Analysis of hospital length of stay and discharge destination using hazard functions with unmeasured heterogeneity

The hospital length‐of‐stay and the discharge destination of a Medicare patient are the outcomes of one decision process involving the interests of the patient, the hospital, and the firms offering covered post‐hospital care. We use a competing risk hazard estimation procedure and adjust for unobserved heterogeneity with a non‐parametric technique to identify significant factors in the decision process. A patient's health and socio‐economic characteristics, the availability of informal care, local market area conditions, and Medicare policies influence length‐of‐stay and discharge destination. The substitution we find between hospital and post‐hospital care and among post‐hospital care alternatives has policy implications for Medicare. Copyright © 2003 John Wiley & Sons, Ltd.