Working Paper: NBER ID: w29023
Authors: Tal Gross; Adam Sacarny; Maggie Shi; David Silver
Abstract: We study a 2008 policy reform in which Medicare revised its hospital payment system to better reflect patients' severity of illness. We construct a simulated instrument that predicts a hospital's policy-induced change in reimbursement using pre-reform patients and post-reform rules. The reform led to large persistent changes in Medicare payment rates across hospitals. Hospitals that faced larger gains in Medicare reimbursement increased the volume of Medicare patients they treated. The estimates imply a volume elasticity of 1.2. To accommodate greater volume, hospitals increased nurse employment, but also lowered length of stay, with ambiguous effects on quality.
Keywords: Medicare; hospital reimbursement; healthcare policy; supply response; value-based payment
JEL Codes: I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| 2008 Medicare reform (I18) | increase in volume of Medicare patients treated (I18) |
| increase in Medicare reimbursement rates (I18) | increase in volume of admissions (I19) |
| increase in Medicare reimbursement rates (I18) | increase in nurse employment (J23) |
| increase in Medicare reimbursement rates (I18) | decrease in average length of stay for patients (C41) |
| higher reimbursement rates (I18) | positive implications for quality of care (I14) |
| supply-side responses to Medicare payment changes (J33) | impact on other patient populations (e.g., Medicaid) (I18) |