MEDICARE PROSPECTIVE PAYMENT REFORMS AND HOSPITAL UTILIZATION - TEMPORARY OR LASTING EFFECTS

Early evaluations of the Medicare prospective payment reforms found them very effective in reducing hospital utilization. In this study, the author investigated whether the reforms remained effective throughout the first decade of implementation. Seasonal autoregressive-integrated-moving average (ARIMA) models with intervention components were applied to age-specific national time series of hospital admissions, average length of stay, inpatient days, and adjusted inpatient days. Three alternative regulatory impact patterns were tested using quarterly data collected by the National Hospital Panel Survey spanning the period 1970:1 to 1992:1 (n = 89). The reimbursement reforms seem to have reduced hospital admissions, average length of stay and patient days during fiscal years 1983-1984, but significant readjustments relative to projected levels occurred for all four utilization measures during fiscal years 1985-1986. Similar, yet less pronounced readjustments, were found in the analysis of non-Medicare time series suggesting regulatory spill-over effects. Sicker patients and hospital diversification efforts are two plausible reasons for the relative increase in hospital utilization during 1985-1986. The Medicare reimbursement reforms appear to remain effective in reducing hospital utilization, but at a reduced rate.