Working Paper: NBER ID: w22598
Authors: Paul J. Eliason; Paul L. E. Grieco; Ryan C. McDevitt; James W. Roberts
Abstract: Medicare's prospective payment system for long-term acute-care hospitals (LTCHs) pro- vides modest reimbursements at the beginning of a patient's stay before jumping discontinuously to a large lump-sum payment after a pre-specified number of days. We show that LTCHs respond to financial incentives by disproportionately discharging patients after they cross the large-payment threshold, resulting in worse outcomes for patients. We find this occurs more often at for-profit facilities, facilities acquired by leading LTCH chains, and facilities co-located with other hospitals. Using a dynamic structural model, we evaluate counterfactual payment policies that would provide substantial savings for Medicare without adversely affecting patients.
Keywords: Medicare; long-term acute care hospitals; prospective payment system; strategic discharge; patient outcomes
JEL Codes: D22; I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| longer stays in LTCHs (C41) | increase in the risk of adverse health outcomes (I14) |
| for-profit LTCHs and those within acute care hospitals (L39) | stronger strategic discharge behaviors compared to nonprofit facilities (L39) |
| vulnerable populations (elderly and African American patients) (J14) | more susceptible to strategic discharges (J63) |
| financial incentives tied to the PPS (J33) | LTCHs would discharge patients approximately one week earlier (C41) |
| LTCHs disproportionately discharge patients immediately after they cross the SSO threshold (C24) | increase in discharge rates (J63) |