Medicare Advantage and Fee-for-Service Hospital Stays

Health plans are interested in serving the Medicare population because they perceive that fee-for-service Medicare does a poor job of managing care efficiently and because Medicare beneficiaries typically have higher health costs associated with their medical needs.  The Medicare Advantage program has become very successful, both for beneficiaries and plans, with almost a third of all beneficiaries now enrolled in a Medicare Advantage plan.  One of the primary mechanisms by which an MA plan can save on spending is by avoiding hospitalizations, which tend to be the single most expensive item of care.  An Agency for Healthcare Research & Quality Statistical Brief evaluates differences in hospital stays in 2013 in the MA program and traditional Medicare.  It is based on HCUP data, which comes from 13 states which report on hospitalizations by payer source.   (AHRQ Stat. Brief)   The brief distinguishes between data on beneficiaries under age 65 (who come in through disability or the end-stage renal disease arms of Medicare) and those 65 and over.  I focus here solely on the latter group, which comprises over 80% of the total Medicare population.  The average age of an MA beneficiary who is hospitalized is about a year lower than that of a FFS one, and they are slightly more likely to be female.  The health status of hospitalized members is exactly identical in both groups.  The MA group is slightly more likely to have had the admission originate from the ER, at 71.8% versus 70.3% for traditional Medicare.  Average length of stay is somewhat shortly, 5.2 days for MA versus 5.6.  MA plans accounted for about 29.6% of all Medicare hospital stays in 2013 and for 28.5% of all Medicare hospital inpatient spending, so you can see that the average cost per stay is slightly lower, consistent with a shorter stay.

In terms of types of stays, MA plans have a slightly lower proportion of medical stays, slightly higher proportion of surgical stays and significantly lower proportion of mental health stays than does fee-for-service Medicare.  In each case, MA has lower length of stays and consequently lower costs per stay, for example for medical stays mean costs are $9100 for MA and $10000 for FFS and mental health stays the figures are $8700 for MA and $9600 for FFS.  Other research has suggested that MA plans offer better quality and this brief finds that MA has a lower rate of potentially preventable hospitalizations.  The two arms of Medicare have equal proportions of resource intensive DRG stays, but the length of these stays is about 8% lower for MA.  Interestingly, MA tends to have a higher proportion of stays at teaching hospitals than does FFS, which is surprising because these hospitals can be more expensive, but not surprising since MA has many more members in urban areas where these hospitals tend to be.  On the other hand, MA has low penetration in rural areas and has a lower proportion of stays in small hospitals, which tend to be in rural areas.  The brief gives an initial picture of where MA plans may be getting their hospital cost savings and it seems to largely be in length of stay.