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Can Amputation Save the Hospital? The Impact of the Medicare Rural Flexibility Program on Demand and Welfare

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  • Schmidt-Dengler, Philipp
  • Gowrisankaran, Gautam
  • Lucarelli, Claudio
  • Town, Robert

Abstract

This paper seeks to understand the impact of the Medicare Rural Hospital Flexi- bility (Flex) Program on rural resident hospital choice and welfare. The Flex program created a new class of hospital, the Critical Access Hospital (CAH), which receives more generous reimbursement in return for limits on capacity and length of stay. We fi nd that conversion to CAH status reduced inpatient admissions by a mean of 5.4%, of which almost all was driven by factors other than capacity. The program increased consumer welfare if it reduced the closure rate by at least 4 percentage points.

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  • Schmidt-Dengler, Philipp & Gowrisankaran, Gautam & Lucarelli, Claudio & Town, Robert, 2013. "Can Amputation Save the Hospital? The Impact of the Medicare Rural Flexibility Program on Demand and Welfare," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79920, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79920
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    1. Daniel A. Ackerberg & Marc Rysman, 2005. "Unobserved Product Differentiation in Discrete-Choice Models: Estimating Price Elasticities and Welfare Effects," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 771-788, Winter.
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    5. Capps, Cory & Dranove, David & Lindrooth, Richard C., 2010. "Hospital closure and economic efficiency," Journal of Health Economics, Elsevier, vol. 29(1), pages 87-109, January.
    6. Paul E. McNamara, 1999. "Welfare Effects of Rural Hospitial Closures: A Nested Logit Analysis of the Demand for Rural Hospital Services," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(3), pages 686-691.
    7. Julia Adler-Milstein & Catherine M. DesRoches & Michael F. Furukawa & Chantal Worzala & Dustin Charles & Peter Kralvec & Samantha Stalley & Ashish K. Jha, "undated". "More Than Half of U.S. Hospitals Have at Least a Basic EHR, But Stage 2 Criteria Remain Challenging for Most," Mathematica Policy Research Reports ff23228b8d5547ccb749a1a58, Mathematica Policy Research.
    8. Gowrisankaran, Gautam & Lucarelli, Claudio & Schmidt-Dengler, Philipp & Town, Robert, 2011. "The impact of the Medicare Rural Hospital Flexibility Program on patient choice," International Journal of Industrial Organization, Elsevier, vol. 29(3), pages 342-344, May.
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    Cited by:

    1. Pennerstorfer, Astrid & Pennerstorfer, Dieter, 2019. "How small are small markets? Local market size for child care services," Regional Science and Urban Economics, Elsevier, vol. 77(C), pages 340-355.
    2. Astrid Pennerstorfer & Dieter Pennerstorfer, 2018. "How Small are Small Markets? Location Choice and Geographical Market Size for Child Care Services," Economics working papers 2018-14, Department of Economics, Johannes Kepler University Linz, Austria.
    3. Gautam Gowrisankaran & Keith A. Joiner & Jianjing Lin, 2016. "How do Hospitals Respond to Payment Incentives?," NBER Working Papers 22873, National Bureau of Economic Research, Inc.
    4. Han, Dan, 2023. "The impact of the 340B Drug Pricing Program on Critical Access Hospitals: Evidence from Medicare Part B," Journal of Health Economics, Elsevier, vol. 89(C).
    5. Alexander, Diane & Richards, Michael R., 2023. "Economic consequences of hospital closures," Journal of Public Economics, Elsevier, vol. 221(C).
    6. Michael Irlacher & Dieter Pennerstorfer & Anna‐Theresa Renner & Florian Unger, 2023. "Modeling Interregional Patient Mobility: Theory And Evidence From Spatially Explicit Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1493-1532, November.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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