The Centers for Medicare and Medicaid (CMS) recently released Inpatient Charge Data for FY 2014 . CMS now provides annual data starting from 2011, although 2014 is the first year for which data is available for all diagnosis groups. In this post, we analyze this data from both the CMS and Provider perspectives.
Data Characteristics
The Inpatient data describes the following data elements:
- DRG: A Diagnosis Related Group is a statistical system of classifying inpatient stays into groups for the purposes of payment. The CMS data provides average payments for providers organized by individual DRGs.
- Provider: Individual providers are described by their id, name and address.
- HRR: The Hospital Referral Region is a key concept from the Dartmouth Atlas of Healthcare. HRRs represent regional healthcare markets for tertiary medical care, and were defined by determining where patients were referred to for major cardiovascular surgical procedures and for neurosurgery. Each provider belongs to a single HRR, although of course an HRR can contain many providers.
- Total Discharges: This is simply the count of the number of discharges for that DRG and Provider.
- Charges:
Average Covered Charges represent hospital billing costs, which are used as negotiating points and not particularly meaningful in terms of the actual amounts paid by Medicare. These are the charges that would be billed to a patient without insurance.
Average Total Payments include the co-payments and deductibles that the patient is responsible for, as well as additional payments by third parties, in addition to Medicare payments.
Average Medicare Payments represent the average amount that Medicare pays to the provider for Medicare’s share of the MS-DRG.
A detailed explanation of the data elements can be found here (PDF) on the CMS web site. A simple graphical representation of the key data elements can be found in an earlier post describing the CMS 2011 data set.
The rest of this post primarily uses the Average Medicare Payments to analyze medicare spending; the average covered charges and total payments from the dataset are ignored.
Also this post makes the following assumption for calculating total Medicare payments for a given DRG and Provider.
For a given DRG for a given Provider:
Total Medicare Inpatient Spending =
(Average Medicare Payments * Total Discharges)
Questions
We look at addressing the following questions, which may provide actionable insights to CMS planners for reducing costs and to individual providers for increasing revenues.
For CMS
Where is the money going? Which DRGs have seen an increase in payments over the past four years? Which DRGs and locations account for the largest amounts of spending in 2014? Those would be good targets to focus on for cost reduction in the future.
For Providers
What are the opportunities to earn increased payments from Medicare?
For a provider their capacity is limited, so assuming utilization is high the number of discharges cannot be easily increased. Also, payment is mandated by CMS, so that’s not really under their control. One potential axis of freedom is to enter or exit certain DRGs (services) based on need or lack of it. Accordingly, it may be useful to look for underserved regions: HRRs that lack providers for high-payment DRGs. At the same time there are a small number of providers that are so dominant nationally within certain DRGs that it may not make sense to challenge them in their area of expertise.
Analysis: 2014 Medicare Payments
The top 5 Diagnosis Related Groups (DRGs) in terms of Medicare spending are consistent over the past four years. These DRGs are the following:
⇒ 470 - MAJOR JOINT REPLACEMENT OR REATTACHMENT OF LOWER EXTREMITY W/O MCC
⇒ 871 - SEPTICEMIA OR SEVERE SEPSIS W/O MV 96+ HOURS W MCC
⇒ 853 - INFECTIOUS & PARASITIC DISEASES W O.R. PROCEDURE W MCC
⇒ 291 - HEART FAILURE & SHOCK W MCC
⇒ 460 - SPINAL FUSION EXCEPT CERVICAL W/O MCC
From the 2014 data, we can look at how the payment for the top 5 most expensive DRGs is distributed by the average medical payment per discharge vs the total number of discharges, as shown in the chart below. The size of the bubble in this chart represents the total Medicare payment for those DRGs.
It is interesting to note that there are two distinct groups:
- Three of the top 5 expensive DRGs (470, 871, 291) have a high number of discharges but a low average cost per discharge
- The remaining two (460 and 853) do not have as many cases, but they have a high average cost per discharge
In more detail, here is the percentage of total Medicare spend focused on the top 5 DRGs.
We can also split it by region for these high-cost DRGs, payments for the top regions are given below.
Analysis: Long-Term Trends
From 2011 to 2014, Medicare payments have continued to rise for DRGs 470 (Major Joint Replacement) and 871 (Septicemia/Sepsis), while the other three have remained relatively flat. These two DRGs, 470 and 871, have significantly higher costs than the others over the entire time period of the data.
For comparison, we can look at spending over these four years for the top 20 DRGs. While some DRGs have risen significantly in the past couple of years [e.g. 208 - Respiratory System and 219 - Cardiac Valve], the Major Joint Replacement and Septicemia DRGs far outpace spending on other diseases and conditions, as shown in the chart below.
(Note: some DRGs show a value of 0 prior to 2014 because CMS Inpatient data only provided information for the top 100 DRGs in earlier years.)
Analysis: Providers
Given that a large percentage of Medicare spending is concentrated on the top 25 DRGs, it is interesting that there are a number of Hospital Referral Regions (HRRs) that have no Medicare billing providers at all for at least 5 DRGs out of those top 25. The geographical map below highlights those regions.
(Click on the map image to navigate to an interactive web page that shows the list of underserved DRGs for the marked regions.)
At the same time, there are some dominant providers that handle a very large number of discharges for specific diseases and conditions. The geographical map below highlights individual providers that handle greater than 1% of all discharges nationally, in terms of Medicare billing, for some of the top 25 DRGs.
(Click on the map image to navigate to an interactive web page that shows the list of high-volume DRGs for the marked providers.)
Future Directions
CMS has recently released hospital quality data, so it would be interesting to correlate that data with average Medicare payments and total number of discharges. For example, do hospitals that generate a lot of revenue in specific DRGs have higher quality ratings? Also, how does the Medicare payment data relate to general health data within a hospital referral region?
Now that we have specific data over the past several years for DRGs and Providers, it may be possible to make some predictions about future expenses and thus highlight the potential for cost increases. This would point to areas of focus for containing increasing healthcare costs.