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Effects of Payment Reform in More versus Less Competitive Markets

Listed author(s):
  • Neeraj Sood
  • Abby Alpert
  • Kayleigh Barnes
  • Peter Huckfeldt
  • Jose Escarce

Policymakers are increasingly interested in reducing healthcare costs and inefficiencies through innovative payment strategies. These strategies may have heterogeneous impacts across geographic areas, potentially reducing or exacerbating geographic variation in healthcare spending. In this paper, we exploit a major payment reform for home health care to examine whether reductions in reimbursement lead to differential changes in treatment intensity and provider costs depending on the level of competition in a market. Using Medicare claims, we find that while providers in more competitive markets had higher average costs in the pre-reform period, these markets experienced larger proportional reductions in treatment intensity and costs after the reform relative to less competitive markets. This led to a convergence in spending across geographic areas. We find that much of the reduction in provider costs is driven by greater exit of “high-cost” providers in more competitive markets.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 21654.

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Date of creation: Oct 2015
Publication status: published as Neeraj Sood & Abby Alpert & Kayleigh Barnes & Peter Huckfeldt & José J. Escarce, 2017. "Effects of payment reform in more versus less competitive markets," Journal of Health Economics, vol 51, pages 66-83.
Handle: RePEc:nbr:nberwo:21654
Note: HC HE
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  1. McKnight, Robin, 2006. "Home care reimbursement, long-term care utilization, and health outcomes," Journal of Public Economics, Elsevier, vol. 90(1-2), pages 293-323, January.
  2. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2011. "Hospital Competition and Quality with Regulated Prices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113, pages 444-469, June.
  3. Sloan, Frank A. & Picone, Gabriel A. & TaylorJr., Donald H. & Chou, Shin-Yi, 2001. "Hospital ownership and cost and quality of care: is there a dime's worth of difference?," Journal of Health Economics, Elsevier, vol. 20(1), pages 1-21, January.
  4. Martin Gaynor, "undated". "What Do We Know About Competition and Quality in Health Care Markets?," GSIA Working Papers 2006-E62, Carnegie Mellon University, Tepper School of Business.
  5. 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.
  6. Mark G. Duggan, 2000. "Hospital Ownership and Public Medical Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1343-1373.
  7. 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.
  8. 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.
  9. Newhouse, Joseph P. & Byrne, Daniel J., 1988. "Did Medicare's Prospective Payment System cause length of stay to fall?," Journal of Health Economics, Elsevier, vol. 7(4), pages 413-416, December.
  10. Pauly, Mark V, 1987. "Nonprofit Firms in Medical Markets," American Economic Review, American Economic Association, vol. 77(2), pages 257-262, May.
  11. Zwanziger, Jack & Melnick, Glenn A., 1988. "The effects of hospital competition and the Medicare PPS program on hospital cost behavior in California," Journal of Health Economics, Elsevier, vol. 7(4), pages 301-320, December.
  12. 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.
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