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Medicare prospective payment and the volume and intensity of skilled nursing facility services

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  • Grabowski, David C.
  • Afendulis, Christopher C.
  • McGuire, Thomas G.

Abstract

In 1998, Medicare adopted a per diem Prospective Payment System (PPS) for skilled nursing facility care, which was intended to deter the use of high-cost rehabilitative services. The average per diem decreased under the PPS, but because per diems increased for greater therapy minutes, the ability of the PPS to deter the use of high-intensity services was questionable. In this study, we assess how the PPS affected the volume and intensity of Medicare services. By volume we mean the product of the number of Medicare residents in a facility and the average length-of-stay, by intensity we mean the time per week devoted to rehabilitation therapy. Our results indicate that the number of Medicare residents decreased under PPS, but rehabilitative services and therapy minutes increased while length-of-stay remained relatively constant. Not surprisingly, when subsequent Medicare policy changes increased payment rates, Medicare volume far surpassed the levels seen in the pre-PPS period.

Suggested Citation

  • Grabowski, David C. & Afendulis, Christopher C. & McGuire, Thomas G., 2011. "Medicare prospective payment and the volume and intensity of skilled nursing facility services," Journal of Health Economics, Elsevier, vol. 30(4), pages 675-684, July.
  • Handle: RePEc:eee:jhecon:v:30:y:2011:i:4:p:675-684
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    References listed on IDEAS

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    1. Mark McClellan, 1997. "Hospital Reimbursement Incentives: An Empirical Analysis," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 91-128, March.
    2. 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.
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    4. R. Konetzka & Edward Norton & Sally Stearns, 2006. "Medicare payment changes and nursing home quality: effects on long-stay residents," International Journal of Health Economics and Management, Springer, vol. 6(3), pages 173-189, September.
    5. 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.
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    7. Glied, Sherry & Zivin, Joshua Graff, 2002. "How do doctors behave when some (but not all) of their patients are in managed care?," Journal of Health Economics, Elsevier, vol. 21(2), pages 337-353, March.
    8. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
    9. David Meltzer & Jeanette Chung & Anirban Basu, 2002. "Does Competition under Medicare Prospective Payment Selectively Reduce Expenditures on High-Cost Patients?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 447-468, Autumn.
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    Citations

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    Cited by:

    1. Galina Besstremyannaya, 2014. "The adverse effects of value-based purchasing in health care: dynamic quantile regression with endogeneity," Discussion Papers 14-006, Stanford Institute for Economic Policy Research.
    2. Bowblis John R. & Brunt Christopher S. & Grabowski David C., 2016. "Competitive Spillovers and Regulatory Exploitation by Skilled Nursing Facilities," Forum for Health Economics & Policy, De Gruyter, vol. 19(1), pages 45-70, June.
    3. Sood, Neeraj & Alpert, Abby & Barnes, Kayleigh & Huckfeldt, Peter & Escarce, José J., 2017. "Effects of payment reform in more versus less competitive markets," Journal of Health Economics, Elsevier, vol. 51(C), pages 66-83.
    4. Rahman, Momotazur & Norton, Edward C. & Grabowski, David C., 2016. "Do hospital-owned skilled nursing facilities provide better post-acute care quality?," Journal of Health Economics, Elsevier, vol. 50(C), pages 36-46.
    5. 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.
    6. Galina Besstremyannaya, 2013. "Heterogeneous hospital response to a per diem prospective payment system," Working Papers w0193, Center for Economic and Financial Research (CEFIR).
    7. repec:cfr:cefirw:w0181 is not listed on IDEAS
    8. Juan Esteban Carranza & Álvaro J. Riascos & Natalia Serna, 2015. "Poder de mercado, contratos y resultados de salud en el sistema de salud colombiano entre 2009 y 2011," Borradores de Economia 918, Banco de la Republica de Colombia.
    9. He, Daifeng & Mellor, Jennifer M., 2012. "Hospital volume responses to Medicare's Outpatient Prospective Payment System: Evidence from Florida," Journal of Health Economics, Elsevier, vol. 31(5), pages 730-743.

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