HEALTHCARE COSTS ANALYSIS 2

Healthcare Costs Analysis

Medicare Spending Per Beneficiary (MSPB) and hospital readmission rate are two
statistics that are used to measure the level of efficiency and quality of care that hospitals provide
to patients. The two statistics are part of Medicare’s Hospital Value-Based Purchasing (VBP)
program that is run by the Centres for Medicare and Medicaid Services (Persad, 2015). VBP is
one of the reforms that were inaugurated under the Affordable Care Act of 2010 (Persad, 2015).
Its goal is to provide an incentive for hospitals and other healthcare facilities to provide high
quality services. MSPB and hospital readmission rate are, therefore, meant to act as incentives to
hospitals rather than penalties. Hospitals that record high MSPB scores and low healthcare
readmission rates receive bigger reimbursement from Medicare (Persad, 2015).
Medical Spending Per Beneficiary
Medicare Spending Per Beneficiary (MSPB) is the cost of Medicare services that a
physician performs on a patient in an MSPB period (Persad, 2015). An MSPB period includes
the time a patient stays in a hospital, the period immediately before the stay (often three days
prior to their admission), and the period that follows their discharge (Persad, 2015). This period
is usually thirty days after discharge. It is important to note that all MSPB measures are
attributed to individual physicians.
In calculating MSPB the first step is to define the population of patients that the
physician began checking three days before their formal admission to the hospital, also called
index admissions (Persad, 2015). The second step is to calculate the standardised MSPB episode
costs. This is done by adding all standardized payments of Medicare claims that are made during
the episode under review (Persad, 2015).

HEALTHCARE COSTS ANALYSIS 3
The third step is to calculate the risk adjusted costs that are expected. This calculation is
done using a risk model that is specific to the measure of MSPB. The fourth step is to winzorize
the cost values that are expected. This is done at the 0.5 th percentile. The result is normalized by
multiplying it with a fraction whose numerator is the average standardized cost of every major
diagnostic category and the denominator is each major diagnostic category’s average winsorized
cost. Fifth step involves calculation of the residual of each episode of Medicare Spending Per
Beneficiary. This is done by subtracting the cost of standardized episode from the cost of
winsorized expected episode. The sixth step involves calculation of the ratio of the cost of
standardized observed episode to the cost of winsorized expected episode. The average cost ratio
of all the episodes for each physician is then multiplied by the average episode cost of the nation
(Persad, 2015).
The United States has over 3,126 hospitals with MSPB scores. Recent data shows that
between 2015 and 2016, only 7% of these hospitals experienced an improvement in their MSPB
scores for three years continuously. 5% of the hospitals experience a continuous three year
deterioration in their scores (Persad, 2015).
Hospital Readmission Rate
Hospital readmission rate provides information on the number of episodes that a patient
who had been discharged from an acute care hospital gets readmitted within thirty days of their
discharge. When calculating hospital readmission rate, the cause of the readmission does not
matter. That means that even if a patient is readmitted for a cause different from the one that they
were previously admitted and treated, the admission will still count as a readmission. It also does
not matter whether the patient is readmitted to a different hospital from the one that they were

HEALTHCARE COSTS ANALYSIS 4
discharged from or not. The thirty day time frame is taken because readmissions made within
this time may be influenced by low quality of care or poor discharge at an acute care facility
(Angraal et al., 2018).
Hospital readmission rate is calculated by identifying residents that are admitted in an
acute care facility after having had an inpatient stay at the hospital for a specified time period.
The residents identified must have been followed for a period of thirty days. The rate is a
represented as a fraction which can then be converted into a percentage. The denominator is the
total number of residents that have been admitted to the acute care facility and who had been
under inpatient care at the hospital during the month in which the calculation is made. The
numerator represents the number of residents identified in the denominator who have had
inpatient hospitalization occurring within 30 days of their admission to the acute care facility
after a stay at the facility as inpatient residents (Angraal et al., 2018).
There are instances where a resident may have more than one thirty-day readmissions in
the period of thirty days in which the calculation is being made. For such cases, each readmission
should be included in the denominator. Thus, if a patient has had three readmissions, this number
should be added to the denominator. All inpatient hospitalizations that occur within 30 days of a
patient’s most recent admission to an acute care facility following an inpatient stay at the facility
should be included in the numerator (Angraal et al., 2018).
Recent statistics on hospital readmission rate show that the rate largely depends on a
patients condition. In 2017, the condition that led in readmission rates was heart failure at 21.7%.
Overall, general hospital readmission rates stood at 15.3% (Angraal, 2018).

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As it can be shown, the two statistics are important components of value-based care that
the Affordable Healthcare Act of 2010 sought to achieve. They indicate the performance of a
hospital with regards to efficiency and quality. It is, therefore, important that hospitals perform
well in both statistics in order to get the maximum possible reimbursement.

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References

Angraal, S., Khera, R., Zhou, S., Wang, Y., Lin, Z., Dharmarajan, K., … & Horwitz, L. I. (2018).
Trends in 30-day readmission rates for Medicare and non-Medicare patients in the era of
the Affordable Care Act. The American journal of medicine, 131(11), 1324-1331.
Persad, G. (2015). Priority setting, cost-effectiveness, and the Affordable Care Act. American
journal of law & medicine, 41(1), 119-166.