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Unless otherwise indicated, all years referred to in the text are fiscal years. Details in the text and tables of this report may not add to totals because of rounding. The cover photographs were provided by the University of Minnesota Health Sciences Center. |
At the time the Congress established the prospective payment system (PPS) for inpatient hospital service, payments for capital-related expenses were not included in the new system. This study was conducted by the Congressional Budget Office (CBO) in response to a request by the Subcommittee on Health and the Environment of the Committee on Energy and Commerce, made soon after passage of the PPS legislation. The report examines the advantages and disadvantages of prospective payment for capital costs, the effects of such a change on the financial condition of hospitals, and the impacts of various policies that would provide a transition to a prospective system.
The study was done by Jack Rodgers of CBO's Human Resources and Community Development Division under the direction of Nancy M. Gordon and Stephen H. Long. Jodi Korb, also of the Human Resources and Community Development Division, programmed the PPS simulations for the study. The appendix on the PPS was prepared by Jack Rodgers and Steven Sheingold.
Many others contributed to the study. Staff at the Prospective Payment Assessment Commission--in particular, Bruce Steinwald, Candy Littell, and Laura Dummit--commented on an earlier draft of the study report. Professor Gerard F. Anderson of the Johns Hopkins University also commented on an earlier draft. Carla Pedone, Emily Santer, and Jenifer Wishart made many useful suggestions. Lisa Simonson provided research assistance.
Paul L. Houts edited the manuscript, Antoinette Foxx typed portions
of various drafts, and Nancy H. Brooks prepared the final draft for publication.
James L. Blum
Acting Director
August 1988
SUMMARY
I. CAPITAL AND MEDICARE'S REIMBURSEMENT FOR CAPITAL COSTS
II. IMPLICATIONS OF INCLUDING CAPITAL PAYMENTS IN THE PPS
III. GENERAL OPTIONS FOR A TRANSITION POLICY
IV. EFFECTS OF THREE TRANSITION OPTIONS
APPENDIX - MEDICARE'S PROSPECTIVE PAYMENT SYSTEM
GLOSSARY
| TABLES | |
| 1. | Repayment Schedule for a 10-Year Loan |
| 2. | Selected Statistics on Hospital Inpatient Costs |
| 3. | Characteristics of Alternative Transition Policies, 1989-2008 |
| A-1. | Calculation of the PPS Payment for a Hypothetical Hospital in Chicago, Illinois |
| A-2. | Distribution of Adjusted Payments Under PPS by Category of Hospital |
| FIGURES | |
| 1. | Distribution of Hospital Medicare Costs Per Discharge |
| 2. | Illustrative Life Cycle of Capital Costs |
| 3. | Illustrative Effect of Increasing Construction Costs on the Life Cycle of Capital Costs |
| 4. | Changes in Capital Payments |
| 5. | Changes in Payments Under PPS for Capital and PPS for Operating Costs |
| 6. | Baseline Medicare Payments for Capital Costs for Five Hypothetical Hospitals |
| 7. | Medicare Payments for Capital Costs Under Alternative Transition Options |
| BOXES | |
| 1. | The Hospital Industry Since 1946 |
| 2. | Three Specific Transition Options |
This document is available in its entirety in PDF.