What Is Medicare Spending Per Beneficiary?

The Medicare Spending Per Beneficiary (MSPB) measure assesses the efficiency and cost-effectiveness of hospitals and other healthcare providers. It provides insight into the average spending per Medicare beneficiary for a defined period of care. This measure helps stakeholders understand variations in healthcare costs and supports initiatives aimed at improving value in the healthcare system.

Understanding the Medicare Spending Per Beneficiary Measure

The Medicare Spending Per Beneficiary (MSPB) measure assesses average spending for Medicare beneficiaries during an “episode of care,” not an annual spend. An episode of care is anchored around an inpatient hospital stay, beginning three days prior to admission and extending 30 days following discharge. This timeframe captures costs associated with the inpatient event and the immediate post-discharge period.

The measure includes costs for Medicare Part A and Part B services. These services encompass inpatient hospital stays, skilled nursing facility (SNF) care, home health services, durable medical equipment, and physician services, including laboratory tests and imaging. Total allowed amounts from Medicare claims data, including Medicare’s institutional costs and beneficiary payments, are considered within this episode. Excluded costs include Medicare Part D prescription drug costs, episodes where the beneficiary was not enrolled in Medicare Parts A and B for the entire period, or if the beneficiary died before the episode ended. Episodes where Medicare is a secondary payer are also excluded.

How the Measure is Calculated

The Medicare Spending Per Beneficiary measure is calculated using a methodology that ensures fair comparisons among healthcare providers. Data sources include Medicare Parts A and B claims data from the Common Working File (CWF) and enrollment data. Episodes are “attributed” to the hospital where the inpatient stay, known as the “index admission,” occurred, holding that institution accountable for the spending.

Risk adjustment accounts for differences in patient health status and demographics. This process ensures equitable comparisons of spending across providers by adjusting for factors like beneficiary age, sex, and comorbidities. The risk adjustment model uses indicators from patient claims to estimate the expected cost of each episode. Costs are also “payment-standardized” to remove the effect of variations in Medicare payments unrelated to care provision, such as geographic payment differences or teaching hospital adjustments. The standardized and risk-adjusted spending for each hospital’s episodes is then compared to a national median or midpoint for all hospitals.

Significance of the Measure

The Medicare Spending Per Beneficiary measure is important within the healthcare system. It assesses healthcare efficiency and value, reflecting how effectively hospitals manage costs associated with a patient’s care episode while maintaining or improving outcomes. The measure highlights variations in healthcare spending across providers, encouraging a deeper look into practices that may contribute to higher or lower costs for similar patient conditions.

This measure supports the shift towards value-based care models, where healthcare providers are incentivized for the quality and efficiency of care delivered, rather than solely the volume of services. By focusing on episode-based spending, MSPB helps identify opportunities for cost savings throughout the continuum of care, from pre-admission to post-discharge, without compromising patient well-being. It promotes care coordination among providers involved in a patient’s episode, aiming to reduce system fragmentation and improve overall efficiency.

Applications of the Measure

The Medicare Spending Per Beneficiary measure is used by various stakeholders for multiple purposes within healthcare. The Centers for Medicare & Medicaid Services (CMS) uses MSPB in its quality reporting programs, such as the Hospital Value-Based Purchasing (VBP) Program. In the VBP program, MSPB influences a hospital’s total performance score and can adjust Medicare payments based on efficiency and quality performance.

The measure also provides performance feedback and benchmarking for healthcare providers. Hospitals can access their MSPB scores and compare them against national averages or peer institutions to identify areas for improvement in cost management. This information is publicly available on platforms like the Hospital Compare website, allowing consumers to review and consider a hospital’s spending efficiency when making healthcare choices. Researchers and policymakers use MSPB data to analyze healthcare spending trends, evaluate the impact of various interventions, and inform policy decisions aimed at promoting more efficient and higher-value care across the Medicare program.