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

Abstract

This paper seeks to understand the impact of the Medicare Rural Hospital Flexibility (Flex) Program on hospital choice and consumer welfare for rural residents. The Flex Program created a new class of hospital, the Critical Access Hospital (CAH), which receives more generous Medicare reimbursements in return for limits on capacity and length of stay. We find that conversion to CAH status resulted in a 4.7 percent drop in inpatient admissions to participating hospitals, almost all of which was driven by factors other than capacity constraints. The Flex Program increased consumer welfare if it prevented the exit of at least 6.5 percent of randomly selected converting hospitals.

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  • Gowrisankaran, Gautam & Lucarelli, Claudio & Schmidt-Dengler, Philipp & Town, Robert, 2018. "Can amputation save the hospital? The impact of the Medicare Rural Flexibility Program on demand and welfare," Journal of Health Economics, Elsevier, vol. 58(C), pages 110-122.
    • Handle: RePEc:eee:jhecon:v:58:y:2018:i:c:p:110-122
    DOI: 10.1016/j.jhealeco.2018.01.004
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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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    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

    Keywords

    Hospital choice; Patient welfare; Medicare;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L38 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Policy
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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