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Strategic Patient Discharge: The Case of Long-Term Care Hospitals

Author

Listed:
  • Paul J. Eliason
  • Paul L. E. Grieco
  • Ryan C. McDevitt
  • James W. Roberts

Abstract

Medicare's prospective payment system for long-term acute-care hospitals (LTCHs) provides modest reimbursements at the beginning of a patient's stay before jumping discontinuously to a large lump-sum payment after a prespecified number of days. We show that LTCHs respond to the financial incentives of this system by disproportionately discharging patients after they cross the large-payment threshold. We find this occurs more often at for-profit facilities, facilities acquired by leading LTCH chains, and facilities colocated with other hospitals. Using a dynamic structural model, we evaluate counterfactual payment policies that would provide substantial savings for Medicare.

Suggested Citation

  • Paul J. Eliason & Paul L. E. Grieco & Ryan C. McDevitt & James W. Roberts, 2018. "Strategic Patient Discharge: The Case of Long-Term Care Hospitals," American Economic Review, American Economic Association, vol. 108(11), pages 3232-3265, November.
  • Handle: RePEc:aea:aecrev:v:108:y:2018:i:11:p:3232-65
    Note: DOI: 10.1257/aer.20170092
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    References listed on IDEAS

    as
    1. Francesco Decarolis, 2015. "Medicare Part D: Are Insurers Gaming the Low Income Subsidy Design?," American Economic Review, American Economic Association, vol. 105(4), pages 1547-1580, April.
    2. Paul L. E. Grieco & Ryan C. McDevitt, 2017. "Productivity and Quality in Health Care: Evidence from the Dialysis Industry," Review of Economic Studies, Oxford University Press, vol. 84(3), pages 1071-1105.
    3. Sujoy Chakravarty & Martin Gaynor & Steven Klepper & William B. Vogt, 2006. "Does the profit motive make Jack nimble? Ownership form and the evolution of the US hospital industry," Health Economics, John Wiley & Sons, Ltd., vol. 15(4), pages 345-361.
    4. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
    5. Dranove, David, 1988. "Pricing by non-profit institutions : The case of hospital cost-shifting," Journal of Health Economics, Elsevier, vol. 7(1), pages 47-57, March.
    6. Kate Ho & Ariel Pakes, 2014. "Hospital Choices, Hospital Prices, and Financial Incentives to Physicians," American Economic Review, American Economic Association, vol. 104(12), pages 3841-3884, December.
    7. Leemore S. Dafny, 2005. "How Do Hospitals Respond to Price Changes?," American Economic Review, American Economic Association, vol. 95(5), pages 1525-1547, December.
    8. Nathan E. Wilson, 2016. "For-profit status and industry evolution in health care markets: evidence from the dialysis industry," International Journal of Health Economics and Management, Springer, vol. 16(4), pages 297-319, December.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Sam Watson’s journal round-up for 12th November 2018
      by Sam Watson in The Academic Health Economists' Blog on 2018-11-12 15:46:49

    Citations

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    Cited by:

    1. Liran Einav & Amy Finkelstein, 2017. "Moral Hazard in Health Insurance: What We Know and How We Know It," NBER Working Papers 24055, National Bureau of Economic Research, Inc.
    2. Liran Einav & Amy Finkelstein, 2018. "Moral Hazard in Health Insurance: What We Know and How We Know It," Journal of the European Economic Association, European Economic Association, vol. 16(4), pages 957-982.
    3. Berta, P.; & De Fraja, G.; & Verzillos, S.;, 2018. "Optimal Healthcare Contracts:Theory and Empirical Evidence from Italy," Health, Econometrics and Data Group (HEDG) Working Papers 18/33, HEDG, c/o Department of Economics, University of York.
    4. Liran Einav & Amy Finkelstein & Neale Mahoney, 2018. "Provider Incentives and Healthcare Costs: Evidence From Long‐Term Care Hospitals," Econometrica, Econometric Society, vol. 86(6), pages 2161-2219, November.
    5. Liran Einav & Amy Finkelstein & Neale Mahoney, 2017. "Provider Incentives and Healthcare Costs: Evidence from Long-Term Care Hospitals," NBER Working Papers 23100, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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