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The Effect of Prospective Payment on Admission and Treatment Policy: Evidence from Inpatient Rehabilitation Facilities

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  • Neeraj Sood
  • Peter J. Huckfeldt
  • David C. Grabowski
  • Joseph P. Newhouse
  • José J. Escarce

Abstract

We examine provider responses to the Medicare inpatient rehabilitation facility (IRF) prospective payment system (PPS), which simultaneously reduced marginal reimbursement and increased average reimbursement. IRFs could respond to the PPS by changing the total number of patients admitted, admitting different types of patients, or changing the intensity of care for admitted patients. We use Medicare claims data to separately estimate each type of provider response to the PPS. We also examine changes in patient outcomes and spillover effects on other post acute care providers. We find that costs of care initially fell following the PPS implementation, which we attribute to changes in treatment decisions rather than the types of patients admitted to IRFs. However, the probability of admission to IRFs increased after the PPS due to the expanded admission policies of providers. We find modest spillover effects on skilled nursing home costs and no substantive impact on patient health outcomes.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17125.

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Date of creation: Jun 2011
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Publication status: published as Sood, Neeraj & Huckfeldt, Peter J. & Grabowski, David C. & Newhouse, Joseph P. & Escarce, José J., 2013. "The effect of prospective payment on admission and treatment policy: Evidence from inpatient rehabilitation facilities," Journal of Health Economics, Elsevier, vol. 32(5), pages 965-979.
Handle: RePEc:nbr:nberwo:17125

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  1. Robin McKnight, 2004. "Home Care Reimbursement, Long-term Care Utilization, and Health Outcomes," NBER Working Papers 10414, National Bureau of Economic Research, Inc.
  2. Joseph P. Newhouse, 2004. "Pricing the Priceless: A Health Care Conundrum," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640589, December.
  3. Cutler, David M, 1995. "The Incidence of Adverse Medical Outcomes under Prospective Payment," Econometrica, Econometric Society, vol. 63(1), pages 29-50, January.
  4. Martin Gaynor, . "What Do We Know About Competition and Quality in Health Care Markets?," GSIA Working Papers 2006-E62, Carnegie Mellon University, Tepper School of Business.
  5. Janet Currie & Jonathan Gruber, 1995. "Health Insurance Eligibility, Utilization of Medical care, and Child Health," NBER Working Papers 5052, National Bureau of Economic Research, Inc.
  6. Currie, Janet & Gruber, Jonathan, 1996. "Saving Babies: The Efficacy and Cost of Recent Changes in the Medicaid Eligibility of Pregnant Women," Journal of Political Economy, University of Chicago Press, vol. 104(6), pages 1263-96, December.
  7. Newhouse, Joseph P. & Byrne, Daniel J., 1988. "Did Medicare's Prospective Payment System cause length of stay to fall?," Journal of Health Economics, Elsevier, vol. 7(4), pages 413-416, December.
  8. Ellis, Randall P. & McGuire, Thomas G., 1996. "Hospital response to prospective payment: Moral hazard, selection, and practice-style effects," Journal of Health Economics, Elsevier, vol. 15(3), pages 257-277, June.
  9. Hodgkin, Dominic & McGuire, Thomas G., 1994. "Payment levels and hospital response to prospective payment," Journal of Health Economics, Elsevier, vol. 13(1), pages 1-29, March.
  10. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller, 2007. "Bootstrap-Based Improvements for Inference with Clustered Errors," NBER Technical Working Papers 0344, National Bureau of Economic Research, Inc.
  11. Sood, Neeraj & Buntin, Melinda Beeuwkes & Escarce, José J., 2008. "Does how much and how you pay matter? Evidence from the inpatient rehabilitation care prospective payment system," Journal of Health Economics, Elsevier, vol. 27(4), pages 1046-1059, July.
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Cited by:
  1. Huckfeldt, Peter J. & Sood, Neeraj & Escarce, José J. & Grabowski, David C. & Newhouse, Joseph P., 2014. "Effects of Medicare payment reform: Evidence from the home health interim and prospective payment systems," Journal of Health Economics, Elsevier, vol. 34(C), pages 1-18.
  2. Nicolas Ziebarth, 2014. "Assessing the effectiveness of health care cost containment measures: evidence from the market for rehabilitation care," International Journal of Health Care Finance and Economics, Springer, vol. 14(1), pages 41-67, March.
  3. Newhouse, Joseph Paul & Huckfeldt, Peter J & Grabowski, David C. & Sood, Neeraj & Escarce, Jose J, 2012. "Effects of Medicare Payment Reform: Evidence from the Home Health Interim and Prospective Payment Systems," Scholarly Articles 8506865, Harvard Kennedy School of Government.

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