Medicare and Managed Care Plans: Payments and Costs for Selected
Hospitals (Correspondence, 09/01/2000, GAO/HEHS-00-177R).
Pursuant to a congressional request, GAO reviewed Medicare and managed
care plan hospital costs and payments, focusing on: (1) the relationship
between Medicare and managed care plan payments and costs; (2) managed
care plan payments and the relative importance of managed care business;
and (3) Medicare and managed care plan payments and costs by hospital
teaching status.
GAO noted that: (1) for the average hospital responding to GAO's survey,
payments from both managed care plans and Medicare covered their
respective costs for all types of cases, although there was considerable
variation across hospitals in the relationship between payments and
costs; (2) average managed care plan payments per case for inpatient
services were lower than average Medicare payments for the types of
cases GAO examined; (3) however, average managed care plan costs per
case were also lower than Medicare's; (4) the relationship between
managed care plan payments and costs appeared to be associated with the
level of managed care enrollment in the responding hospital's market
area and the hospital's relative share of inpatient revenues from this
payer; (5) responding hospitals in areas with low managed care plan
enrollment or responding hospitals with more managed care plan business
were more likely to have higher plan payments, relative to their costs,
than other responding hospitals; (6) the average hospital with a large
teaching program reported losses from its managed care business, but
Medicare payments were well above its costs; and (7) managed care plan
payments were more generous than Medicare's to the average responding
hospital with a smaller teaching program, although Medicare payments
still on average covered its costs.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: HEHS-00-177R
TITLE: Medicare and Managed Care Plans: Payments and Costs for
Selected Hospitals
DATE: 09/01/2000
SUBJECT: Health care programs
Health care costs
Health insurance
Hospitals
Payments
Managed health care
Health surveys
Cost analysis
Hospital care services
IDENTIFIER: Medicare Program
Medicare Prospective Payment System
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GAO/HEHS-00-177R
1 GAO/ HEHS- 00- 177R Medicare and Managed Care United States General
Accounting Office
Washington, DC 20548 Health, Education, and
Human Services Division
B- 283429 September 1, 2000 The Honorable Pete Stark Ranking Minority Member
Subcommittee on Health Committee on Ways and Means House of Representatives
Subject: Medicare and Managed Care Plans: Payments and Costs for Selected
Hospitals
Dear Mr. Stark: Hospitals have reported financial difficulties they
attribute to Medicare's payment policies since the implementation of several
provisions of the Balanced Budget Act of 1997 (BBA), which were intended to
slow the growth in Medicare payments to hospitals. Yet Medicare Payment
Advisory Commission (MedPAC) and American Hospital Association (AHA)
analyses show that even after the BBA, Medicare hospital inpatient payments
will, on average, more than cover the costs of treating Medicare
beneficiaries. 1 At the same time, in the face of rising health care costs,
private payers have increasingly turned to managed care plans to control
their health care costs by negotiating provider payments and managing
enrollee utilization. In fact, recent MedPAC analyses indicate that between
1997 and 1998, pressures exerted by private payers had a greater effect on
hospital financial performance than the slower growth in Medicare payments.
2 This has raised congressional concerns that hospital complaints about
Medicare payments are driven, in part, by overall fiscal pressures placed on
hospitals by managed care plans.
In this context, you asked us to collect data on Medicare and managed care
plan hospital costs and payments. Because information on managed care plan
payments and costs is not available from public sources and it is difficult
to collect those data, this letter provides information from a group of
hospitals that were able and willing to respond to our data
1 MedPAC, Report to Congress: Medicare Payment Policy (Washington, D. C.:
MedPAC, June 2000), p. 180, and the AHA- commissioned study by The Lewin
Group, The Impact of the Medicare Balanced Budget Refinement Act on Medicare
Payments to Hospitals (Falls Church, Va.: Feb. 2000), p. 5.
2 MedPAC, p. xviii.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 2
request. 3 These hospitals, however, are not representative of the industry,
and it is important to remember that the experience of the responding
hospitals is likely to differ from that of other hospitals. We have
summarized this information according to your areas of interest: (1) the
relationship between Medicare and managed care plan payments and costs, (2)
managed care plan payments and the relative importance of managed care
business, and (3) Medicare and managed care plan payments and costs by
hospital teaching status.
We contacted over 100 hospitals that had sophisticated cost accounting
systems that could provide us with fiscal year 1998 detailed cost and
payment information by payer and type of case. The hospitals we contacted
tended to be larger, urban hospitals, which were more likely to have a
teaching program than the average hospital. Had all these hospitals
responded, the data would still not be representative of all hospitals.
Despite our repeated attempts to improve the response rate, fewer than half
of the hospitals we contacted provided us with complete information. In
addition to collecting hospital data, we interviewed industry analysts about
hospital and managed care plan contracting strategies. We did not
independently verify the data submissions from the responding hospitals.
With this exception, our work was completed in accordance with generally
accepted government auditing standards between June 1999 and August 2000.
(For a detailed discussion of our scope and methodology, see encl. I.)
In brief, for the average hospital responding to our survey, payments from
both managed care plans and Medicare covered their respective costs for all
types of cases, although there was considerable variation across hospitals
in the relationship between payments and costs. Average managed care plan
payments per case for inpatient services were lower than average Medicare
payments for the types of cases we examined. However, average managed care
plan costs per case were also lower than Medicare's. The relationship
between managed care plan payments and costs appeared to be associated with
the level of managed care enrollment in the responding hospital's market
area and the hospital's relative share of inpatient revenues from this
payer. Responding hospitals in areas with low managed care plan enrollment
or responding hospitals with more managed care plan business were more
likely to have higher plan payments, relative to their costs, than other
responding hospitals. The average hospital with a large teaching program
reported losses from its managed care business, but Medicare payments were
well above its costs. Managed care plan payments were more generous than
Medicare's to the average responding hospital with a smaller teaching
program, although Medicare payments still on average covered its costs.
BACKGROUND Hospitals derive their patient revenues from many different
payers, including Medicare and state Medicaid programs in the public sector
and a number of third- party insurers and managed care plans as well as
individual patients in the private sector. Payment rates for Medicare and
many Medicaid programs are prospectively established: hospitals are paid a
3 MedPAC contracted for a study of provider payments for various services by
Medicare and other payers. That contract, however, was recently canceled
because many providers were unwilling to complete the survey or unable to
provide detailed, accurate data.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 3
basic rate that is adjusted for patient- or hospital- specific factors,
regardless of the actual cost of treating a patient. 4 Payment rates from
private payers and managed care plans are generally negotiated and vary
depending on a number of factors, such as hospital or market
characteristics. Although any given managed care plan may constitute a small
share of a hospital's inpatient business, collectively these plans may
account for a substantial portion of a hospital's revenues.
Because Medicare is the largest single payer for inpatient care, its
payments greatly affect the financial performance of many hospitals. Yet the
financial health of most hospitals is not determined by Medicare payment
rates alone, but rather by a number of other factors, including the extent
to which payments from other payers cover a hospital's costs of providing
inpatient care and the share of patients covered by each payer.
Medicare Payments to Hospitals In 1983, Medicare implemented a prospective
payment system (PPS) to slow the growth in Medicare spending for acute
hospital inpatient services. Hospitals receive a prospectively determined
payment that covers all the required hospital services provided during a
Medicare beneficiary's stay. This per- case payment varies depending on the
beneficiary's diagnosisrelated group (DRG), which is based on factors
predictive of expected resource use, including the principal diagnosis or
reason for the admission, whether surgery is performed, and whether the
patient has certain other illnesses or complications. Payments to a hospital
are also adjusted to reflect variation in local wage rates. Other hospital-
specific payment adjustments account for the higher costs incurred by
facilities with teaching programs 5 and compensate certain hospitals with a
disproportionate share of low- income patients (termed the disproportionate
share hospital- or DSH- adjustment).
The PPS was intended to provide hospitals with financial incentives to
deliver care more efficiently, and hospitals appear to have responded to
those incentives. Since 1989, the growth in hospital costs for treating
Medicare patients has generally been declining (see fig. 1). By 1992, cost
growth fell below payment increases, which contributed to steady
improvements in the Medicare inpatient margin- a measure that compares
Medicare payments with the costs of treating its beneficiaries. 6 By 1998,
the last year for which actual data are available, the aggregate inpatient
Medicare margin was 14.4 percent. 7
4 Medicaid payment methods vary by state. 5 Medicare provides additional
payments to teaching hospitals to account for their costs of operating a
teaching program, such as the salaries of residents and their supervising
faculty. 6 The inpatient PPS margin is the difference between PPS payments
and Medicare- allowed inpatient costs, as a percentage of PPS payments. 7
MedPAC, p. 180.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 4
Figure 1: Percentage Change in Inpatient PPS Payments and Costs Per Case,
1984- 97
17. 8 11. 1
3.9 5.4 5.3
6.8 6.1 6.1 6.1
3.5 3.3 4.7 5.0
1.8
-5.0 0
5.0 10. 0
15. 0 20. 0
1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
Percentage Change
Payments per Case Costs per Case
Year a
2.5 11. 6
9.8 8.9 8. 8 9.4
8.3 7.0
4.7 1.2
-1.0 -1.2 -0.6 -0.3
a Data for each year correspond to a hospital's fiscal year beginning in the
federal fiscal year. Source: Unpublished data from Stuart Guterman
(Washington, D. C.: The Urban Institute, Feb. 24, 2000).
The BBA included several changes to Medicare hospital payments intended to
slow spending over the 5- year period from 1998 through 2002. The BBA-
related changes were estimated by AHA to reduce total Medicare inpatient PPS
payments by 9.5 percent over this period, resulting in expected inpatient
margins of about 10 percent in 2002. 8 The Medicare, Medicaid, and State
Children's Health Insurance Program Balanced Budget Refinement Act of 1999
(BBRA) tempered certain BBA- mandated reductions by adding an estimated $1.2
billion to hospital inpatient payments from 2000 to 2004, which was
estimated to have a small impact on the aggregate PPS inpatient margin for
2002. 9
8 See MedPAC, p. 180, and The Lewin Group, section II, p. 2. 9 AHA estimated
that BBRA changes would raise the estimated PPS margin in 2002 by 0.1
percent. The Lewin Group, section II, p. 6.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 5
Managed Care Plan Payments to Hospitals
In contrast to Medicare's prospectively set national rates, payments from
private payers and managed care plans are individually negotiated with
hospitals. The payments can depend in part on the volume of business brought
to the hospital, the competition from other hospitals, and other market
characteristics. Historically, private insurers paid hospitals on the basis
of billed charges and had little involvement in the actual delivery or
management of services. With limited control over the level of charges or
the utilization of hospital services, the insurer merely passed on the
rising costs of health care to employers or enrollees through higher
premiums. In the face of increasing demands from employers and other
insurance purchasers for greater controls on health care costs, private
payers began to develop managed care plans.
Managed care plans attempt to control the delivery and cost of covered
health care services for their enrolled members. Depending upon the
structure of the plans, they may direct their members to selected providers,
manage the utilization of covered services, negotiate payment rates with
providers, administer payment for the services, or perform some combination
of these functions. 10 An important factor in rate negotiations can be a
plan's ability to direct patients to a particular hospital- generally, the
higher the volume and the more competition among hospitals, the stronger the
negotiating position of the plan.
From the hospital's perspective, negotiations with managed care plans focus
primarily on securing plan business and obtaining payment rates that cover
the facility's costs. Factors influencing the payment rates that the
hospital ultimately accepts include its occupancy rate, the loss of patient
volume and revenue if it did not contract with a plan, and the amount of
hospital competition in the area. 11 A hospital may sometimes accept
prevailing “market” rates for certain specialty services
regardless of its own costs of providing that service rather than lose the
business to another hospital. 12 Finally, a hospital may accept lower rates
on selected inpatient services or types of cases if the plan's payment rates
are profitable overall or if the payments for other services, such as
outpatient and physician services, are attractive.
10 Larry Levitt, Janet Lundy, and Srija Srinivasan, “Trends and
Indicators in the Changing Health Care Marketplace,” The Kaiser
Changing Health Care Marketplace Project (Menlo Park, Calif.: The Henry J.
Kaiser Family Foundation, Aug. 1998).
11 Peter R. Kongstvedt, “Negotiating and Contracting with Hospitals
and Institutions,” The Managed Health Care Handbook (Gaithersburg,
Md.: Aspen Publishers, 1996), pp. 202- 205. 12 For example, managed care
plans often negotiate rates for cardiac bypass or cardiac catheterization
services, which then become the market rate, regardless of an individual
hospital's actual cost of providing those services.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 6
AVERAGE MANAGED CARE PLAN AND MEDICARE PAYMENTS AND COSTS FOR RESPONDING
HOSPITALS
Managed care plan payments were lower than Medicare payments, but the costs
of managed care plan enrollees were also lower than Medicare beneficiary
costs. 13 On average, managed care plan payments were 7 percent higher than
its enrollee costs, and Medicare payments were 9 percent higher than
beneficiary costs. However, these averages masked considerable variation
across the responding hospitals, particularly for managed care plan payments
relative to enrollee costs.
Average per- case managed care plan payments were considerably lower than
Medicare payments for over half the hospitals responding to our survey (see
fig. 2). Managed care plan payments per case were 14 percent lower than
Medicare payments across the 15 types of cases, averaging $4,721, compared
with $5,459 from Medicare. 14 The same pattern was evident across the
individual types of cases. Average managed care plan payments to responding
hospitals were lower than average Medicare payments for 11 of the 15 types
of cases examined (see encl. II).
13 In this study, managed care is defined broadly to include health
maintenance organizations (HMO), preferred provider organizations, and point
of service plans. Medicare includes only fee- for- service patients.
Medicare managed care was grouped into the “other” payer
category because its share of revenue was small for most hospitals.
14 We examined more detailed payment and cost data for 15 types of cases,
defined by DRGs that represented a range of medical and surgical cases,
complex and routine cases, and acute and chronic conditions.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 7
Figure 2: Difference Between Average Managed Care Plan and Medicare Payments
per Case for Responding Hospitals
-$ 4,500 -$ 3,500 -$ 2,500 -$ 1,500 -$ 500 $500 $1,500 $2,500
Managed care plan payment lower than Medicare payment
Managed care plan payment higher than Medicare payment
Managed Care Plan Payment Minus Medicare Payment
Individual Hospitals
Source: GAO analysis of fiscal year 1998 revenue data for 51 hospitals.
Average per- case managed care plan costs were also lower than average per-
case Medicare costs for the majority of the responding hospitals. Managed
care plan costs per case were 11 percent lower than Medicare costs across
the 15 types of cases, averaging $4,421 compared with $4,923 from Medicare.
Only 6 of the 51 hospitals (12 percent) had average managed care plan per-
case costs that were higher than Medicare's. There were similar results
across most of the individual types of cases: the average cost per case of
managed care patients was lower than Medicare's for 13 of the 15 types of
cases (see encl. II).
Managed care plan payments exceeded their enrollee costs by 7 percent for
the average responding hospital, and Medicare payments averaged 9 percent
higher than its beneficiary costs. 15 However, there was considerable
variation across the hospitals because of the range
15 The Medicare payment- to- cost ratio for our sample translates into a 9.6
percent aggregate margin. This is lower than the 14.4 percent aggregate
margin reported by MedPAC for all
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 8
in payments and differences in costs (see table 1). Many responding
hospitals (21) lost money on their managed care business, and 6 hospitals
had payments that were at least 20 percent below their costs. However, 17
hospitals had managed care payments that were at least 20 percent higher
than their costs. For Medicare, the extremes were narrower. While 12
hospitals lost money on Medicare, only 2 hospitals had payments that were at
least 20 percent lower than their costs, and 12 hospitals had payments that
were at least 20 percent higher than their costs.
Table 1: Distribution of Managed Care Plan and Medicare Payments Relative to
Their Respective Costs for Responding Hospitals
Managed care plan Medicare Payment- to- cost
ratio a Number of hospitals
Average payment- tocost ratio Number of
hospitals Average
payment- tocost ratio
Less than 0.8 6 0.68 2 0.77 0.80 - 0.99 15 0.93 10 0.92 1.00 - 1.09 7 1.04
16 1.06 1.10 - 1.19 6 1.14 11 1.13 1.2 and above 17 1.31 12 1.27
All hospitals 51 1.07 51 1.09
a A payment- to- cost ratio compares payments with costs. A value greater
than 1.0 indicates that payments exceeded costs; a value less than 1.0
indicates that costs exceeded payments.
Source: GAO analysis of fiscal year 1998 cost and revenue data for 51
hospitals. hospitals in 1998. Several factors could account for this
difference. MedPAC data reflect the universe of PPS hospitals. Payments and
costs for resident salaries and their supervising physicians are excluded
from the MedPAC estimate. Further, MedPAC measures only Medicare- allowed
costs, while our data included both allowed and nonallowed costs, which
depress the reported margin. See MedPAC, p. 180.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 9
VARIATION IN MANAGED CARE PLAN PAYMENTS AND COSTS
Managed care plan payments relative to enrollee costs were higher for
responding hospitals in areas with low managed care plan enrollment than for
responding hospitals in areas with high enrollment. 16 Managed care plan
payments were, on average, 18 percent higher than their costs for responding
hospitals in areas with low managed care enrollment, compared with 7 higher
percent for hospitals in areas with high enrollment. This is consistent with
industry research that showed that as managed care plan enrollment in a
market increases, hospital gains from managed care plans decline. 17
The responding hospitals were more likely to lose money on managed care
plans when they had less business from this payer. Of the 13 hospitals with
a small share of their revenues from managed care plans, 10 reported losses
(see table 2). Further, hospitals that lost on their managed care business
were also more likely to be high- cost facilities than hospitals that gained
on their managed care business. 18 Of the 11 high- cost hospitals, 8
hospitals had losses on their managed care business.
Table 2: Hospital Managed Care Plan Performance, by Hospital Characteristics
for Selected Hospitals
Managed care performance Hospital characteristics Hospitals
with losses Hospitals with gains Total
Low managed care share of revenue a 10 3 13 High- cost hospitals b 8 3 11
All responding hospitals 21 30 51
a The 25 percent of responding hospitals with the lowest managed care plan
shares of inpatient revenues. b Hospitals with average managed care plan
per- case costs of $5,000 or more.
Source: GAO analysis of fiscal year 1998 cost and revenue data for 51
hospitals. 16 In this analysis, a hospital market is defined as the
metropolitan statistical area (MSA) in which it is located. 17 Ernest
Valente and Keven G. Serrin, “Managed Care and the Financial Condition
of Academic Medical Center Hospitals, 1992 – 1995,” Implications
for Policy, Delivery and Practice (Washington, D. C.: Health Services
Research, June 1998).
18 High- cost hospitals were defined as hospitals with an average managed
care plan per- case cost of $5,000 or more, after adjusting for differences
in the mix of cases and variations in local wage rates.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 10
MEDICARE AND MANAGED CARE PLAN PAYMENTS COMPARED WITH SIZE OF TEACHING
PROGRAM
The average responding teaching hospital had payments from both payers that
covered their respective costs, although there was considerable variation in
this relationship for both payers across the hospitals. Responding hospitals
with large teaching programs were more likely to fare better from Medicare
than from managed care plans, while the opposite was true for responding
hospitals with smaller or no teaching programs (see table 3).
Responding hospitals with large teaching programs were likely to lose on
their managed care business, but their Medicare payments were substantially
higher (22 percent ) than beneficiary costs. Of the 15 hospitals with large
teaching programs, 12 reported managed care plan payments that were below
enrollee costs, yet all of them received Medicare payments above their
costs.
The picture is different for responding hospitals with smaller teaching
programs. Responding hospitals were likely to fare better from managed care
plans than from Medicare. Managed care plan payments averaged 14 percent
higher than enrollee costs, while Medicare payments averaged 5 percent
higher than beneficiary costs. Of the 20 hospitals in this category, 15
hospitals had positive managed care plan margins, and 14 hospitals had
positive Medicare margins.
The experience of large teaching and other teaching hospitals is dissimilar
because their costs as well as their Medicare and managed care plan payments
are different. The costs of managed care plan patients were, on average, 37
percent higher at the 15 large teaching hospitals than at the 20 hospitals
with smaller programs, yet their payments were only 17 percent higher. 19
While Medicare costs per case at large teaching hospitals were on average 32
percent higher than at hospitals with smaller teaching programs, its
payments were even higher (41 percent).
19 The average costs and payments per case reported are for the 15 types of
cases examined.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 11
Table 3: Average Managed Care Plan and Medicare Inpatient Payment- to- Cost
Ratios, by Teaching Status of Responding Hospitals
Teaching hospitals Payer Large
teaching a Other teaching b All
teaching Nonteaching
hospitals All hospitals
Managed care plan 0.98 1.14 1.07 1.07 1.07 Medicare 1.22 1.05 1.12 1.01 1.09
a Hospitals with more than 25 residents per 100 hospital beds. b Hospitals
with 25 or fewer residents per 100 hospital beds. Source: GAO analysis of
fiscal year 1998 cost and revenue data for 51 hospitals. For the average
responding nonteaching hospital, managed care plan payments were 7 percent
higher than costs compared with 1 percent higher for Medicare. Of the 16
nonteaching hospitals, 12 hospitals had managed care plan payments that were
higher than enrollee costs, compared to 10 hospitals with Medicare payments
higher than beneficiary costs.
AGENCY AND OUTSIDE REVIEWER COMMENTS
We sent a copy this letter to the Health Care Financing Administration,
which elected not to provide any comments. We also sent a copy of this
letter to an outside reviewer who agreed with its content, and provided
technical comments, which we have incorporated where appropriate.
---- We are sending copies of this letter to the Honorable Nancy- Ann Min
DeParle, Administrator of the Health Care Financing Administration;
appropriate congressional committees; and others who are interested.
B- 283429
GAO/ HEHS- 00- 177R Medicare and Managed Care 12
If you or your staff have any questions, please call me at (202) 512- 7119
or Carol Carter at (312) 220- 7711. Other major contributors include Iola A.
D'Souza, Jennifer M. Dulac, and Daniel K. Lee.
Sincerely yours, Laura A. Dummit Associate Director, Health Financing and
Public Health Issues Enclosures - 2
ENCLOSURE I ENCLOSURE I 13 GAO/ HEHS- 00- 177R Medicare and Managed Care
OBJECTIVES, SCOPE, AND METHODOLOGY Managed care plan and cost and payment
information at the diagnosis- related group (DRG) level is not available in
Health Care Financing Administration claims data or Medicare cost reports.
To obtain these data, we needed to survey hospitals, and we chose to focus
only on those with cost accounting systems that would allow these hospitals
to provide the detailed information we required. We requested payment and
cost information by payer for 15 DRGs and for all inpatient cases. The DRGs
were selected to represent a mix of medical and surgical cases, more and
less complex cases, and acute and chronic cases.
We sent surveys to 121 hospitals and received responses from 68 hospitals.
Because of data limitations and inconsistencies, we could use the data from
only 51 responding hospitals in 28 states. The hospitals in our study are
not representative of the hospital industry. The responding hospitals are
generally larger than the national average, and only one is a rural
facility. The majority of the responding hospitals (35) in our sample are
teaching facilities.
We categorized hospital revenues into one of five payer groups (Medicare,
managed care, Medicaid, traditional private insurance, and other) on the
basis of discussions with staff from individual hospitals. We used a broad
definition of managed care that included HMO plans, preferred provider
organization plans, and point- of- service plans. The “other”
category included revenues from the Civilian Health and Medical Program of
the Uniformed Services (CHAMPUS), charity, grants, miscellaneous/ unknown,
self- pay, workers' compensation, and the Department of Veterans Affairs.
Medicare managed care revenues were grouped into the “other”
category because for most hospitals their share of revenues was small.
Medicaid managed care revenues were included in the Medicaid category.
In addition to collecting hospital data, we interviewed industry analysts
about hospital and managed care plan contracting strategies.
We used data from the June 1999 InterStudy Competitive Edge Regional Market
Analysis 20 to determine the level of managed care plan market enrollment in
each hospital's MSA. Hospitals were grouped according to the level of HMO
enrollment in their market area, defined as the percentage of the population
within the hospital's MSA enrolled in an HMO. Low enrollment was defined as
less than 16 percent of the population enrolled in an HMO, medium enrollment
between 16 and 40 percent, and high enrollment as greater than 40 percent.
20 Changes in MSA Enrollment, Subdirectories: Metropolitan Markets, Part
III: Regional Market Analysis, The InterStudy Competitive Edge (St. Paul,
Minn.: InterStudy Publications, June 1999).
ENCLOSURE II ENCLOSURE II 14
GAO/ HEHS- 00- 177R Medicare and Managed Care
AVERAGE MEDICARE AND MANAGED CARE PLAN PER- CASE PAYMENTS, COSTS, PAYMENT
RATIOS AND COST RATIOS FOR SELECTED DRGs
Payments Costs DRG
a Description
DRG weigh Medicar
Managed care plan
Ratio of managed care
plan payment to Medicare Medicare
Managed care plan
Ratio of managed
care plan Medical cases
014 Cerebrovascular disorders 1.19 $6,398 $6,556 1.02 $6,196 $6,122 0.99 079
Respiratory infections with cc
b 1.63 8,722 10,148 1.16 8,073 8,632 1.07
088 Chronic obstructive pulmonary disease 0.97 5,007 5,042 1.01 4,645 4,238
0.91 089 Simple pneumonia with cc 1.10 5,762 5,068 0.88 5,209 4,452 0.85
127 Heart failure and shock 1.02 5,301 4,905 0.93 4,960 4,385 0.88 140
Angina pectoris 0.60 3,109 2,941 0.95 2,816 2,492 0.88
294 Diabetes 0.76 4,133 3,893 0.94 4,358 3,543 0.81
Surgical cases
106 Coronary bypass with cardiac catheterization
5.58 31,000 24,942 0.80 24,420 21,258 0.87 112 Percutaneous cardiovascular
procedures 2.00 10,853 7,753 0.71 8,861 8,427 0.95
148 Major small and large bowel procedures with cc
3.39 18,791 15,150 0.81 14,891 12,769 0.86 209 Joint and limb reattachment
procedures of
lower extremity 2.23 11,553 8,704 0.75 10,930 10,925 1.00
210 Hip and femur procedures excluding major joint procedures with cc
1.83 9,718 10,311 1.06 9,346 10,712 1.15 302 Kidney transplant 3.76 41,087
35,493 0.86 48,661 41,118 0.84
306 Prostatectomy with cc 1.22 6,295 4,542 0.72 5,211 4,180 0.80 481 Bone
marrow transplant 11.28 76,271 62,784 0.82 54,188 53,217 0.98
a Diagnosis- related group.
ENCLOSURE I ENCLOSURE I 15
b With complications or comorbidity.
Source: GAO analysis of fiscal year 1998 revenue and cost data for 51
hospitals. (101842)
*** End of document. ***