Regulatory Exploitation and the Market for Corporate Controls
AbstractThis paper investigates whether managers who fail to exploit regulatory loopholes are vulnerable to replacement. We use the U.S. hospital industry in 1985-1996 as a case study. A 1988 change in Medicare rules widened a pre-existing loophole in the Medicare payment system, presenting hospitals with an opportunity to increase operating margins by five or more percentage points simply by “upcoding” patients to more lucrative codes. We find that “room to upcode” is a statistically and economically significant predictor of whether a hospital replaces its management with a new team of for-profit managers. We also find that hospitals replacing their management subsequently upcode more than a sample of similar hospitals that did not, as identified by propensity scores.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12438.
Date of creation: Aug 2006
Date of revision:
Publication status: published as Leemore Dafny & David Dranove, 2009. "Regulatory Exploitation and Management Changes: Upcoding in the Hospital Industry," Journal of Law & Economics, University of Chicago Press, vol. 52(2), pages 223-250, 05.
Note: CF HC
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Find related papers by JEL classification:
- G3 - Financial Economics - - Corporate Finance and Governance
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
- I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-26 (All new papers)
- NEP-FIN-2006-08-26 (Finance)
- NEP-PBE-2006-08-26 (Public Economics)
- NEP-REG-2006-08-26 (Regulation)
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