Medicare hospital outpatient services and costs: implications for prospective payment

Medicare expenditures of hospital outpatient department (HOPD) services are growing rapidly, prompting congressional interest in a prospective payment system. In this article, the authors identify frequently provided services and examine service volume and charges in the HOPD. Relatively few services drive Medicare HOPD spending, and volume is dominated by visits, imaging and laboratory tests, whereas surgery accounts for a large proportion of charges. Hospital-level variations in charges, costs, case mix, and outliers are also explored. There is substantial variation in charges and costs across hospital types. However, after case-mix adjustment, all hospital types have average costs within 6 percent of the national average.