Medicare supplementary medical insurance benefit for hospital outpatient services.

The Medicare supplementary medical insurance (SMI) program helps pay for covered hospital outpatient services for the diagnosis or treatment of an illness or injury. Major hospital outpatient services covered by SMI include services in an emergency room or outpatient clinic, including ambulatory surgical procedures, laboratory tests billed by the hospital, mental health care in a hospital outpatient program, X-rays and other radiology services billed by the hospital, medical supplies, drugs and biologicals that cannot be self-administered, and blood transfusions. Some hospital outpatient services not covered under SMI include routine physical examinations and tests directly related to such examinations (except some pap smears and mammograms), eye or ear examinations to prescribe or fit eyeglasses or hearing aids, immunizations (except pneumococcal pneumonia and hepatitis B vaccinations, or immunizations required because of an injury or immediate risk of infection), and most routine foot care. Since the mid-1980s, there have been large increases in Medicare beneficiaries' use of hospital outpatient services relative to other Medicare benefits and a · substantial shift in the site of care from the inpatient to the outpatient setting. One major reason for this shift was the implementation of the Medicare prospective payment system (PPS) in fiscal year (FY) 1984. PPS encouraged hospitals to re-examine traditional modes of delivering patient care by providing the incentive to use alternative sites when they were more appropriate and less costly than inpatient care. Hospitals began to expand and substitute outpatient services in an effort to attract more patients to services that were still paid by Medicare under a reasonable cost-based methodology. The increasing use of outpatient surgery is a prime example. Utilization review policies have also influenced the Medicare patient case mix in hospitals. For example, the pre-admission reviews performed by peer review organizations encourage hospitals to treat patients in the most cost-effective setting consistent with the patient's safety. Public and private insurers have also encouraged the use of outpatient care as a means of containing the growth of health expenditures. Many insurance companies pay 100 percent of the charge for procedures that are performed on an outpatient basis but only 80 percent of those requiring an inpatient stay. . Legislative changes affecting outpatient care