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Tunneling and Hidden Profits in Health Care

Author

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  • Ashvin Gandhi
  • Andrew Olenski

Abstract

This study examines whether healthcare providers tunnel profits and assets to commonly-owned related parties by making inflated payments for their goods and services. Such practices allow providers to understate their profitability—which may encourage regulators to increase reimbursements and relax quality standards—and shield assets from malpractice liability. Using uniquely detailed nursing home financial data, we find evidence of widespread tunneling to related-party real estate and management companies. Our estimates suggest that 68% of nursing home profits are tunneled to related parties and that accounting for tunneled profits and assets raises the implied typical investment IRR from 4.83% to 13.11%.

Suggested Citation

  • Ashvin Gandhi & Andrew Olenski, 2024. "Tunneling and Hidden Profits in Health Care," NBER Working Papers 32258, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32258
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    Cited by:

    1. Beniwal, Sukriti & Shakya, Shishir, 2024. "Hospital ownership changes and charge-to-cost shifts," Economics Letters, Elsevier, vol. 241(C).

    More about this item

    JEL classification:

    • G3 - Financial Economics - - Corporate Finance and Governance
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L24 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Contracting Out; Joint Ventures

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