Examining the Impact of the Outpatient Prospective Payment System on Hospitals' Medicare Volume and Out-Patient Care

Using data from a Florida database on ambulatory and inpatient discharge data from 1997 to 2008, together with data from Medstat’s MarketScan database and the American Hospital Association, the researchers studied the effects of the Medicare Outpatient Prospective Payment System (OPPS) on payer mix and site of care. Focusing on surgical procedures, they estimated two regressions. First, to examine the impact of OPPS on payer mix, they regressed the volume of payer-hospital-quarter specific outpatient procedures on Medicare's share of total outpatient volume interacted with the Medicare reimbursement rate, controlling for county and hospital characteristics. Second, to examine the impact of OPPS on inpatient care, they regressed the volume of procedure-hospital-quarter specific inpatient Medicare discharges on a variable that measures the extent of the hospital’s “exposure” to the Medicare shift to OPPS. The goal of this project was to determine whether the payment system led hospitals to (1) substitute from Medicare patients toward those with other coverage, and (2) substitute from outpatient toward inpatient care for conditions that can be treated in either setting.