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Are For-Profit Hospitals Really Different? Medicare Upcoding and Market Structure

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  • Elaine Silverman
  • Jonathan Skinner

Abstract

How do for-profit and not-for-profit hospitals differ? We consider one dimension: the shifting of a patient's diagnostic related group (DRG) to one that yields a greater reimbursement from the Medicare system, also known as upcoding. It has played a major role in recent federal lawsuits against hospitals and hospital chains, but more importantly provides a valuable window for understanding how for-profit and not-for-profit hospitals make tradeoffs between pecuniary benefits and reputational or penalty costs. Our empirical work focuses primarily on hospital admissions involving pneumonia and respiratory infections; while the two diagnostic categories are often difficult to distinguish from one another, the latter pays about $2000 more to the hospital. Between 1989 and 1996, the incidence of the most expensive DRG (relative to all DRGs for pneumonia and respiratory infections) rose by 10 percentage points among stable not-for-profit hospitals, 23 percent among stable for-profit hospitals, and 37 percentage points among hospitals that had converted to for-profit status. (Since 1996, the upcoding index has dropped significantly in response to adverse publicity and lawsuits.) There is some evidence that not-for-profit hospitals operating in heavily for-profit markets were almost as likely to upcode as their for-profit brethren, as well as for important regional effects.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8133.

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Date of creation: Feb 2001
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Handle: RePEc:nbr:nberwo:8133

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  1. Glaeser, Edward L. & Shleifer, Andrei, 2001. "Not-for-profit entrepreneurs," Journal of Public Economics, Elsevier, vol. 81(1), pages 99-115, July.
  2. Frank A. Sloan & Gabriel A. Picone & Donald H. Taylor, Jr. & Shin-Yi Chou, 1998. "Hospital Ownership and Cost and Quality of Care: Is There a Dime's Worth of Difference?," NBER Working Papers 6706, National Bureau of Economic Research, Inc.
  3. Steven Shavell & A. Mitchell Polinsky, 2000. "The Economic Theory of Public Enforcement of Law," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 45-76, March.
  4. Tirole, Jean, 1996. "A Theory of Collective Reputations (with Applications to the Persistence of Corruption and to Firm Quality)," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 63(1), pages 1-22, January.
  5. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September.
  6. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 76, pages 169.
  7. S. Baranzoni & P. Bianchi & L. Lambertini, 2000. "Market Structure," Working Papers 368, Dipartimento Scienze Economiche, Universita' di Bologna.
  8. David M. Cutler & Jill R. Horwitz, 1998. "Converting Hospitals from Not-for-profit to For-profit Status," NBER Working Papers 6672, National Bureau of Economic Research, Inc.
  9. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier.
  10. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
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Cited by:
  1. Gobillon, Laurent & Milcent, Carine, 2010. "Spatial Disparities in Hospital Performances," CEPR Discussion Papers 7826, C.E.P.R. Discussion Papers.
  2. Mark Duggan, 2000. "Hospital Market Structure and the Behavior of Not-for-Profit Hospitals: Evidence from Responses to California's Disproportionate Share Program," NBER Working Papers 7966, National Bureau of Economic Research, Inc.
  3. Jill R. Horwitz, 2005. "Does Corporate Ownership Matter? Service Provision in the Hospital Industry," NBER Working Papers 11376, National Bureau of Economic Research, Inc.
  4. Karen Eggleston & Richard Zeckhauser, 2002. "Government Contracting for Health Care," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 0202, Department of Economics, Tufts University.
  5. Becker, David & Kessler, Daniel & McClellan, Mark, 2005. "Detecting Medicare abuse," Journal of Health Economics, Elsevier, vol. 24(1), pages 189-210, January.
  6. Joseph J. Doyle Jr., 2005. "Health Insurance, Treatment and Outcomes: Using Auto Accidents as Health Shocks," NBER Working Papers 11099, National Bureau of Economic Research, Inc.
  7. repec:hal:journl:halshs-00879787 is not listed on IDEAS
  8. repec:hal:wpaper:halshs-00586837 is not listed on IDEAS
  9. Sabina Gandhi, 2012. "Differences between non-profit and for-profit hospices: patient selection and quality," International Journal of Health Care Finance and Economics, Springer, vol. 12(2), pages 107-127, June.
  10. Charles Hegji, 2007. "A brief look at hospital profits by outpatient services offered," Economics Bulletin, AccessEcon, vol. 9(12), pages 1-10.
  11. Carine Milcent, 2005. "Hospital ownership, reimbursement systems and mortality rates," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1151-1168.
  12. Gillian Currie & Cam Donaldson & Mingshan Lu, 2003. "What Does Canada Profit from the For-Profit Debate on Health Care?," Canadian Public Policy, University of Toronto Press, vol. 29(2), pages 227-251, June.
  13. David Becker & Daniel Kessler & Mark McClellan, 2004. "Detecting Medicare Abuse," NBER Working Papers 10677, National Bureau of Economic Research, Inc.

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