Working Paper: NBER ID: w12438
Authors: Leemore Dafny; David Dranove
Abstract: This paper investigates whether managers who fail to exploit regulatory loopholes are vulnerable to replacement. We use the U.S. hospital industry in 1985-1996 as a case study. A 1988 change in Medicare rules widened a pre-existing loophole in the Medicare payment system, presenting hospitals with an opportunity to increase operating margins by five or more percentage points simply by "upcoding" patients to more lucrative codes. We find that "room to upcode" is a statistically and economically significant predictor of whether a hospital replaces its management with a new team of for-profit managers. We also find that hospitals replacing their management subsequently upcode more than a sample of similar hospitals that did not, as identified by propensity scores.
Keywords: No keywords provided
JEL Codes: G3; H51; I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| room to upcode (RTU) (R19) | upcoding behavior of newly affiliated for-profit hospitals (I11) |
| room to upcode (RTU) (R19) | likelihood of switching to for-profit management (L33) |
| room to upcode (RTU) (R19) | likelihood of joining a nonprofit system (L39) |
| room to upcode (RTU) (R19) | likelihood of switching to management by for-profit systems (L33) |
| transition to for-profit management (L33) | increased upcoding practices (I18) |