Working Paper: NBER ID: w17316
Authors: Christopher Afendulis; Daniel Kessler
Abstract: Health care providers may vertically integrate not only to facilitate coordination of care, but also for strategic reasons that may not be in patients' best interests. Optimal Medicare reimbursement policy depends upon the extent to which each of these explanations is correct. To investigate, we compare the consequences of the 1997 adoption of prospective payment for skilled nursing facilities (SNF PPS) in geographic areas with high versus low levels of hospital/SNF integration. We find that SNF PPS decreased spending more in high integration areas, with no measurable consequences for patient health outcomes. Our findings suggest that subjecting integrated providers to higher-powered reimbursement incentives, i.e., less cost-sharing, may enhance medical productivity. More generally, we conclude that it may be efficient for purchasers of health services (and other services subject to agency problems) to consider the organizational form of their suppliers when choosing a reimbursement mechanism.
Keywords: Vertical Integration; Medicare; Reimbursement Policy; Health Care Spending; Health Outcomes
JEL Codes: I11; I18; L2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| implementation of SNF PPS (H51) | total spending for stroke patients (H51) |
| implementation of SNF PPS (H51) | spending on SNF services (H51) |
| implementation of SNF PPS (H51) | readmission rates (I23) |
| implementation of SNF PPS (H51) | mortality (I12) |