California agency outlines approach to measuring hospital outpatient spending, favors HPD claims as primary source

OCA staff presented a provisional method for measuring hospital outpatient spending that pairs hospital financial reports with claims-level data from the Healthcare Payments Database (HPD). Deputy Director Vishal Pagani and staff said the goal is a per‑unit outpatient revenue metric comparable to the office’s inpatient measure and suitable for inclusion in statewide spending targets.

Why it matters: the office is building the outpatient component of the statewide spending target framework. Outpatient care accounts for roughly 40 percent of hospital spending and has been harder to measure because visits and procedures are more varied and the public data available to date are less granular than for inpatient care.

The office’s approach and next steps

OCA will use hospitals’ annual financial disclosure reports (hospital financial data) for total outpatient net patient revenue and visit counts, and use HPD claims and encounter records to estimate an “outpatient intensity adjustment” (OIA). The OIA converts heterogeneous outpatient visits into adjusted outpatient visits; dividing outpatient net patient revenue by adjusted visits produces an outpatient NPR (net patient revenue) per adjusted visit, a per‑unit price measure.

Deputy Director Vishal Pagani said, “The spending target tracks and evaluates the growth of healthcare spending. It is a measure of per‑capita growth. It is not a cap on prices.” He added the outpatient measure is intended to be parallel to the inpatient case‑mix adjusted discharge metric.

Staff reviewed two candidate approaches for calculating outpatient relative weights from HPD claims: APC weights (Medicare’s ambulatory payment classification) and 3M’s Enhanced Ambulatory Patient Groups (EAPGs). OCA staff summarized the tradeoffs: APCs are open‑source and transparent but are Medicare‑focused and can underweight hospitals with fewer Medicare patients (for example, maternity or pediatric centers). EAPGs are payer‑specific and include commercial weights but are proprietary and less transparent.

Deputy Director Begani, who led the measurement presentation, summarized the practical calculation: “We would apply grouping software to each hospital’s outpatient claims in the HPD, sum relative weights, produce a single outpatient weight per hospital, multiply reported outpatient visits by that outpatient intensity adjustment and divide outpatient NPR by adjusted outpatient visits to arrive at outpatient NPR per adjusted outpatient visit.” (Attribution: Deputy Director Begani.)

Data validation and representativeness

Staff described validation work comparing HPD to hospital financial filings, inpatient case‑mix indexes and other public sources. OCA reported HPD captures a large share of California activity: about 82 percent of the state population and roughly 90 percent of statewide emergency department visits, 85 percent of inpatient admissions and 76–89 percent of outpatient visits, while noting HPD omits self‑pay, many uninsured encounters, many self‑insured employer plans and some small commercial plans. OCA staff said HPD and hospital financial data show similar aggregate trends in revenue and utilization over a multi‑year period but that validation by payer and service line will continue.

Board and stakeholder concerns and path forward

Board members and public commenters pressed staff on gaps and on whether outpatient weights should align with other state programs. Board member Richard Pan urged alignment with the office’s forthcoming baseline reports and cautioned that even small data gaps can change conclusions. Elizabeth Mitchell recommended leveraging hospital transparency datasets showing negotiated commercial rates as an additional cross‑check. Hospital trade groups and some hospitals asked for more work to ensure attribution of claims to facilities and to test Medicare‑based weights against HPD‑derived weights.

OCA’s timeline and alternatives

Staff said their near‑term plan is to apply grouping software to HPD data, produce hospital‑level outpatient weights and reconvene the hospital spending measurement work group to review results beginning this summer. If HPD proves insufficient for some hospitals or service lines, staff outlined two alternatives: (a) collect new outpatient encounter data from commercial health plans (adds reporting burden and validation challenges) or (b) collect facility‑level outpatient weights directly from hospitals (broad new reporting requirement, resource intensive). OCA estimated a new data‑collection program would require roughly 18–24 months to plan, implement and validate.

Ending

OCA staff framed the outpatient measure as provisional and iterative: it is being developed to sit alongside the office’s inpatient case‑mix adjusted metrics and will be refined after HPD validation, additional stakeholder review and further conversations with sibling agencies.