligibility 

 QMB only 3 63 37 

 SLMB only 2 56 44 

 QI 1 53 47 

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 2015, 

Puerto Rico had 565,000 Medicare Advantage enrollees. Dual-eligible special needs plans in Puerto Rico had 279,000 

enrollees in December 2015. 

Source: MedPAC analysis of 2015 denominator and common Medicare environment files and CMS monthly MA reports. 

• 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 dualeligible beneficiaries were in Medicare private plans, compared with 32 percent at the end of 2015. 

• A substantial share of dual-eligible beneficiaries (42 percent (not shown in table)) are under the age 

of 65 and entitled to Medicare on the basis of disability or end-stage renal disease. Beneficiaries 

under age 65 are less likely than aged beneficiaries to enroll in Medicare private plans (26 percent vs. 

32 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 SLMBPlus 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 (44 percent and 47 

percent, respectively) than any other category shown in this chart, and the rates are higher than the 

average rate (31 percent) across all Medicare beneficiaries. 
144 Medicare Advantage 

Chart 9-12. Distribution of MA plans and enrollment by CMS 

overall star ratings, March 2017 

Year 2017 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 14 67 97 107 67 11 363 

As share of rated 

plan enrollees 9% 23% 38% 21% 8% 1% 100% 

HMOs

Number of plans 13 55 66 74 55 11 274 

As share of 

HMO enrollees 14% 30% 31% 18% 6% 1% 100% 

Local PPOs

Number of plans 1 12 29 22 10 0 74 

As share of local 

PPO enrollees <1% 14% 60% 25% 2% N/A 100% 

Regional PPOs

Number of plans 0 0 1 5 2 0 8 

As share of regional 

PPO enrollees N/A N/A 33% 27% 40% N/A 100% 

PFFS

Number of plans 0 0 0 1 0 0 1 

As share of 

PFFS enrollees N/A N/A N/A 100% N/A N/A 100% 

Note: MA (Medicare Advantage), HMO (health maintenance organization), PPO (preferred provider organization), N/A (not 

applicable), PFFS (private fee-for-service). For purposes of this table 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.” Costreimbursed 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 4.01 on an enrollment-weighted 

basis. There are 107 plans, with nearly 244,000 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 (data not shown in chart). In addition, the 58 Medicare−Medicaid plans participating in 

the financial alignment demonstration, with nearly 400,000 enrollees, are not included in the 

star rating system. 

 

(Chart continued next page) 
A Data Book: Health care spending and the Medicare program, June 2017 145

Chart 9-12. Distribution of MA plans and enrollment by CMS 

overall star ratings, March 2017 (continued) 

• Under the statutory provisions that introduced quality bonus payments beginning in 2012, 

plans with ratings of 4 stars or more receive bonus payments in the form of an increase in 

their benchmarks. Plan star ratings also determine the level of rebate dollars, with higher 

rated plans able to use a higher proportion of the difference between the plan bid and 

benchmark amounts to provide extra benefits to enrollees. 

• Plans with a 5-star rating are able to enroll beneficiaries outside of the annual election 

period, on a year-round basis. The 5-star status of such plans is highlighted in the 

Medicare.gov website’s Medicare Plan Finder. The year 2017 is the first year in which a plan 

type other than HMO has received a 5-star rating, as one local PPO is at 5 stars. Plans with 

ratings below 3 stars have an indicator of their low-performing status in the Medicare Plan 

Finder. 

• 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 (weighted 3) and patient 

experience and access measures (weighted 1.5), with less weight assigned to process and 

administrative measures (weighted 1). In 2017, excluding two composite improvement 

measures (each weighted 5), 60 percent of the weight of measures reflects Part C and Part 

D clinical quality measures (outcomes as well as clinical process measures); 20 percent of 

the weight represents patient experience measures; and the remaining 20 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 2017. For high-performing 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.” 

• An organization can consolidate plans that previously had separate ratings into combined 

plans with a single rating. The star rating in such a case is the star rating of the surviving 

plan, regardless of the star ratings of the other plans being combined. This practice affects 

the enrollment shares by star category shown in this table and affects the ability to compare 

current year data with data for prior years. (See the Commission’s March 2017 report to the 

Congress for additional information about this practice.) 

 

S E C T I O N 

Prescription drugs

A Data Book: Health care spending and the Medicare program, June 2017 149

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 critical access hospitals, Maryland hospitals, and dialysis facilities. “Medicare spending” includes 

program payments and beneficiary cost sharing. Data reflect all Part B drugs whether they are paid based on the average 

sales price plus 6 percent or another payment formula. Data exclude blood and blood products (other than clotting factor). 

Components may not sum to total due to rounding. 

Source: MedPAC and Acumen LLC analysis of Medicare claims data. 

• The Medicare program and beneficiaries spent about $25.7 billion on Part B drugs furnished by 

physicians, suppliers, and hospital outpatient departments (HOPDs) in 2015, an increase of 

about 13.3 percent from 2014. 

• Medicare’s average sales price (ASP) payment system for drugs began in 2005. Between 2005 

and 2015, total spending grew at an average annual rate of 6.8 percent. Spending growth was 

slower from 2005 to 2009 (about 3.5 percent per year on average) and was more rapid from 

2009 to 2015 (about 9.0 percent per year on average). 

• Physicians and suppliers accounted for about two-thirds ($17.0 billion) and HOPDs about onethird ($8.7 billion) of 2015 Part B drug spending. 

• Part B drug spending has been growing more rapidly for HOPDs than for physicians and 

suppliers. Between 2009 and 2015, Part B drug spending grew at an average annual rate of 15.9 

percent for HOPDs and 6.4 percent for physicians and suppliers. 

• Not included in these data are critical access hospitals and Maryland hospitals, which are not paid 

under the ASP system, and end-stage renal disease facilities, which are paid for most Part B drugs 

through the dialysis bundled payment rate. Medicare and beneficiaries spent approximately $600 

million in critical access hospitals and $300 million in Maryland hospitals for Part B drugs in 2015. 

13.3 13.9 

14.8 14.5 15.3 

16.5 

18.5 

20.2 

21.5 

22.7 

25.7

10.6 11.0 11.6 11.3 11.7 12.3 

13.4 14.1 14.5 15.2 

17.0

2.8 2.9 3.2 3.1 3.6 4.2 

5.2 

6.1 6.9 7.5 

8.7

0

3

6

9

12

15

18

21

24

27

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Medicare spending (dollars in billions)

Total

Physicians and suppliers

Hospital outpatient
150 Prescription drugs

Chart 10-2. Top 10 Part B drugs paid based on ASP, by type of 

provider (dollars in millions), 2014 and 2015 

Total Physician and supplier Hospital outpatient 

 Part B drug spending Part B drug spending Part B drug spending 

Part B drug 2014 2015 2014 2015 2014 2015 

Aflibercept $1,296 $1,815 $1,216 $1,700 $80 $115 

Rituximab 1,505 1,567 830 824 674 744 

Pegfilgrastim 1,175 1,263 625 650 550 613 

Infliximab 1,177 1,249 758 791 419 458 

Ranibizumab 1,332 1,151 1,283 1,108 49 43 

Bevacizumab 1,065 1,122 579 585 486 537 

Denosumab 769 919 495 583 275 336 

Trastuzumab 562 648 282 313 280 335 

Pemetrexed 560 549 281 261 279 287 

Bortezomib 473 507 276 286 197 220 

Total spending, 

top 10 Part B drugs 9,913 10,791 6,625 7,101 3,288 3,690 

Total spending, 

all Part B drugs 22,674 25,684 15,177 17,005 7,497 8,678 

Note: ASP (average sales price). The 10 drugs shown in the chart reflect the top 10 Part B drug billing codes paid under the 

ASP methodology with the highest Medicare expenditures in 2015. Data for 2014 are shown for comparison. Data include 

Part B–covered drugs furnished by physicians, suppliers, and hospital outpatient departments, but exclude those 

furnished by critical access hospitals, Maryland hospitals, and dialysis facilities. “Drug spending” includes Medicare 

program payments and beneficiary cost sharing. “Total spending, all Part B drugs” reflects all products, whether paid 

based on the ASP plus 6 percent or another method. Data exclude blood and blood products (other than clotting factor). 

Components may not sum to totals due to rounding. 

Source: MedPAC and Acumen LLC analysis of Medicare claims data. 

• Part B drugs are billed under more than 700 billing codes, but spending is concentrated. Medicare 

spending (including cost sharing) on the top 10 drugs paid under the ASP system, 8 of which were 

biologics, totaled nearly $11 billion in 2015, about 42 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, denosumab, trastuzumab, pemetrexed, and bortezomib). Drugs used to treat agerelated macular degeneration (ranibizumab, aflibercept, and bevacizumab) and rheumatoid arthritis 

(rituximab and infliximab) are also included in the top 10. 

• In 2015, Medicare and beneficiaries spent about $0.9 billion on Prevnar 13, a pneumococcal vaccine 

paid 95 percent of average wholesale price, up from $0.1 billion in 2014 (data not shown). In 2014, a 

Centers for Disease Control and Prevention advisory committee recommended a one-time 

vaccination of all adults age 65 and older, which led to a substantial increase in its use. 

• Medicare spending on immune globulin (for which there are several products billed through separate 

billing codes) amounted to more than $1.2 billion in 2015 (data not shown). 
A Data Book: Health care spending and the Medicare program, June 2017 151

Chart 10-3. Change in Medicare payments and utilization for 

separately payable Part B drugs, 2009–2014 

 

2009 2014 

Average 

annual growth 

2009–2014 

Total payments (in billions) $13.3 $21.2 9.8% 

Number of beneficiaries using a Part B drug (in millions) 15.1 17.4 2.9 

Average total payments per beneficiary who used Part B drugs $880 $1,213 6.6 

Average number of drugs per beneficiary 1.27 1.32 0.8 

Average payment per drug $693 $916 5.8 

Note: This analysis includes all Part B drugs paid the average sales price plus 6 percent (ASP + 6 percent) as well as the small 

group of Part B drugs that are paid based on the average wholesale price or that are contractor priced. Excluded from the 

analysis were any Part B drugs that were bundled or packaged in 2009 and/or 2014 (e.g., drugs that were packaged 

under the outpatient prospective payment system, regardless of the setting where they were furnished, and drugs 

furnished by dialysis facilities), drugs billed under not-otherwise-classified billing codes, blood and blood products (other 

than clotting factor), and data for critical access hospitals and Maryland hospitals. The average annual growth rates 

displayed in the table may differ slightly from the average annual growth rates calculated using the 2009 and 2014 values 

displayed in the table due to rounding. 

Source: MedPAC analysis of Medicare claims data for physicians, hospital outpatient departments, and suppliers. 

• Total payments by the Medicare program and beneficiaries for separately payable Part B 

drugs increased 9.8 percent per year, on average, between 2009 and 2014. 

• The largest factor contributing to the change in total payments between 2009 and 2014 was 

the change in the price Medicare paid for drugs. Between 2009 and 2014, the average 

payment per drug increased by 5.8 percent per year. This increase reflects increases in the 

prices of existing drugs and shifts in the mix of drugs, including the adoption of new drugs. 

• Price growth accounts for more than half of spending growth, even after accounting for 

changes in the payment formulas between 2009 and 2014. We standardized payments to 

remove the effect of payment formula changes (i.e., removed the effect of the sequester and 

the effect of the different payment formulas in 2009 and 2014 for non-pass-through drugs 

furnished in outpatient hospitals). Total standardized payments grew at an average annual 

rate of 10.0 percent between 2009 and 2014, with the average standardized payment per 

drug growing at an average annual rate of 6.0 percent (data not shown). 

• Also contributing to growth in Part B drug payments is growth in the number of beneficiaries 

using Part B drugs, which increased 2.9 percent per year between 2009 and 2014. 

• Among beneficiaries who used Part B drugs, the number of drugs per user grew about 0.8 

percent per year between 2009 and 2014.
152 Prescription drugs

Chart 10-4. In 2015, 88 percent of Medicare beneficiaries were 

enrolled in Part D plans or had other sources of 

creditable drug coverage 

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), 

RDS (retiree drug subsidy). “Creditable coverage” means the value of drug benefits is equal to or greater than that of the 

basic Part D benefit. 

Source: MedPAC analysis of the Medicare denominator file 2015. 

• In 2015, 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 (4 percent of beneficiaries) was substantially smaller than in 2012 (12 percent, data 

not shown) because of a shift of enrollees into Part D employer group waiver plans. That 

shift reflects changes made by the Patient Protection and Affordable Care Act of 2010 that 

increased the generosity of the Part D benefit by phasing out the coverage gap and by 

altering the tax treatment of drug expenses covered by the RDS. 

• Nearly 23 percent of Medicare beneficiaries received Part D’s LIS in 2015. Of all LIS 

beneficiaries, more than two-thirds of them (15 percent of all Medicare beneficiaries) were 

enrolled in stand-alone PDPs, and the remaining beneficiaries (7 percent) were in MA–PD 

plans. 

(Chart continued next page) 

Non-LIS enrollees 

in PDPs

29%

LIS enrollees in 

PDPs

15% Non-LIS enrollees 

in MA–PDs

21%

LIS enrollees in 

MA–PDs

7%

Primary coverage 

through employers that 

received RDS

4%

Other sources of 

creditable coverage

12%

No creditable 

coverage

12%

PDPs

44%

MA-PDs 28%
A Data Book: Health care spending and the Medicare program, June 2017 153

Chart 10-4. In 2015, 88 percent of Medicare beneficiaries were 

enrolled in Part D plans or had other sources of 

creditable drug coverage (continued) 

• Other enrollees in stand-alone PDPs accounted for 29 percent of all Medicare beneficiaries. 

Another 21 percent of non-LIS enrollees were in MA–PD plans. 

• Twelve percent of Medicare beneficiaries had creditable drug coverage, but that coverage 

did not affect Medicare program spending. Examples of other sources of creditable 

coverage include the Federal Employees Health Benefits Program, TRICARE, Department 

of Veterans Affairs, and employers not receiving the RDS. 

• Another 12 percent of Medicare beneficiaries had no drug coverage or coverage that was 

less generous than Part D’s defined standard benefit. 
154 Prescription drugs

Chart 10-5. Changes in parameters of the Part D defined 

standard benefit over time 

 Cumulative 

 change 

 2006 2015 2016 2017 2006–2017 

 

Deductible $250.00 $320.00 $360.00 $400.00 60% 

Initial coverage limit 2,250.00 2,960.00 3,310.00 3,700.00 64% 

Annual out-of-pocket threshold 3,600.00 4,700.00 4,850.00 4,950.00 38% 

Total covered drug spending at annual 

 out-of-pocket threshold 5,100.00 7,061.76 7,515.22 8,071.16 58% 

Minimum cost sharing above the annual 

 out-of-pocket threshold 

 Copay for generic/preferred 

 multisource drugs 2.00 2.65 2.95 3.30 65% 

 Copay for other prescription drugs 5.00 6.60 7.40 8.25 65% 

 

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 depended on the mix of brand-name and 

generic drugs filled during the coverage gap. The amounts shown are for individuals not receiving Part D’s low-income 

subsidy who have no 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 2017, the standard benefit has a $400 

deductible, 25 percent coinsurance on covered drugs until the enrollee reaches $3,700 in 

total covered drug spending, and then a coverage gap until out-of-pocket spending reaches 

the annual threshold. Before 2011, enrollees were responsible for paying the full discounted 

price of drugs filled during the coverage gap. Because of changes made by the Patient 

Protection and Affordable Care Act of 2010, enrollees pay reduced cost sharing for drugs 

filled in the coverage gap. In 2017, the cost sharing for drugs filled during the gap phase is 

40 percent for brand-name drugs and 51 percent for generic drugs. Enrollees with drug 

spending that exceeds the annual threshold pay the greater of $3.30 to $8.25 per 

prescription or 5 percent coinsurance. 

• Most parameters of this defined standard benefit structure have changed over time at the 

same rate as the annual change in average total drug expenses of Medicare beneficiaries 

enrolled in Part D. The benefit parameters have generally increased over time, with the 

exception of 2014. The parameters have grown cumulatively by 38 percent to 65 percent 

between 2006, the year Part D began, and 2017. 

 (Chart continued next page) 
A Data Book: Health care spending and the Medicare program, June 2017 155

Chart 10-5. 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. 
156 Prescription drugs

Chart 10-6. Characteristics of stand-alone Medicare PDPs 

 2016 2017 

 Enrollees as of Enrollees as of 

 Plans February 2016 Plans February 2017 

 

 Number Number 

 Number Percent (in millions) Percent Number Percent (in millions) Percent 

 

Total 886 100% 19.9 100% 746 100% 20.5 100% 

Type of organization 

 National 685 77 18.1 91 643 86 19.1 93 

 Other 201 23 1.8 9 103 14 1.5 7 

Type of benefit 

 Defined standard 0 0 0.0 0 0 0 0.0 0 

 Actuarially equivalent 438 49 11.6 58 359 48 12.2 59 

 Enhanced 448 51 8.4 42 387 52 8.4 41 

Type of deductible 

 Zero 290 33 9.8 49 280 38 9.7 47 

 Reduced 128 14 0.6 3 110 15 1.5 7 

 Defined standard* 468 53 9.6 48 356 48 9.4 46 

Drugs covered in the gap 

 Some coverage 199 22 2.5 12 208 28 2.9 14 

 None 687 78 17.5 88 538 72 17.6 86 

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 $360 in 2016 and is $400 in 2017. 

Source: MedPAC analysis of CMS landscape, premium, and enrollment data. 

• Between 2016 and 2017, the number of stand-alone PDPs decreased by nearly 16 percent. 

Plan sponsors are offering 746 PDPs in 2017 compared with 886 in 2016. 

• In 2017, 86 percent of all PDPs are offered by sponsoring organizations that have at least 1 

PDP in each of the 34 PDP regions (shown as “national” organizations in the table). Plans 

offered by those national sponsors account for 93 percent of all PDP enrollment. 

• For 2017, the share of PDP offerings including enhanced benefits (basic plus supplemental 

coverage) is similar to that in 2016. Likewise, the share of PDPs with actuarially equivalent 

benefits (having the same average value as the defined standard benefit but with alternative 

benefit designs) remains about the same. Sponsors are offering no PDPs with the defined 

standard benefit in 2017. Actuarially equivalent plans continue to attract the largest share of 

PDP enrollees (59 percent), and the share of enrollees choosing to enroll in enhanced benefit 

plans remains fairly constant at 41 percent in 2017 compared with 42 percent in 2016. 

• A larger share of PDPs includes gap coverage for some drugs (usually generics) in 2017 than 

in 2016, and in 2017 the majority of PDP enrollees (86 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. 
A Data Book: Health care spending and the Medicare program, June 2017 157

Chart 10-7. Characteristics of MA–PDs 

 2016 2017 

 Enrollees as of Enrollees as of 

 Plans February 2016 Plans February 2017 

 

 Number Number 

 Number Percent (in millions) Percent Number Percent (in millions) Percent 

 

Totals 1,682 100% 11.2 100% 1,734 100% 11.9 100% 

Type of organization 

 Local HMO 1,205 72 8.1 72 1,241 72 8.5 72 

 Local PPO 409 24 2.0 18 429 25 2.3 19 

 PFFS 38 2 0.2 1 32 2 0.1 1 

 Regional PPO 30 2 0.9 8 32 2 1.0 8 

Type of benefit 

 Defined standard 30 2 0.1 1 24 1 0.1 1 

 Actuarially equivalent 185 11 1.4 13 148 9 1.3 11 

 Enhanced 1,467 87 9.7 86 1,562 90 10.5 89 

Type of deductible 

 Zero 933 55 5.5 49 852 49 5.5 46 

 Reduced 483 29 4.2 37 711 41 5.5 46 

 Defined standard* 266 16 1.6 14 171 10 1.0 8 

Drugs covered in the gap 

 Some coverage 744 44 5.2 47 914 53 6.3 53 

 None 938 56 6.0 53 820 47 5.6 47 

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 $360 in 2016 and is $400 in 2017. 

Source: MedPAC analysis of CMS landscape, premium, and enrollment data. 

• There are 3 percent more MA–PD plans in 2017 than in 2016. Sponsors are offering 1,734 

MA–PD plans in 2017 compared with 1,682 the year before. HMOs remain the dominant kind 

of MA–PD plan, making up 72 percent of all (unweighted) offerings in 2017. The number of 

PFFS plans continues to decline, from 38 in 2016 to 32 in 2017. Between 2016 and 2017, the 

number of drug plans offered by local PPOs increased from 409 plans to 429 plans, and the 

number of drug plans offered by regional PPOs increased from 30 plans to 32 plans. 

• A larger share of MA–PD plans than stand-alone prescription drug plans (PDPs) offer 

enhanced benefits (compare Chart 10-7 with Chart 10-6). In 2017, 52 percent of all PDPs 

have enhanced benefits compared with 90 percent of MA–PD plans. In 2017, enhanced 

MA–PD plans attracted 89 percent of total MA–PD enrollment. 

• Forty-nine percent of MA–PD plans have no deductible in 2017. These plans attracted 46 

percent of total MA–PD enrollees in 2017. 

• MA–PD plans are more likely than PDPs to provide some additional benefits in the coverage 

gap. In 2017, about 53 percent of MA–PD plans include some gap coverage—higher than 

the year before. Those plans account for 53 percent of MA–PD enrollment. 
158 Prescription drugs

Chart 10-8. Change in average Part D premiums, 2013–2017

Average monthly premium weighted by enrollment Cumulative change 

in weighted 

average 

premium, 

2013–2017 2013 2014 2015 2016 2017 

All plans 

 Basic coverage $32 $29 $26 $28 $30 –4% 

 Enhanced coverage 28 30 33 33 33 17

 Any coverage 30 29 30 31 32 7

 

PDPs 

 Basic coverage 32 30 28 29 31 –3

 Enhanced coverage 49 49 48 53 54 11

 Any coverage 39 38 37 39 41 5

 

MA–PDs, including SNPs 

 Basic coverage 29 25 21 22 26 –9

 Enhanced coverage 13 13 16 17 18 40

 Any coverage 15 16 18 18 19 29

 

Base beneficiary premium 31.17 32.42 33.13 34.10 35.63 14

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), SNP (special needs plan). All 

calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PD plans exclude Part B–

only plans, demonstrations, and 1876 cost plans. The MA–PD data reflect the portion of Medicare Advantage plans’ total 

monthly premium attributable to Part D benefits for plans that offer Part D coverage, as well as Part C rebate dollars that were 

used to offset Part D premium costs. The fact that average premiums for enhanced MA–PD plans are lower than for basic 

MA–PD plans could reflect several factors such as changes in enrollment among plan sponsors and counties of operation 

and differences in the average health status of plan enrollees. Cumulative changes were calculated from unrounded data. 

Source: MedPAC analysis of CMS landscape, plan report, and enrollment data. 

• The overall average premium (for any coverage) paid by Part D enrollees grew slowly from 

$30 per month in 2013 to $32 per month in 2017. 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 $32 per month in 2013 and a low of $28 in 2015, decreasing by a cumulative 

3 percent from 2013 to 2017. The average enrollee premium for PDPs offering enhanced 

coverage has increased from $49 in 2013 to $54 in 2017, a cumulative 11 percent increase. 

• Between 2013 and 2017, 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 9 percent. The average premium paid by 

beneficiaries enrolled in MA−PD plans offering enhanced coverage has increased from $13 

in 2013 to $18 in 2017, a cumulative 40 percent increase. 

 
A Data Book: Health care spending and the Medicare program, June 2017 159

Chart 10-9. More premium-free (for LIS enrollees) PDPs in 2017 

Number of PDPs 

Number of PDPs that have zero 

premium for LIS enrollees 

PDP region State(s) 2016* 2017* Difference 2016* 2017* Difference 

1 ME, NH 27 23 –4 9 8 –1 

2 CT, MA, RI, VT 26 21 –5 6 7 1 

3 NY 22 19 –3 7 8 1 

4 NJ 25 21 –4 8 8 0 

5 DC, DE, MD 24 20 –4 10 10 0 

6 PA, WV 29 24 –5 9 9 0 

7 VA 28 23 –5 7 7 0 

8 NC 26 22 –4 5 7 2 

9 SC 27 21 –6 4 6 2 

10 GA 27 23 –4 5 4 –1 

11 FL 22 20 –2 3 3 0 

12 AL, TN 27 24 –3 7 7 0 

13 MI 28 23 –5 7 8 1 

14 OH 27 22 –5 5 6 1 

15 IN, KY 28 23 –5 7 7 0 

16 WI 27 24 –3 7 7 0 

17 IL 28 23 –5 9 9 0 

18 MO 28 23 –5 4 4 0 

19 AR 26 22 –4 4 5 1 

20 MS 24 19 –5 6 7 1 

21 LA 25 20 –5 7 7 0 

22 TX 28 23 –5 7 6 –1 

23 OK 27 22 –5 6 7 1 

24 KS 25 22 –3 4 5 1 

25 IA, MN, MT, ND, 

 NE, SD, WY 26 22 –4 5 6 1 

26 NM 27 23 –4 8 9 1 

27 CO 26 23 –3 6 7 1 

28 AZ 26 22 –4 10 10 0 

29 NV 28 23 –5 4 4 0 

30 OR, WA 26 21 –5 9 8 –1 

31 ID, UT 28 24 –4 9 9 0 

32 CA 28 24 –4 6 6 0 

33 HI 21 19 –2 2 5 3 

34 AK 19 18 –1 6 5 –1 

 Total 886 746 –140 218 231 13 

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan). 

*These figures include 12 plans in 2016 and 25 plans in 2017 that did not accept new enrollees because of CMS sanctions. 

Source: MedPAC based on 2016 and 2017 PDP landscape file provided by CMS. 

• The total number of stand-alone PDPs decreased by 16 percent, from 886 in 2016 to 746 in 2017. The 

median number of plans offered in PDP regions decreased to 22 plans from 27 in 2016 (data not shown). 

In 2017, AK has the fewest stand-alone PDPs, with 18; 5 regions have the most, with 24—Region 6 (PA, 

WV), Region 12 (AL, TN), Region 16 (WI), Region 31 (ID, UT), and Region 32 (CA). 

• In 2017, 231 PDPs qualify as premium free to LIS enrollees. With the exception of FL, which has only 

three plans with no premium for LIS enrollees, at least four premium-free PDPs are available in any 

given region. However, 25 plans were not accepting new enrollees because of CMS sanctions, reducing 

the number of premium-free options to 206 PDPs.
160 Prescription drugs

Chart 10-10. In 2017, most Part D enrollees are in plans that use a 

five-tier formulary structure 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). Calculations are weighted by 

enrollment. All calculations exclude employer-only groups and plans offered in U.S. territories. In addition, MA–PDs 

exclude demonstration programs, special needs plans, and 1876 cost plans. Components may not sum to totals due to 

rounding. Over 99 percent of stand-alone PDPs and MA−PDs have a specialty tier in addition to the tiers listed above. 

The algorithm used to classify formularies was modified beginning with 2016 data but does not materially affect results. 

Source: MedPAC and MedPAC-sponsored analyses by NORC/Social and Scientific Systems 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 2017, 98 percent of PDP enrollees are in 

plans that have two generic and two brand-name tiers, an increase from 96 percent in 2016. About 79 

percent of MA–PD enrollees are in such plans in 2017, an increase from 77 percent in 2016. 

• For enrollees in PDPs with two generic and two brand-name tiers, the median copay in 2017 is $40 

for a preferred brand-name drug and 40 percent coinsurance for a nonpreferred brand-name drug 

(data not shown). The median copay for generic drugs is $1 for generic drugs on the lower tier and $7 

for the higher tier. For MA–PD enrollees, in 2017, the median copay is $47 for a preferred brand, 45 

percent coinsurance for a nonpreferred brand, and $2 and $11 for a generic drug on the two generic 

tiers, respectively. 

• Most plans also use a specialty tier for drugs that have a negotiated price of $670 per month or more. 

In 2017, median cost sharing for a specialty-tier drug is 25 percent among PDPs and 29 percent 

among MA–PD plans (data not shown). 

21%

98% 79%

<1%

<1%

2%

<1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2007 2014 2015 2016 2017 2007 2014 2015 2016 2017

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 
A Data Book: Health care spending and the Medicare program, June 2017 161

Chart 10-11. In 2017, PDPs and MA–PDs apply some utilization 

management to more than 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. The algorithm used to classify 

formularies was modified beginning with 2016 data but does not materially affect results. 

Source: MedPAC and MedPAC-sponsored analyses by NORC/Social and Scientific Systems of formularies submitted to CMS. 

• In addition to the number of drugs listed on a plan’s formulary, 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 2017, the average enrollee in a stand-alone PDP faces some form of utilization management 

for about 44 percent of drugs listed on a plan’s formulary, about the same rate as in 2016. The 

average MA–PD enrollee faces some form of utilization management for 43 percent of drugs 

listed on a plan’s formulary, an increase from 41 percent in 2016. Part D plans typically use 

quantity limits or prior authorization to manage enrollees’ prescription drug use. 

• Among the drugs listed on plan formularies for stand-alone PDPs, the share that requires prior 

authorization in 2017 remained unchanged from 2016 at 26 percent. The share with quantity 

limits increased from 25 percent in 2016 to 27 percent in 2017. Among MA–PDs, both the use of 

prior authorization and the use of quantity limits increased between 2016 and 2017, from 24 

percent to 25 percent for prior authorization and from 23 percent to 26 percent for quantity limits. 

The share of drugs listed on plan formularies that requires the use of step therapy remained very 

low for both stand-alone PDPs and MA–PDs. 

0

5

10

15

20

25

30

35

40

45

50

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

Percent of listed drugs

2007 2014 2015 2016 2017

PDPs

0

5

10

15

20

25

30

35

40

45

50

Prior

authorization

Step

therapy

Quantity

limits

Any

utilization

management

2007 2014 2015 2016 2017

MA–PDs
162 Prescription drugs

Chart 10-12. Characteristics of Part D enrollees, 2014 

All 

Medicare Part D 

 Plan type Subsidy status 

 PDP MA–PD LIS Non-LIS 

Beneficiariesa (in millions) 56.6 40.0 25.1 14.9 12.8 27.2 

Percent of all Medicare 100% 71% 44% 26% 23% 48% 

Gender 

 Male 46% 42% 42% 43% 40% 44% 

 Female 54 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 15 16 7 

 Asian 3 3 3 4 6 2 

 Other 2 2 2 2 2 2 

Age (years)b 

 <65 19 19 22 16 42 9 

 65–69 26 24 23 26 16 28 

 70–74 19 20 19 22 13 24 

 75–79 14 15 14 15 10 17 

 80+ 22 22 23 21 19 24 

Urbanicityc 

 Metropolitan 82 82 78 89 81 83 

 Micropolitan 10 10 12 7 11 10 

 Rural 8 8 10 4 8 7 

 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). 

Percentages may not sum to 100 due to rounding. 

a

Figures for “All Medicare” and “Part D” include all beneficiaries with at least one month of enrollment in the respective 

program. A beneficiary 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 2014. 

c

Urbanicity is based on the Office of Management and Budget’s core-based statistical areas as of February 2013. A 

metropolitan area contains a core urban area of 50,000 or more people, and a micropolitan area contains an urban core of 

at least 10,000 (but fewer than 50,000) people. About 1 percent of Medicare beneficiaries were excluded because of an 

unidentifiable core-based statistical area designation. 

 

Source: MedPAC analysis of Medicare Part D denominator file from CMS. 

• In 2014, 40 million Medicare beneficiaries (71 percent) were enrolled in Part D at some point 

in the year. Most of them (25.1 million) were in stand-alone PDPs, with 14.9 million in MA–

PD plans. Nearly 13 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. 
A Data Book: Health care spending and the Medicare program, June 2017 163

Chart 10-13. Part D enrollment trends, 2007–2014 

 Average annual growth rate 

 2007 2010 2014 2007−2010 2010−2014 2007−2014 

Part D enrollment (in millions)* 

 Total 26.1 29.7 40.0 4.4% 7.7 % 6.3% 

 By plan type 

 PDP 18.3 18.9 25.1 1.1 7.3 4.6 

 MA–PD 7.8 10.6 14.9 10.9 8.9 9.8 

 By subsidy status 

 LIS 10.4 11.3 12.8 2.7 3.1 2.9 

 Non-LIS 15.7 18.4 27.2 5.5 10.2 8.2 

 By race/ethnicity 

 White, non-Hispanic 19.4 22.0 29.6 4.3 7.7 6.2 

 African American, non-Hispanic 2.9 3.3 4.4 4.1 7.4 5.9 

 Hispanic 2.5 3.0 3.9 5.8 6.7 6.3 

 Other 1.3 1.4 2.1 3.9 10.3 7.5 

 By age (years)** 

 <65 5.5 6.3 7.8 4.7 5.5 5.2 

 65–69 5.4 6.6 9.5 6.5 9.9 8.4 

 70–79 8.8 9.9 13.9 3.8 8.9 6.7 

 80+ 6.4 7.1 8.8 3.2 5.7 4.6 

Part D enrollment (in percent) 

 Total 100% 100% 100% 

 By plan type 

 PDP 70 64 63 

 MA–PD 30 36 37 

 By subsidy status 

 LIS 40 38 32 

 Non-LIS 60 62 68 

 By race/ethnicity 

 White, non-Hispanic 74 74 74 

 African American, non-Hispanic 11 11 11 

 Hispanic 10 10 10 

 Other 5 5 5 

 By age (years)** 

 <65 21 21 19 

 65–69 21 22 24 

 70–79 34 33 35 

 80+ 25 24 22 

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy). A 

beneficiary 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) 
164 Prescription drugs

Chart 10-13. Part D enrollment trends, 2007–2014 (continued) 

• Part D enrollment grew faster between 2010 and 2014 (average annual growth rate (AAGR) 

of 7.7 percent) than between 2007 and 2010 (AAGR of 4.4 percent). Between 2010 and 

2014, the largest growth in enrollment was observed for beneficiaries ages 65 to 69 (9.9 

percent annually, on average), followed by beneficiaries ages 70 to 79 (8.9 percent 

annually, on average). 

• While MA–PD plan enrollment grew faster than PDP enrollment between 2007 and 2010 

(nearly 11 percent annually compared with about 1 percent annually, on average, 

respectively), the growth rates were more comparable between MA–PDs and PDPs 

between 2010 and 2014 (AAGR of 8.9 percent and 7.3 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 2014. 

The average annual growth in the number of non-LIS enrollees was also greater between 

2010 and 2014 (10.2 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 10-4 for 

information on the RDS). 

 
A Data Book: Health care spending and the Medicare program, June 2017 165

Chart 10-14. Part D enrollment by region, 2014 

 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 65% 5% 80% 20% 39% 61% 

2 CT, MA, RI, VT 69 9 70 30 39 61

3 NY 76 6 56 44 38 62

4 NJ 71 6 82 18 26 74

5 DE, DC, MD 59 7 87 13 34 66

6 PA, WV 73 5 58 42 29 71

7 VA 61 4 77 23 31 69

8 NC 72 5 63 37 33 67

9 SC 70 3 71 29 33 67

10 GA 70 3 60 40 37 63

11 FL 73 5 50 50 31 69

12 AL, TN 72 4 62 38 37 63

13 MI 76 5 76 24 26 74

14 OH 76 4 67 33 27 73

15 IN, KY 72 5 74 26 32 68

16 WI 69 4 61 39 26 74

17 IL 69 8 78 22 32 68

18 MO 72 3 66 34 29 71

19 AR 67 5 75 25 40 60

20 MS 70 2 82 18 47 53

21 LA 72 5 62 38 41 59

22 TX 68 5 66 34 36 64

23 OK 65 2 78 22 33 67

24 KS 69 2 83 17 25 75

25 IA, MN, MT, NE, 

 ND, SD, WY 72 3 74 26 24 76

26 NM 69 3 57 43 37 63

27 CO 70 4 51 49 25 75

28 AZ 70 4 49 51 28 72

29 NV 66 5 52 48 26 74

30 OR, WA 66 7 53 47 29 71

31 ID, UT 65 5 54 46 25 75

32 CA 76 4 50 50 36 64

33 HI 70 2 37 63 27 73

34 AK 41 23 98 2 55 45

 

 Mean 71 5 63 37 32 68

 Minimum 41 2 37 2 24 45

 Maximum 76 23 98 63 55 76

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 2014, all but two regions (Region 5 (DE, DC, MD), 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 23 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) 
166 Prescription drugs

Chart 10-14. Part D enrollment by region, 2014 (continued) 

• In 2014, all regions except Region 34 experienced a decrease in the number of 

beneficiaries who received the RDS (data not shown). In many regions, the decreases in 

RDS recipients were accompanied by larger than average increases in Part D enrollment 

(e.g., Region 5, Region 9, Region 17, and Region 27). The continued trend is likely 

motivated by changes made by the Patient Protection and Affordable Care Act of 2010 

that increased the generosity of Part D coverage and altered the tax treatment of drug 

expenses covered by the RDS. 

• Wide variation was seen in the shares of Part D beneficiaries who enrolled in PDPs and 

MA–PD plans across PDP regions. The pattern of MA–PD enrollment is generally consistent 

with enrollment in Medicare Advantage plans. 

• The share of Part D enrollees receiving the LIS ranged from 24 percent in Region 25 (IA, 

MN, MT, NE, ND, SD, and WY) to 55 percent in Region 34 (AK). In 19 of the 34 PDP 

regions, LIS enrollees accounted for 30 percent to 50 percent of enrollment. 
A Data Book: Health care spending and the Medicare program, June 2017 167

Chart 10-15. Components of Part D spending growth 

2009 2014 

Average 

annual growth 

2009–2014 

Total gross spending (in billions) 

 High-cost beneficiaries $29.2 $64.6 17.2% 

 Lower cost beneficiaries 44.6 56.7 4.9% 

 All beneficiaries 73.7 121.4 10.5% 

Number of beneficiaries using a Part D drug (in millions) 

 High-cost beneficiaries 2.4 3.4 7.6% 

 Lower cost beneficiaries 24.1 33.7 6.9% 

 All beneficiaries 26.5 37.1 7.0% 

Amount per beneficiary who used Part D drugs 

 Average price per 30-day prescription $55 $60 1.7% 

 Number of 30-day prescriptions 50.4 54.5 1.5% 

 Gross drug spending per year $2,781 $3,267 3.3% 

Amount per high-cost beneficiary who used Part D drugs 

 Average price per 30-day prescription $110 $166 8.4% 

 Number of 30-day prescriptions 111.4 113.9 0.4% 

 Gross drug spending per year $12,294 $18,845 8.9% 

Amount per lower cost beneficiary who used Part D drugs 

 Average price per 30-day prescription $42 $35 –3.5% 

 Number of 30-day prescriptions 44.5 48.4 1.7% 

 Gross drug spending per year $1,846 $1,683 –1.8% 

Note: “High-cost beneficiaries” refers to individuals who incurred spending high enough to reach the catastrophic phase of the 

benefit. “Gross spending” reflects payments to pharmacies from all payers, including beneficiary cost sharing, but does 

not include rebates and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. 

Changes in the average price per prescription reflect both price inflation and changes in the mix of drugs used. 

Components may not sum to totals due to rounding. 

Source: MedPAC analysis of Part D prescription drug event data and denominator files from CMS. 

• Between 2009 and 2014, gross spending on drugs under the Part D program grew by an annual average 

rate of 10.5 percent. The annual growth in spending was considerably higher (17.2 percent) among highcost beneficiaries (individuals who incurred spending high enough to reach the catastrophic phase of the 

benefit) compared with less than 5 percent for lower cost beneficiaries. 

• During the 2009 through 2014 period, the number of beneficiaries who used Part D drugs grew by an 

annual average rate of 7 percent, with faster growth observed among high-cost beneficiaries (7.6 percent) 

than among lower cost beneficiaries (6.9 percent). 

• Overall, between 2009 and 2014, the growth in prices per 30-day prescription accounted for slightly more 

than half (1.7 percent) of the 3.3 percent average annual growth in spending per beneficiary among 

beneficiaries who used Part D drugs. 

• The average annual growth rate in overall spending per beneficiary reflects two distinct patterns of price 

and spending growth for high-cost beneficiaries and lower cost beneficiaries. Among high-cost 

beneficiaries, annual growth in prices (8.4 percent) accounted for nearly all of the spending growth (8.9 

percent) during this period. In contrast, among lower cost beneficiaries, the annual decrease in prices (3.5 

percent) resulted in an overall decrease in spending (–1.8 percent annually), despite an increase in the 

number of prescriptions filled during the same period. 
168 Prescription drugs

Chart 10-16. The majority of Part D spending was incurred by 

slightly over one-quarter of all Part D enrollees, 2014 

Note: “Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. Annual spending 

categories used for this analysis generally correspond to the parameters of the defined standard benefit. In 2014, 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 $6,690.77 in total drug spending, assuming that expenses for brand-name drugs 

accounted for 86.2 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 2014, about 27 

percent of Part D enrollees had annual spending of $2,850 or more, at which point enrollees 

were responsible for a higher proportion of the cost of the drug until their spending reached 

$6,690.77 under the defined standard benefit. These beneficiaries accounted for 81 percent 

of total Part D spending. 

• The costliest 10 percent of beneficiaries, those with drug spending above the catastrophic 

threshold under the defined standard benefit, accounted for 57 percent of total Part D 

spending. Sixty-two percent of beneficiaries with the highest spending received Part D’s lowincome [drug] subsidy (see Chart 10-17). Spending on prescription drugs is less concentrated 

than Medicare Part A and Part B spending. In 2013, the costliest 5 percent of beneficiaries 

accounted for 42 percent of annual Medicare fee-for-service (FFS) spending, and the costliest 

quartile accounted for 84 percent of Medicare FFS spending (see Chart 1-11). 

• In 2014, the share of Part D enrollees with annual gross spending at or above $10,000 

increased to 6 percent from 5 percent in 2013 and earlier years. Those costliest 6 percent of 

enrollees accounted for 46 percent of spending in 2014. 

28

1

45

18

17

24

4

11

6

46

0

10

20

30

40

50

60

70

80

90

100

Percent of enrollees Percent of spending

Percent

≥$10,000

$6,691–$9,999

$2,850–$6,690

$310–$2,849

$0–$309

81

Annual spending on 

prescription drugs
A Data Book: Health care spending and the Medicare program, June 2017 169

Chart 10-17. Characteristics of Part D enrollees, by spending 

levels, 2014 

 Annual drug spending 

 <$2,850 $2,850–$6,690 ≥$6,691 

Sex 

 Male 43% 40% 41%

 Female 57 60 59 

Race/ethnicity 

 White, non-Hispanic 74 76 70 

 African American, non-Hispanic 11 11 14 

 Hispanic 10 9 10 

 Other 5 5 6 

Age (years) 

 <65 17 20 37 

 65–69 26 19 17 

 70–74 21 20 16 

 75–80 15 16 12 

 80+ 22 25 17 

LIS status* 

 LIS 26 39 62 

 Non-LIS 74 61 38 

Plan type** 

 PDP 60 68 74 

 MA–PD 40 32 26 

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 2014, Part D enrollees with annual drug spending between $2,850 and $6,690 and those with spending at 

or above $6,691 were more likely to be female than enrollees with annual spending below $2,850 (60 percent 

and 59 percent, respectively, compared with 57 percent). 

• Part D enrollees with annual spending at or above $6,691 were more likely to be non-White, disabled, 

under age 65, and receiving the LIS compared with those with annual spending below $2,850. 

• Part D enrollees entered the catastrophic phase of the benefit at about $6,691 in total drug spending in 

2014. While LIS enrollees are more likely to reach the catastrophic phase of the benefit, their share has 

been declining, from more than three-quarters in 2010 and earlier years to 65 percent in 2013 (not shown 

in chart) and 62 percent in 2014. This decline reflects more rapid enrollment growth among individuals who 

do not receive the LIS as well as the growth in average prices of drugs taken by those individuals. 

• About three-quarters of Part D enrollees with spending at or above $6,691 were enrolled in stand-alone 

PDPs (74 percent) compared with MA–PD plans (26 percent). In contrast, beneficiaries with annual 

spending below $2,850 were more likely to be in MA–PDs compared with those with higher annual 

spending (40 percent compared with 26 percent). This contrast reflects the facts that LIS enrollees are 

more costly on average and are more likely to be in PDPs. 
170 Prescription drugs

Chart 10-18. Part D spending and use per enrollee, 2014 

Part D 

 Plan type LIS status 

 PDP MA–PD LIS Non-LIS 

Total gross spending (billions)* $121.4 $85.1 $36.2 $60.3 $61.0

Total number of prescriptions 

(millions) 2,023 1,307 716 774 1,249

Average spending per prescription $60 $65 $51 $78 $49

Per enrollee per month 

 Total spending $268 $303 $211 $427 $196

 OOP spending 33 34 31 6 45

 Manufacturer gap discount 11 13 8 N/A 16

 Plan liability 164 182 134 273 115

 Low-income cost-sharing subsidy 46 56 30 148 N/A

 Number of prescriptions 4.5 4.6 4.2 5.5 4.0

Note: PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]), LIS (low-income [drug] subsidy), OOP 

(out of pocket), N/A (not applicable). “Total gross spending” reflects payments from all payers, including beneficiaries (cost 

sharing), but does not include rebates and discounts from pharmacies and manufacturers that are not reflected in prices at 

the pharmacies. Total spending does not necessarily equal the sum of OOP spending, manufacturer gap discount, plan 

liability, and low-income cost-sharing subsidy because other smaller sources of payment are not shown. Part D prescription 

drug event (PDE) records are classified into plan types based on the contract identification on each record. For purposes of 

classifying the PDE records by LIS status, monthly LIS eligibility information in Part D’s denominator file was used. Estimates

are sensitive to the method used to classify PDE records to each plan type and LIS status. “OOP spending” includes all 

payments that count toward the annual OOP spending threshold. “Plan liability” includes plan payments for drugs covered by 

both basic and supplemental (enhanced) benefits. In addition to the major categories shown in the chart, total spending 

includes amounts paid by other relatively minor payers such as group health plans, workers’ compensation, and charities. 

“Number of prescriptions” is standardized to a 30-day supply. 

 *”Total gross spending” includes over $5 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 2014, gross spending on drugs for the Part D program totaled $121.4 billion, with about 70 percent ($85.1 

billion) accounted for by Medicare beneficiaries enrolled in stand-alone PDPs. Part D enrollees receiving the 

LIS accounted for about 50 percent ($60.3 billion) of the total. Manufacturer discounts for brand-name drugs 

filled by non-LIS enrollees while they were in the coverage gap accounted for 4.2 percent of the total, or 8.4 

percent of the gross spending by non-LIS enrollees (data not shown). 

• The number of prescriptions filled by Part D enrollees totaled 2,023 million, with about two-thirds (1,307 

million) accounted for by PDP enrollees. The 32 percent of enrollees who received the LIS accounted for 

about 38 percent (774 million) of the total number of prescriptions filled. 

• In 2014, Part D enrollees filled 4.5 prescriptions at $268 per month on average, an increase from $242 per 

month (for 4.5 prescriptions) in 2013 (2013 data not shown). The average monthly plan liability for PDP 

enrollees ($182) was considerably higher than that of MA–PD enrollees ($134), while average monthly OOP 

spending was similar for enrollees in both types of plans ($34 vs. $31, respectively). The average monthly 

low-income cost-sharing subsidy was much higher for PDP enrollees ($56) compared with MA–PD enrollees 

($30). 

• Average monthly spending per LIS enrollee ($427) was more than double that of a non-LIS enrollee ($196), 

while the average number of prescriptions filled per month by an LIS enrollee was 5.5 compared with 4.0 for a 

non-LIS enrollee. LIS enrollees had much lower OOP spending, on average, than non-LIS enrollees ($6 vs. 

$45, respectively). Part D’s LIS pays for most of the cost sharing for LIS enrollees, averaging $148 per month 

in 2014.
A Data Book: Health care spending and the Medicare program, June 2017 171

Chart 10-19. Trends in Part D spending and use per enrollee, 

2007–2014 

 Average spending and number of prescriptions Average annual growth 

rate, 2007–2014 

 2007 2010 2011 2012 2013 2014 Number Percent 

Average spending per month 

 All Part D $212 $231 $239 $235 $242 $268 $9 3.4% 

 By LIS status 

 LIS 301 348 364 362 377 427 21 5.1 

 Non-LIS 156 163 167 167 179 196 7 3.3 

 By plan type 

 PDP 239 265 274 270 275 303 11 3.4 

 MA−PD 151 172 178 178 185 211 10 4.9 

Average number of prescriptions per month* 

 All Part D 3.9 4.2 4.3 4.3 4.5 4.5 0.1 1.9 

 By LIS status 

 LIS 4.6 5.1 5.1 5.2 5.4 5.5 0.1 2.5 

 Non-LIS 3.4 3.7 3.8 3.8 4.0 4.0 0.1 2.4 

 By plan type 

 PDP 4.1 4.4 4.5 4.5 4.6 4.6 0.1 1.7 

 MA−PD 3.4 3.8 3.9 4.0 4.1 4.2 0.1 2.8 

Note: LIS (low-income [drug] subsidy), PDP (prescription drug plan), MA–PD (Medicare Advantage–Prescription Drug [plan]). 

“Spending” (gross) reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. Part D prescription 

drug event (PDE) records are classified into plan types based on the contract identification on each record. For purposes 

of classifying the PDE records by LIS status, monthly LIS eligibility information in Part D’s denominator file was used. 

Estimates are sensitive to the method used to classify PDE records to each plan type and LIS status 

*Number of prescriptions is standardized to a 30-day supply. 

 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

• Between 2007 and 2014, average per capita spending for Part D–covered drugs grew at an average 

annual rate of 3.4 percent, or by about 26 percent cumulatively. Growth in average per capita spending 

has fluctuated over the years, ranging from –1.5 percent between 2011 and 2012 to nearly 11 percent 

between 2013 and 2014 (data not shown). 

• Spending growth for non-LIS enrollees was lower than that for LIS enrollees (average annual growth 

rate of 3.3 percent compared with 5.1 percent) during the 2007 to 2014 period, resulting in a larger 

difference in per capita spending between the two groups—from $145 in 2007 to about $230 per 

member per month in 2014. 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 2014 period (4.9 percent compared with 3.4 percent), but the average growth was 

the same for both PDP and MA−PD enrollees in terms of the dollar increase ($11 and $10, 

respectively), and the average per capita spending for MA−PD enrollees continued to be below that of 

PDP enrollees by about $90. 
172 Prescription drugs

Chart 10-20. Top 15 therapeutic classes of drugs covered under 

Part D, by spending and volume, 2014 

Top 15 therapeutic classes by spending Top 15 therapeutic classes by volume 

 Dollars Prescriptions 

 Billions Percent Millions Percent 

 

Diabetic therapy $14.1 11.6% Antihypertensive therapy 

agents 

209.7 10.4% 

Antivirals 9.1 7.5 

Asthma/COPD therapy agents 8.3 6.8 Antihyperlipidemics 203.2 10.0 

Antihyperlipidemics 7.7 6.3 Beta adrenergic blockers 126.5 6.3 

Antipsychotics 6.2 5.1 Diabetic therapy 126.1 6.2 

Antihypertensive therapy 

agents 

5.5 4.6 Antidepressants 115.9 5.7 

Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic) 

4.4 3.6 Peptic ulcer therapy 104.4 5.2 

Diuretics 100.1 5.0 

Peptic ulcer therapy 4.4 3.6 Calcium channel blockers 87.3 4.3 

Analgesics (narcotic) 4.1 3.4 Analgesics (narcotic) 84.0 4.1 

Anticonvulsant 3.8 3.1 Thyroid therapy 76.9 3.8 

Antineoplastic enzyme 

 inhibitors 

3.6 2.9 Anticonvulsant 73.0 3.6 

Antidepressants 3.3 2.7 Asthma/COPD therapy agents 54.7 2.7 

Cognitive disorder therapy 

(antidementia) 

2.7 2.2 Antibacterial agents 51.8 2.6 

 

Anticoagulants 2.7 2.2 Antianxiety agents 37.6 1.9 

Calcium and bone metabolism 

 regulators 

2.1 1.8 Analgesic (anti-inflammatory/ 

 antipyretic, non-narcotic) 

37.2 1.8 

 

Subtotal, top 15 classes 82.0 67.6 Subtotal, top 15 classes 1,488.3 73.6 

Total, all classes 121.4 100.0 Total, all classes 2,023.1 100.0 

Note: COPD (chronic obstructive pulmonary disease). “Spending” (gross) reflects payments from all payers, including 

beneficiaries (cost sharing), but does not include rebates and discounts from pharmacies and manufacturers that are not 

reflected in prices at the pharmacies. “Volume” is the number of prescriptions, standardized to a 30-day supply. 

Therapeutic classification is based on the First DataBank Enhanced Therapeutic Classification System 1.0. Components 

may not sum to totals due to rounding. 

 

Source: MedPAC analysis of Medicare Part D prescription drug event data from CMS. 

• In 2014, the top 15 therapeutic classes by spending accounted for about two-thirds of the $121.4 

billion spent on prescription drugs covered by Part D plans. The top 15 therapeutic classes by volume 

accounted for about three-quarters of the roughly 2 billion prescriptions dispensed in 2014. 

• While many of the same therapeutic classes on the top-15 list appear year after year, the ranking has 

changed from time to time. For example, market entries of new hepatitis C therapies more than 

doubled Part D spending on antivirals between 2013 and 2014 (2013 data not shown). As a result, 

antivirals became the second highest spending category in 2014, accounting for $9.1 billion, or 7.5 

percent of total spending, up from $4.3 billion, or about 4 percent of total spending in 2013. 

• In 2014, spending on drugs to treat diabetes totaled $14.1 billion, an increase of about 28 percent 

from $11 billion in 2013, while the number of prescriptions filled for diabetic therapy totaled 126.1 

million, an increase of 7.5 percent from 117.2 million in 2013 (2013 data not shown). Nearly 20 

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. 

(Chart continued next page)
A Data Book: Health care spending and the Medicare program, June 2017 173

Chart 10-20. Top 15 therapeutic classes of drugs covered under 

 Part D, by spending and volume, 2014 (continued) 

• Antianxiety agents appeared on the top-15 list by volume for the first time in 2013. The number of 

prescriptions for antianxiety agents totaled 37.6 million in 2014, an increase of about 7 percent from 

35.2 million in 2013. Before 2013, the use of antianxiety drugs was relatively low (8.5 million in 2012). 

The increase in the use of antianxiety agents since 2012 reflects the addition of benzodiazepines to 

the list of Part D–covered drugs beginning in 2013. 

• Nine therapeutic classes are among the top 15 in both spending and volume. Diabetic therapy 

dominates the list by spending, accounting for more than 17 percent of spending for the top 15 

therapeutic classes, followed by central nervous system agents (antipsychotics, anticonvulsants, and 

antidepressants) and cardiovascular agents (antihyperlipidemics and antihypertensive therapy 

agents), each accounting for about 16 percent of spending. Cardiovascular agents 

(antihyperlipidemics, antihypertensive therapy agents, beta-adrenergic blockers, calcium channel 

blockers, and diuretics) dominate the list by volume, accounting for about 50 percent of the 

prescriptions in the top 15 therapeutic classes. 
174 Prescription drugs

Chart 10-21. Drug spending and use and the characteristics of 

beneficiaries filling the most prescriptions, 2014 

 Beneficiaries in the top 5 percent* 

 As a share 

of Part D All Part D 

Number of beneficiaries (in millions) 1.9 5% 40.0 

Aggregate spending and use 

 Gross spending (in billions) $23.0 19 $121.4 

 Number of prescriptions (in millions) 277 20 1,416 

 Average spending per prescription $83 $86 

Per enrollee per year 

 Gross spending $12,307 $3,217 

 Out-of-pocket spending $494 $394 

 Number of prescriptions 148 54 

Demographic characteristics 

 Female 66% 58% 

 White 72 74 

 LIS 78 32 

 PDP 74 63 

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 2014. Because roughly 7 percent of Part D enrollees did not fill any prescriptions for a Part D–covered drug 

in 2014, “the top 5 percent” translates to about 4.7 percent of all Part D enrollees. The figures reported in the table include

claims for a small number 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 9,000 prescriptions at a gross 

cost of over $600,000. 

 

Source: MedPAC analysis of Medicare Part D PDE data and denominator file from CMS. 

• In 2014, Part D enrollees in the top 5 percent (1.9 million) based on the number of prescriptions 

filled accounted for $23 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 277 million, or 20 percent of all prescriptions filled under the Part D program. 

• In 2014, Part D enrollees in the top 5 percent each filled an average of 148 prescriptions each at a 

gross annual cost of $12,307, compared with an average of 54 prescriptions each at a gross 

annual cost of $3,217 for all Part D enrollees. Compared with the difference in gross spending, the 

difference in beneficiary out-of-pocket spending between enrollees in the top 5 percent and all Part 

D enrollees was much smaller ($494 compared with $394). 

• Compared with the overall Part D population, enrollees in the top 5 percent were more likely to be 

female. Nearly 80 percent of the enrollees in the top 5 percent received the low-income subsidy 

compared with 32 percent for all Part D enrollees, and 74 percent were enrolled in a stand-alone 

prescription drug plan compared with 63 percent for all Part D enrollees. 
A Data Book: Health care spending and the Medicare program, June 2017 175

Chart 10-22. Part D spending and use, 2014 

Part D 

 Plan type 

 PDP MA–PD 

Total gross spending (billions) $121.4 $81.9 $36.1

Total number of prescriptions (millions) 1,414 905 480 

Average cost per prescription $86 $90 $75

Total gross spending by specialty (billions) 

 Primary care providers* $68.2 $45.3 $21.2

 Specialty and other providers $53.1 $36.6 $14.9

Total number of prescriptions by specialty (millions)

 Primary care providers* 1,008.2 643.8 348.7

 Specialty and other providers 405.8 261.6 131.1

Average cost per prescription 

 Primary care providers* $67.66 $70.30 $60.79

 Specialty and other providers $130.93 $140.06 $113.80

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. 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 

2014 prescription counts shown in Chart 10-15 and Chart 10-18 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 2014, gross spending on drugs for the Part D program totaled $121.4 billion, with about two-thirds 

($81.9 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 1.4 billion, with about 64 percent (905 

million) accounted for by PDP enrollees. The cost per prescription dispensed averaged $86 across all 

Part D enrollees. The average cost per prescription is higher among PDP enrollees ($90) compared 

with that of MA–PD enrollees ($75). 

• Prescriptions written by primary care providers accounted for about 56 percent ($68.2 billion) of gross 

spending and 71 percent (1,008.2 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 55 

percent of gross spending and about 71 percent of prescriptions) than in MA–PDs (about 59 percent of 

gross spending and about 73 percent of prescriptions). 

• The average cost per prescription dispensed was lower among primary care providers (about $68) 

compared with specialty and other providers (about $131). 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 other providers). 
176 Prescription drugs

Chart 10-23. Part D patterns of prescribing by provider type, 2014 

Part D 

 Provider type 

 Primary care* Specialty/others 

Number of individual prescribers (thousands) 1,073 440 633 

 Percent of all individual prescribers 41% 59% 

 

Average beneficiary (patient) count 148 190 118 

Average per beneficiary 

 Gross spending $666 $748 $606 

 Number of prescriptions 6.5 9.3 4.4 

Prescribers in the top 1 percent based on 

number of prescriptions filled per beneficiary 

 

Number of individual prescribers 9,367 7,727 1,640 

 Percent of all individual prescribers 82% 18% 

 

Total gross spending (billions) $8.8 $7.5 $1.3 

 Percent of total gross spending (by column) 7% 11% 2% 

 

Total number of prescriptions (millions) 137 120 17 

 Percent of all prescriptions filled 10% 12% 4% 

 

Average per beneficiary 

 Gross spending $3,575 $3,253 $5,092 

 Number of prescriptions 44 44 44 

Note: “Gross spending” reflects payments from all payers, including beneficiaries (cost sharing), but does not include rebates 

and discounts from pharmacies and manufacturers that are not reflected in prices at the pharmacies. Numbers may not 

sum to totals due to rounding. “Number of prescriptions” is a count of prescription drug events and is not adjusted for the 

size (number of days’ supply) of the prescriptions. As such, they are not comparable with the 2014 prescription counts 

shown in Chart 10-15 and Chart 10-18 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 2014, over 1 million individual providers wrote prescriptions for Medicare beneficiaries that 

were filled under Part D. Of those, about 41 percent were primary care providers and 59 

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—190 beneficiaries versus 118 

beneficiaries. 

(Chart continued next page) 
A Data Book: Health care spending and the Medicare program, June 2017 177

Chart 10-23. Part D patterns of prescribing by provider type, 2014 

(continued) 

• On a per beneficiary basis, average gross spending for Part D prescriptions was higher for 

prescriptions written by primary care providers ($748) compared with the average for specialty 

and other providers ($606). Primary care providers also wrote more prescriptions per 

beneficiary, on average, than specialty and other providers: 9.3 compared with 4.4. 

• More than 9,300 prescribers were among the top 1 percent of all prescribers, as ranked by the 

average number of Part D prescriptions filled per beneficiary in 2014. Of those prescribers, 82 

percent were primary care providers and 18 percent were specialty and other providers. 

• The top 1 percent of prescribers accounted for 7 percent of total gross spending and 10 

percent of all prescriptions filled. Among primary care prescribers, results were more 

concentrated: The top 1 percent of prescribers accounted for 11 percent of gross spending 

and 12 percent of all prescriptions. 

• Among the prescriptions that were written by prescribers in the top 1 percent of all prescribers 

in 2014, per beneficiary Part D spending averaged nearly $3,600 for 44 prescriptions filled. 

 
178 Prescription drugs

Chart 10-24. Part D patterns of prescribing for selected 

specialties, 2014 

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 1,073.0 100% $666 6.5 

All specialty/others 632.8 59 606 4.4 

 

Selected specialties: 

Psychiatry 25.9 4 1,445 13.3 

Cardiology 22.8 4 628 9.1 

Ophthalmology 19.6 3 380 4.2 

Psychiatry & Neurology 13.6 2 1,262 10.9 

Neurology 13.2 2 2,525 7.8 

Gastroenterology 12.9 2 1,798 3.9 

Urology 10.7 2 359 4.1 

Pulmonary disease 9.0 1 1,829 7.1 

Nephrology 8.1 1 1,450 9.6 

Hematology & Oncology 8.0 1 4,946 6.4 

Endocrinology 5.4 1 1,710 8.6 

Infectious disease 5.0 1 5,565 9.8 

Rheumatology 4.4 1 2,193 8.6 

Medical oncology 2.8 <0.5 4,683 6.1 

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 2014 prescription counts shown in Chart 10-15 and Chart 

10-18 through Chart 10-21. 

 

Source: MedPAC analysis of Medicare Part D prescriber-level public use file from CMS. 

• Psychiatrists and cardiologists were among the most numerous types of specialty care 

prescribers, each making up 4 percent of all Part D prescribers in 2014. Ophthalmologists, 

psychiatrist/neurologists, neurologists, gastroenterologists, and urologists each made up 

another 2 percent to 3 percent of Part D prescribers. 

• Psychiatrists wrote an average of 13.3 prescriptions per beneficiary, with an average of 

$1,445 in gross spending per patient. Those are more than double the overall Part D 

averages of 6.5 prescriptions and $666 in average gross spending per beneficiary. Other 

specialties with comparatively high average gross spending per beneficiary include 

psychiatry/neurology, neurology, gastroenterology, pulmonary disease, nephrology, 

hematology/oncology, endocrinology, infectious disease, rheumatology, and medical 

oncology. 

(Chart continued next page) 
A Data Book: Health care spending and the Medicare program, June 2017 179

Chart 10-24. Part D patterns of prescribing for selected 

specialties, 2014 (continued) 

• Other specialties such as ophthalmology and urology had lower average gross spending per 

beneficiary. Cardiologists had average gross spending per beneficiary similar to that of all 

Part D prescribers ($628 vs. $666, respectively), but wrote an average of 9.1 prescriptions 

per beneficiary—considerably higher than the average of 6.5 per beneficiary for all Part D 

prescribers. This distinction reflects the widespread availability of generic cardiology 

medications.

 

S E C T I O N 

Other services

Dialysis 

Hospice 

Clinical laboratory 

A Data Book: Health care spending and the Medicare program, June 2017 183

Chart 11-1. Number of dialysis facilities is growing, and most 

facilities are for profit and freestanding 

Average annual 

percent change

 2016 2011–2016 2015–2016 

Total number of: 

Dialysis facilities 6,745 3% 4% 

Hemodialysis stations 117,198 3 3 

 

Mean number of 

 hemodialysis stations per facility 17 –0.3 –0.8 

 Percent of total 

Hospital based 6% –5 –1 

Freestanding 94 4 5 

Urban 82 4 5 

Rural, micropolitan 11 1 2 

Rural, adjacent to urban 5 2 2 

Rural, not adjacent to urban 3 3 4 

Frontier 0.5 2 0 

For profit 88 4 5 

Nonprofit 12 −2 −0.4 

 

Note: “Nonprofit” includes facilities designated as either nonprofit or government. “Average annual percent change” is based on

comparing 2011, 2015, and 2016 end-of-year files. Components may not sum to totals due to rounding. 

 

Source: Compiled by MedPAC from the 2011, 2015, and 2016 CMS Dialysis Compare end-of-year files. 

 

• Between 2011 and 2016, the number of facilities has increased 3 percent per year. The 

average size of a facility has remained relatively constant, averaging about 17 dialysis 

treatment stations per facility (17.7 stations in 2011, 17.5 stations in 2015, and 17.4 stations 

in 2016). 

• Since 2011, facilities’ capacity to provide care—as measured by dialysis treatment 

stations—also grew 3 percent annually. Capacity at urban facilities grew by 3 percent per 

year while capacity at rural facilities grew at a rate of 2 percent per year (data not shown). 

• Since 2011, the number of freestanding and for-profit facilities increased, while hospitalbased and nonprofit facilities decreased. Freestanding facilities increased from 90 percent to 

94 percent of all facilities, and for-profit facilities increased from 84 percent to 88 percent of 

all facilities. 
184 Other services

Chart 11-2. Medicare spending for outpatient dialysis services 

furnished by freestanding and hospital-based 

dialysis facilities, 2014 and 2015 

Note: ESRD (end-stage renal disease). 

Source: Compiled by MedPAC from the 2014 and 2015 institutional outpatient files from CMS. 

• In 2015, total spending for dialysis, dialysis drugs, and ESRD-related clinical laboratory tests 

was $11.2 billion. In 2015, 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. 

• Between 2014 and 2015, total ESRD expenditures remained relatively flat at $11.2 billion in 

both years. 

• Freestanding dialysis facilities treated most dialysis beneficiaries and accounted for 94 

percent of expenditures in 2015. 

0

2

4

6

8

10

12

14

2014 2015

Spending on dialysis, dialysis drugs, 

and other ESRD-related services 

(in billions of dollars)

Freestanding Hospital based

$11.2 $11.2

94% 94%

6% 6%
A Data Book: Health care spending and the Medicare program, June 2017 185

Chart 11-3. The ESRD population is growing, and most ESRD 

patients undergo dialysis 

 2004 2010 2014 

 Patients Patients Patients 

 (thousands) Percent (thousands) Percent (thousands) Percent 

Total 466.0 100% 591.8 100% 678.4 100% 

Dialysis 331.2 71 414.4 70 477.5 70 

 In-center hemodialysis 300.3 64 373.5 63 420.0 62 

 Home hemodialysis* 1.8 0.4 6.5 1 8.6 1 

 Peritoneal dialysis* 27.8 6 32.7 6 46.6 7 

 Unknown 1.3 0.3 1.9 0.3 2.3 0.3 

 

Functioning graft and 

kidney transplants 134.8 29 177.4 30 200.9 30 

 

Note: ESRD (end-stage renal disease). Totals may not equal sum of components due to rounding. Data include both Medicare 

and non-Medicare patients. 

 *Home dialysis methods. 

Source: Compiled by MedPAC from the United States Renal Data System. 

• Persons with ESRD require either dialysis or a kidney transplant to maintain life. The total 

number of ESRD patients increased by 4 percent annually between 2004 and 2014. 

• 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 2004 and 2014, 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 17 percent per year during this period. 

• Functioning graft patients are patients who have had a successful kidney transplant. 

Patients undergoing kidney transplant may receive either a living kidney or a cadaveric 

kidney donation. In 2014, 31 percent of transplanted kidneys were from living donors and 

the remainder were from cadaver donors (data not shown). 
186 Other services

Chart 11-4. Asian Americans and Hispanics are among the 

 fastest growing segments of the ESRD population 

 Percent Average annual 

 of total percent change 

 in 2014 2009–2014 

Total (N = 678,383) 100% 4% 

Age (years) 

 0–17 1 0.1 

 18–44 16 1 

 45–64 44 3 

 65–79 31 6 

 80+ 9 4 

Sex 

 Male 58 4 

 Female 42 3 

Race/ethnicity 

 White 61 4 

 African American 31 3 

 Native American 1 2 

 Asian American 6 6 

 

 Hispanic 17 5 

 Non-Hispanic 83 3 

Underlying cause of ESRD 

 Diabetes 38 4 

 Hypertension 25 4 

 Glomerulonephritis 16 2 

 Other causes 21 3 

 

Note: ESRD (end-stage renal disease). Totals may not equal sum of the components due to rounding. ESRD patients include 

those who undergo maintenance dialysis and those who have a functioning kidney transplant. 

Source: Compiled by MedPAC from the United States Renal Data System. 

 

• Among ESRD patients, 40 percent are over age 65. About 60 percent are White. 

• Diabetes is the most common cause of renal failure. 

• The number of ESRD patients increased by 4 percent annually between 2009 and 2014. 

Among the fastest growing groups of patients are Asian Americans and Hispanics. 
A Data Book: Health care spending and the Medicare program, June 2017 187

Chart 11-5. Characteristics of Medicare fee-for-service dialysis 

patients, 2015 

 Percent of all FFS dialysis patients 

Age (years) 

 Under 45 11% 

45–64 38 

65–74 27 

75–84 18 

85+ 6 

Sex 

 Male 55 

 Female 45 

Race 

 White 48 

 African American 36 

 All other 17 

Residence 

 Urban county 82 

 Rural county, micropolitan 11 

 Rural county, adjacent to urban 5 

 Rural county, not adjacent to urban 3 

 Frontier county 1 

Prescription drug coverage status 

 Enrolled in Part D plan or other source of creditable drug coverage 90 

 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 2015, 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. 

• Ninety percent of FFS dialysis patients were enrolled in Part D plans or had other sources of 

creditable drug coverage. 
188 Other services

Chart 11-6. Aggregate margins varied by type of freestanding 

dialysis facility, 2015 

 Share of freestanding 

Type of facility dialysis treatments Aggregate margin 

All facilities 100% 0.4% 

Urban 87 1.3 

Rural 13 −5.1 

Treatment volume (quintile) 

 Lowest 20 −16.9 

 Second 20 −8.8 

 Third 20 −2.8 

 Fourth 20 2.3 

 Highest 20 6.5 

 

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 2015 cost reports and the 2015 institutional outpatient file from CMS. 

• For 2015, the aggregate Medicare margin for composite rate services and injectable drugs 

was 0.4 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 2017 189

Chart 11-7. Number of hospice users and hospice spending 

increased while average length of stay declined 

slightly in 2015 

Average annual 

change, Change, 

 2000 2014 2015 2000–2014 2014–2015 

Beneficiaries in hospice 0.534 1.324 1.381 6.7% 4.3% 

(in millions) 

Medicare payments (in billions) $2.9 $15.1 $15.9 12.4% 5.5% 

Average length of stay 53.5 88.2 86.7 3.6% –1.7% 

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 continued to grow in 2015, 

suggesting that access to hospice care has increased. 

• Average length of stay declined slightly between 2014 and 2015 because of a decrease in 

length of stay among patients with the longest stays. 

• Total Medicare payments to hospices were about $15.9 billion in 2015, about 5.5 percent 

higher than the prior year. 
190 Other services

Chart 11-8. Hospice use increased across beneficiary groups 

from 2000 to 2015 

 Average annual 

 Share of decedents using hospice percentage Percentage 

point change point change 

 2000 2014 2015 2000–2014 2014–2015 

All 22.9% 47.9% 48.6% 1.8 0.7% 

FFS beneficiaries 21.5 46.8 47.6 1.8 0.8 

MA beneficiaries 30.9 50.9 51.1 1.4 0.2 

Dual eligibles 17.5 42.6 43.1 1.8 0.5 

Non–dual eligibles 24.5 49.6 50.3 1.8 0.7 

Age (years) 

 <65 17.0 29.5 29.9 0.9 0.4 

 65–84 24.7 45.7 46.1 1.5 0.4 

 85+ 21.4 56.1 57.1 2.5 1.0 

Race/ethnicity 

 White 23.8 49.8 50.5 1.9 0.7 

 Minority 17.3 37.7 38.4 1.5 0.7 

Gender 

 Male 22.4 43.9 44.5 1.5 0.6 

 Female 23.3 51.5 52.3 2.0 0.8 

Beneficiary location 

 Urban 24.2 49.1 49.7 1.8 0.6 

 Micropolitan 18.3 44.1 44.9 1.8 0.8 

 Rural, adjacent to urban 17.5 43.4 44.4 1.9 1.0 

 Rural, nonadjacent to urban 15.0 38.1 38.8 1.7 0.7 

 Frontier 13.1 32.5 33.8 1.4 1.3 

 

Note: FFS (fee-for-service), MA (Medicare Advantage). “Beneficiary location” refers to the beneficiary’s county of residence. 

Urban, micropolitan, and rural designations are based on the urban influence codes. This chart uses the 2013 urban 

influence code definition. In prior data books, the chart has used the 2003 urban influence code definitions. The frontier 

category is defined as population density equal to or less than six persons per square mile. 

Source: MedPAC analysis of data from the denominator file and the Medicare Beneficiary Database from CMS. 

• Hospice use grew in all beneficiary groups in 2015, 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 2017 191

Chart 11-9. Number of Medicare-participating hospices has 

 increased due to growth in for-profit hospices 

 2000 2013 2014 2015 

All hospices 2,255 3,925 4,092 4,199 

For profit 672 2,418 2,588 2,715 

Nonprofit 1,324 1,309 1,305 1,293 

Government 257 198 199 185 

Freestanding 1,069 2,844 3,024 3,138 

Hospital based 785 553 535 523 

Home health based 378 503 510 514 

SNF based 22 25 23 24 

Urban 1,455 2,932 3,102 3,235 

Rural 757 945 944 920 

Note: SNF (skilled nursing facility). Numbers may not sum to totals because of missing data for a small number of providers. 

The rural and urban definitions in this chart are based on updated definitions of the core-based statistical areas (which 

rely on data from the 2010 census). In prior data books, this chart has used rural and urban definitions based on the 2000 

census. 

Source: MedPAC analysis of Medicare cost reports, Provider of Services file, and the standard analytic file of hospice claims from 

CMS. 

• There were nearly 4,200 Medicare-participating hospices in 2015. Most of them were forprofit hospices. 

• Between 2000 and 2015, the number of Medicare-participating hospices grew by more than 

1,900 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 declined between 2014 and 2015 by about 2.5 

percent. 

 
192 Other services

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

 2015 

 Percent of cases with 

 Share length of stay 

Diagnosis of total cases greater than 180 days 

 

Cancer 28% 9% 

Alzheimer’s, nervous system disorders, 

 organic psychosis 22 34 

Circulatory, except heart failure 18 25 

Heart failure 10 21 

Respiratory disease 6 14 

Chronic airway obstruction, NOS 5 27 

Other 5 14 

Genitourinary disease 3 8 

Digestive disease 2 9 

All 100 20 

Note: NOS (not otherwise specified). Cases include all patients who received hospice care in 2015, not just decedents. 

“Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim. The share of cases with length of stay 

greater than 180 days reflects the share of hospice patients who received hospice care in 2015 whose lifetime length of 

hospice stay exceeded 180 days at the end of 2015 (or at the time of death or discharge in 2015 if the beneficiary was not 

enrolled in hospice at the end of 2015). “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 2015, the most common primary diagnoses among Medicare hospice patients were 

cancer (28 percent), neurological conditions (Alzheimer’s disease, nervous system 

disorders, and organic psychosis) (22 percent of cases), circulatory conditions other than 

heart failure (18 percent), and heart failure (10 percent). 

• Length of stay varies by diagnosis. One-quarter or more of hospice patients in 2015 with 

Alzheimer’s disease and other nervous system disorders, chronic airway obstruction, and 

circulatory conditions (other than heart failure) had lengths of stay exceeding 180 days. 

Long hospice stays were least common among beneficiaries with genitourinary disease, 

digestive disease, and cancer. 
A Data Book: Health care spending and the Medicare program, June 2017 193

Chart 11-11. Hospice length of stay among decedents decreased 

slightly in 2015 due to a decrease in length of stay 

among patients with 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 

2015 86.7 2 5 17 80 240 

 

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, which grew from 53.5 days in 2000 to 88.2 days 

in 2014, declined slightly in 2015 to 86.7 days. 

• The decrease in average length of stay in 2015 was a result of a decrease in length of stay 

among patients with the longest stays. The 90th percentile in length of stay decreased from 

247 days in 2014 to 240 days in 2015. In prior years, most growth in hospice length of stay 

occurred among decedents with the longest stays. Between 2000 and 2014, the 90th 

percentile in length of stay grew from 141 days to 247 days. 

• Short stays in hospice have changed little since 2000. The median length of stay in hospice 

was about 17 days from 2000 to 2015. 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. 
194 Other services

Chart 11-12. Hospice length of stay among decedents, by 

 beneficiary and hospice characteristics, 2015 

 Average length Length of stay percentiles (in days) 

 of stay (in days) 10th 50th 90th 

 

Beneficiary 

 Diagnosis 

 Cancer 53 3 18 131 

 Neurological 147 3 33 437 

 Heart/circulatory 91 2 15 267 

 COPD 116 2 24 339 

 Other 51 2 8 134 

 Site of service 

 Home 89 4 26 233 

 Nursing facility 105 3 20 308 

 Assisted living facility 152 5 51 432 

Hospice 

 For profit 105 3 21 304 

 Nonprofit 65 2 13 176 

 Freestanding 89 2 17 248 

 Home health based 69 2 15 187 

 Hospital based 55 2 12 145 

Note: COPD (chronic obstructive pulmonary disease). Average length of stay is calculated for Medicare beneficiaries who died 

in 2015 and used hospice that year, and it reflects the total number of days the decedent was enrolled in the Medicare 

hospice benefit during his or her lifetime. “Diagnosis” reflects primary diagnosis on the beneficiary’s last hospice claim. 

 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data, Medicare Beneficiary Database, Medicare 

hospice cost reports, and Provider of Services file data from CMS. 

• Hospice average length of stay among decedents varies by both beneficiary and provider 

characteristics. Most of this variation reflects differences in length of stay among patients 

with the longest stays (i.e., at the 90th percentile). Length of stay varies much less for 

patients with shorter stays (i.e., at the 10th or 50th percentile). 

• Beneficiaries with neurological conditions and COPD have the longest stays while 

beneficiaries with cancer have the shortest stays on average. 

• Beneficiaries who receive hospice services in assisted living facilities have longer stays on 

average than beneficiaries who receive care at home or at a nursing facility. 

• For-profit and freestanding hospices have longer average lengths of stay than nonprofit and 

provider-based (home health− and hospital-based) hospices. 
A Data Book: Health care spending and the Medicare program, June 2017 195

Chart 11-13. Nearly 60 percent of Medicare hospice spending in 

 2015 was for patients with stays exceeding 180 

 days 

 Medicare hospice spending, 2015 

 (in billions) 

All hospice users in 2015 $15.9 

Beneficiaries with LOS > 180 days 9.2 

 Days 1–180 3.0 

 Days 181–365 2.9 

 Days 366+ 3.3 

Beneficiaries with LOS ≤ 180 days 6.5 

 

Note: LOS (length of stay). LOS reflects the beneficiary’s lifetime LOS as of the end of 2015 (or at the time of death or discharge 

in 2015 if the beneficiary was not enrolled in hospice at the end of 2015). All spending reflected in the chart occurred only 

in 2015. 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 2015, Medicare hospice spending on patients with stays exceeding 180 days was more 

than $9 billion, nearly 60 percent of all Medicare hospice spending that year. 

• About $3.3 billion, or about 20 percent, of Medicare hospice spending in 2015 was on 

hospice care for patients who had already received at least one year of hospice. 

 
196 Other services

Chart 11-14. Hospice aggregate Medicare margins, 2008–2014 

 Share of Medicare margin 

 hospices 

 (2014) 2008 2011 2012 2013 2014 

 

All 100% 5.3% 8.7% 10.0% 8.5% 8.2% 

Freestanding 74 8.3 11.8 13.3 12.0 11.5 

Home health based 12 3.2 6.1 5.5 2.5 3.8 

Hospital based 13 –12.4 –17.0 –17.1 –17.4 –20.3 

For profit 63 10.2 14.7 15.4 14.7 14.5 

Nonprofit 32 0.5 2.3 3.6 0.9 –0.7 

Government 5 N/A N/A N/A N/A N/A 

Urban 77 5.7 9.0 10.3 8.8 8.7 

Rural 23 1.9 5.2 7.3 5.9 3.6 

Below cap 87.8 5.7 8.9 10.3 8.6 8.4 

Above cap 12.2 1.2 4.1 5.2 7.0 6.0 

Above cap (including 

 cap overpayments) 12.2 19.1 18.4 21.3 20.1 18.8 

 

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 share 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 8.2 percent in 2014, down slightly from 8.5 percent in 

2013. 

• Margin estimates do not include nonreimbursable costs associated with bereavement 

services and volunteers (which, if included, would reduce margins by at most 1.4 

percentage points and 0.3 percentage point, 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 2014, for-profit hospice margins were strong at 14.5 percent. The aggregate margin for 

nonprofit hospices was –0.7 percent, but the subset of nonprofit hospices that were 

freestanding had a higher margin, 3.4 percent (latter not shown in chart). 

• Hospices that exceeded the cap (Medicare’s aggregate average per beneficiary payment 

limit) had a margin of nearly 19 percent before the return of the cap overpayments. 
A Data Book: Health care spending and the Medicare program, June 2017 197

Chart 11-15. Medicare margins were higher among hospices with 

 more long stays, 2014 

Note: Margins exclude overpayments to hospices that exceeded the cap on the average annual Medicare payment per 

beneficiary. Margins are calculated based on Medicare-allowable, reimbursable costs. For hospice providers in the lowest 

(first) quintile, the share of stays greater than 180 days was less than 12.3 percent; it was between 12.3 percent and 18.8 

percent in the second quintile; it was between 18.8 percent and 25.6 percent in the third quintile; it was between 25.6 

percent and 33.3 percent in the fourth quintile; and it was greater than 33.3 percent in the highest (fifth) quintile. 

Source: MedPAC analysis of Medicare hospice cost reports and 100 percent hospice claims standard analytic file from CMS. 

• Medicare’s per diem payment system for hospice has provided an incentive for longer 

lengths of stay. 

• Hospices with more patients who had stays greater than 180 days generally had higher 

margins in 2014. Hospices in the lowest length-of-stay quintile had a margin of –8.9 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 nearly 19 percent before the return of 

overpayments (see Chart 11-14). 

-8.9

1.2

12.1

18.1

14.2

-15

-10

-5

0

5

10

15

20

12345

Margin (in percent)

Share of providers' patients with stays greater than 180 days, by quintiles
198 Other services

Chart 11-16. Hospices that exceeded Medicare’s annual 

 payment cap, selected years 

 

 2002 2011 2012 2013 2014 

Share of hospices 

 exceeding the cap 2.6% 9.8% 11.0% 10.7% 12.2% 

Average payments over 

 the cap per hospice 

 exceeding the cap 

 (in thousands) $470 $424 $510 $460 $370 

Payments over the cap 

 as a percent of overall 

 Medicare hospice spending 0.6% 1.1% 1.4% 1.3% 1.2% 

 

Note: The cap year is defined as the period beginning November 1 and ending October 31 of the following year. These 

estimates of hospices that exceeded the aggregate cap are based on the Commission’s analyses. While the estimates 

are intended to approximate those of the Medicare claims-processing contractors, they are not necessarily identical to the 

contractors’ estimates because of differences in available data and methodology. 

 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file data, Medicare hospice cost reports, Provider of 

Services file data from CMS, and CMS Providing Data Quickly system. Data on total spending for each fiscal year are 

from the CMS Office of the Actuary. 

• The share of hospices exceeding the aggregate cap increased from 10.7 percent in 2013 to 

12.2 percent in 2014. 

• Medicare payments over the cap represented 1.2 percent of total Medicare hospice 

spending in 2014. 

• On average, above-cap hospices exceeded the cap by about $370,000 per provider in 2014, 

down from about $460,000 per provider in 2013. 
A Data Book: Health care spending and the Medicare program, June 2017 199

Chart 11-17. Hospice live-discharge rates, 2013–2015 

 2013 2014 2015 

Live discharge as a share of 

all discharges, by reason for 

live discharge 

 All live discharges 18.4% 17.2% 16.7% 

No longer terminally ill 7.8 7.3 6.9 

 Beneficiary revocation 7.3 6.6 6.3 

 Transfer hospice providers 2.0 2.0 2.1 

 Move out of service area 0.9 0.9 1.0 

Discharge for cause 0.4 0.3 0.3 

Providers’ overall rate of live discharge as a 

share of all discharges, by percentile 

 10th percentile 9.3 8.5 8.4 

 25th percentile 13.2 12.3 12.0 

 50th percentile 19.4 18.7 18.4 

 75th percentile 30.2 30.2 29.6 

 90th percentile 47.2 50.0 50.0 

Note: Percentages may not sum to 100 due to rounding. 

Source: MedPAC analysis of 100 percent hospice claims standard analytic file. 

• The overall live discharge rate declined from 18.4 percent in 2013 to 17.2 percent in 2014 to 

16.7 percent in 2015. 

• Between 2013 and 2015, the decline in the overall rate of live discharge reflects a decline in 

the rate of beneficiaries discharged alive because they are no longer terminally ill and a 

decline in the rate of beneficiaries revoking the hospice benefit. 

• Live discharges accounted for half or more of total discharges among the 10 percent of 

hospices with the highest live-discharge rates (i.e., the 90th percentile) in 2015. 

 
200 Other services

Chart 11-18. Margins were higher among hospices with a greater 

 share of their patients in nursing facilities, 2014 

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. 

0.2

6.8

8.7

15.1

0

2

4

6

8

10

12

14

16

1234

Medicare margin (in percent)

Share of providers' patients in nursing facilities, by quartiles
A Data Book: Health care spending and the Medicare program, June 2017 201

Chart 11-19. Medicare spending for clinical laboratory services, 

 2005–2015 

 

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 2016. 

 

• 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 9.0 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. 

• Medicare spending for lab services increased by 5.0 percent from 2014 to 2015—5.7 

percent in independent and physician-office labs and 3.6 percent in hospital-based labs. In 

2015, independent and physician-office labs accounted for 68 percent of Medicare spending 

for all lab services; hospital-based labs accounted for the remaining 32 percent. 

3.6 3.8 4.1 4.3 4.7 4.8 4.6 5.1 5.2 5.6 5.9

3.4 3.5

3.6

3.7

3.5 3.6 3.8

4.0 4.0

2.7

2.8

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

11.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Dollars (in billions)

Calendar year

Independent and physician office Hospital based

8.8

7.0 7.3 

7.6 

8.0 8.2 8.4 8.5 

9.2 9.2 

8.3 

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