No abstract

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We combine household surveys and total spending data to analyze trends in medical spending from 1963 to 2000. During this nearly forty-year period, spending grew fastest among the elderly. Per person spending among the elderly grew rapidly from 1963 to 1987, but this trend then reversed during the next decade, reflecting reforms to Medicare's physician and hospital payment systems. Prescription drug spending growth accelerated throughout the time period; it grew fastest among the nonelderly, for whom prescription drug insurance coverage is most extensive.

The difference between private and public (Medicare and Medicaid) payment rates for inpatient hospital stays widened between 1996 and 2012. Medical Expenditure Panel Survey data reveal that standardized private insurer payment rates in 2012 were approximately 75 percent greater than Medicare's-a sharp increase from the differential of approximately 10 percent in the period 1996-2001. Expenditures for hospital care in the United States are projected to exceed $1 trillion for the first time in 2015, 1 and debate is intensifying over pricing transparency, provider and insurer competition, and differences between private and public payment rates. The stakes involved are high, and there are stark examples of variations in payment rates across hospitals and geographic areas. 2-6 However, there is limited evidence on how payment rates for privately insured patients compare to those for patients covered by Medicare and Medicaid, or on how payment rate differences have changed over time.We examined amounts paid per inpatient hospital stay in the period 1996-2012 for patients whose primary payer was private insurance, Medicare, or Medicaid. Payment rates were adjusted for inflation and standardized across patient and stay characteristics.We found that payment rates for privately insured patients exceeded those for Medicare and Medicaid beneficiaries throughout the study period, but the difference widened rapidly in the latter half of the period (Exhibit 1). In 2012 private insurers' payment rates for inpatient hospital stays were approximately 75 percent greater than Medicare's payment rates-a sharp increase from the approximately 10 percent differential in the period 1996-2001.

In 1998 the Centers for Medicare and Medicaid Services (CMS) began phasing in a new prospective payment system (PPS) for Medicare payments to skilled nursing facilities (SNFs). I examine the effects of the new PPS on the level of rehabilitation therapy provided in SNFs. The percentage of residents of freestanding SNFs receiving extremely high levels of rehabilitation therapy dropped significantly, and the percentage receiving moderate levels increased. Freestanding SNFs, particularly for-profits, dramatically altered the services they provided in response to new financial incentives. This responsiveness underscores the importance of efforts now under way to refine the SNF PPS.