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Creative Financing and Public Moral Hazard: Evidence from Medicaid and the Nursing Home Industry

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  • Martin B. Hackmann
  • Juan S. Rojas
  • Nicolas R. Ziebarth

Abstract

This paper studies the misallocation of Medicaid funds, its consequences for reimbursement rates, the quantity, and the quality of care provided. Combining two decades of administrative, audit, and survey data on U.S. nursing homes, we show that states employ creative financing schemes to divert federal matching funds from their intended purposes. Our theoretical and empirical analysis demonstrates that, to increase federal matching funds, such schemes distort the quality-quantity tradeoff. In Indiana, exploiting plausibly exogenous variation in the rollout of a creative financing scheme, we find a disproportionate expansion of Medicaid-funded care for dementia patients in the lowest-quality nursing facilities.

Suggested Citation

  • Martin B. Hackmann & Juan S. Rojas & Nicolas R. Ziebarth, 2025. "Creative Financing and Public Moral Hazard: Evidence from Medicaid and the Nursing Home Industry," NBER Working Papers 34118, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:34118
    Note: AG EH PE POL
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    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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