Effect of Outpatient PPS on Medicare Volume

Implemented on August 1, 2000, Medicare’s Outpatient Prospective Payment System (OPPS) classifies hospital outpatient services into approximately 800 ambulatory payment classifications (APCs) based on clinical and cost similarity. Medicare reimburses the hospital the same amount for each APC–with adjustments for local labor costs, certain hospitals, and outlier cases–regardless of the mix of services provided.

How did OPPS affect healthcare utilization?

A paper by He and Mellor (2012) use Florida Ambulatory Discharge Data for years 1997–2008, obtained from the Florida Agency for Health Care Administration (AHCA), to determine how OPPS affected Medicare volume.

The authors find that “On average, hospitals that experienced rate cuts under OPPS either decreased or saw no change in Medicare volume but increased private FFS volume. Moreover, when we account for heterogeneous responses based on a hospital’s exposure to OPPS (measured by Medicare share at baseline), we find that highly exposed hospitals responded to payment cuts with larger increases in private FFS volume than did less exposed hospitals.”


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