Working Paper: NBER ID: w24946
Authors: Liran Einav; Amy Finkelstein; Neale Mahoney
Abstract: There is substantial waste in U.S. healthcare, but little consensus on how to identify or combat it. We identify one specific source of waste: long-term care hospitals (LTCHs). These post-acute care facilities began as a regulatory carve-out for a few dozen specialty hospitals, but have expanded into an industry with over 400 hospitals and $5.4 billion in annual Medicare spending in 2014. We use the entry of LTCHs into local hospital markets and an event study design to estimate LTCHs’ impact. We find that most LTCH patients would have counterfactually received care at Skilled Nursing Facilities – post-acute care facilities that provide medically similar care to LTCHs but are paid significantly less – and that substitution to LTCHs leaves patients unaffected or worse off on all dimensions we can objectively measure. Our results imply that Medicare could save about $4.6 billion per year – with no harm to patients – by not allowing for discharge to LTCHs.
Keywords: Long-term care hospitals; Medicare; Healthcare spending; Waste in healthcare
JEL Codes: H51; I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| entry of LTCHs into local hospital markets (R53) | probability of patients being discharged to LTCHs (C41) |
| entry of LTCHs into local hospital markets (R53) | increased LTCH discharges at the expense of SNF discharges (I19) |
| discharges to LTCHs (I18) | total Medicare spending (H51) |
| discharges to LTCHs (I18) | 90-day mortality rates (C41) |
| operational existence of LTCHs (L99) | wasteful spending in the Medicare system (H51) |
| LTCH stays (C41) | increased spending associated with LTCH discharges (H76) |