A Statistical Analysis of the Medicare Hospital Routine Nursing Salary Cost Differential

From July 1971 (but effective retroactively to July 1, 1969) to October 1981, Medicare hospital reimbursement methods assumed that patients in the qualifying categories of the aged, pediatric, maternal, and kidney transplant cases consumed 8.5 percent more routine nursing resources than patients outside these categories. Consequently, the Medicare program paid this nursing differential to hospitals for all its hospitalized beneficiaries in these categories. The purpose of this study is to investigate whether hospitals with more qualifying Medicare patients do, in fact, have higher per diem routine nursing salary costs. This study tests this hypothesis while attempting to hold constant the influences of other factors such as local area wages, hospital size, occupancy rate, type of control, and geographic region. Using 1979 data from over 4,500 hospitals, and 1977, 1978, and 1979 data from a sample of 1200 hospitals, this study looks at the relationship between per diem hospital routine nursing salary costs and the proportion of qualifying Medicare routine patient days in two models. Model I incorporates the framework of the Section 223 routine cost limits and Model II incorporates a comprehensive set of variables representing the hospitals′ production and output characteristics. The evidence from this study provides little empirical basis to support the existence of a strong or sizeable relationship and, hence, does not support payment of the Medicare routine nursing salary cost differential.