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Category Archives: I18

Assessing the Impacts of an Aging Population on Rising Healthcare and Pharmaceutical Expenditures within the United States

By Rahul Sharma 

This paper studies the impact of aging on rising healthcare and pharmaceutical expenditures in the United States with the goal of contextualizing the future burden of public health insurance on the government. Precedent literature has focused on international panels of multiple countries and hasn’t identified significant correlation between age and healthcare expenditures. This paper presents a novel approach of identifying this correlation by using a US sample population to determine if age impacts an individual’s consumption of healthcare services and goods. Results suggest that age has a significant impact on healthcare and pharmaceutical expenditures across private and public insurance.

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Advisors: Gilliam D. Saunders-Schmidler and Grace Kim | JEL Codes: H51, H53, I12, I13, I18, I38

The Effect of Competition on Strategic Discharge at Long-Term Acute-Care Hospitals

By Michael Karamardian

Because Medicare’s prospective payment system for long-term acute-care hospitals (LTCHs) makes a large lump-sum form of payment once patients reach a minimum length-ofstay threshold, LTCHs have a unique opportunity to maximize profits by strategically discharging patients as soon as the payment is received. This analysis explores how the level of competition between LTCHs in geographic markets affects the probability of a patient being strategically discharged. The results show that patients at LTCHs in more competitive markets have a lower probability of being strategically discharged than at those in less competitive markets, suggesting increased competition could help save Medicare funding.

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Advisors: Kent Kimbrough and James Roberts | JEL Codes: D22, I11, I18

Medicare’s Prospective Payment System: Do Differences in the Reimbursement Rate Affect Quantity of Care Delivered and Hospital Billing Practices?

By Russell Hollis

When the government changes Medicare policy, payment structures often accommodate the change through lowering reimbursement rates. Changes in reimbursements raise the question of what effect changes have on patient care. Using data sets from the Center for Medicare and Medicaid Services, I examine the diagnosis of major replacement or reattachment of the lower extremity and how the length of stay for patients responds to changing reimbursement rates. I extend my investigation of price incentives to monitor fraudulent coding by hospitals. In a sample of over 470,000 patients in 2,696 hospitals for fiscal year 2012, I find that a 1% increase in reimbursement leads to a .007% increase in length of stay for DRG 470 (without complications) patients and a .057% percent increase for DRG 469 (with complications) patients. I then find that a 10% decrease in reimbursement for DRG 470 or one percent increase for DRG 469 leads to a .0011 increase in fraction of DRG 469 patients in a particular hospital. Lastly, I comment on these results, which point to the evidence of price incentives in quantity of care an the possibility of “upcoding”1.

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Advisor: Allan Collard-Wexler | JEL Codes: H50, H51, I11, I13, I18 | Tagged: Diagnosis Related Group, Length of Stay, Medicare, Reimbursement, “Upcoding”

Understanding Financial Incentive Health Initiatives: The Impact of the Janani Suraksha Yojana Conditional Cash Transfer Program on Institutional Delivery Rates and Out-of- Pocket Health Expenditure

By Ritika Jain

Demand-side financing is a policy tool used by nations to incentivize utilization of public institutions, and India’s Janani Suraksha Yojana (JSY) is one of the largest such financial incentive programs in the world. The program pays eligible pregnant women to deliver their babies in health institutions partnered with the program. This paper studies the impact of the JSY on changes in mothers’ health-seeking behavior to deliver in-facility and on the out-of-pocket expenditure (OOPE) for delivery that they incur. Using data from the most recent wave of India’s District-Level Household Survey conducted in 2007-08, this paper finds that the overall introduction of the program in districts in India does not lead to significant changes in institutional delivery or out-ofpocket expenditure outcomes. Further analysis of subpopulations shows that marginalized populations are responsive to JSY introduction in their district with increased probability of delivering in-facility of 1.10 – 3.40 percentage points. Lastly, results show that receiving JSY payments leads to a 1.34 percentage point increase in the probability of incurring OOPE, but a 4.81 percent decrease in the amount of OOPE incurred. The JSY is helping to reduce overall out-of-pocket spending on deliveries. However, the majority of program benefits are not reaching poor pregnant women as the JSY aims, communicating the need for improvement in population targeting.

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Advisor: Alison Hagy, Kent Kimbrough, Manoj Mohanan | JEL Codes: C22, I12, I18 | Tagged: Conditional Cash Transfer, Demand-side Financing, Difference-in-difference-in-differences, Difference-in-differences, Healthcare Reform, Maternal Health

Has Tort Reform Been Effective in Abating the Medical Malpractice Crisis? An Empirical Analysis from 1991-2012

By Raj Singh

This paper evaluates the impact of malpractice reforms on average malpractice payment awards, frequency of malpractice claims, and malpractice premiums for internists, surgeons, and OB/GYNS. We also empirically test the physician-induced demand (PID) hypothesis in the context of the medical malpractice environment. Our results suggest that caps on noneconomic damages and total damages as well as patient compensation funds are successful in reducing average payments, while damage caps and collateral source rule reform were found to lower malpractice claim incidence. When grouping claims by severity level, we find that noneconomic damage caps and patient compensation funds are more effective at reducing average payment with increasing severity level, while total damage caps induce the greatest reductions in payments for cases of medium severity. Also, non-economic damage caps were found to only significantly decrease the incidence of medium severity claims. With regards to malpractice premiums, we found that implementation of total damage caps as well as modification of joint-and-several liability were associated with lower premiums for all specialists. Finally, we evaluate the notion of ‘defensive medicine’ by studying whether higher malpractice premiums result in greater Medicare payments. Based on our model, increases of $10,000 in OB/GYN premiums are estimated to result in a 0.81% rise in total spending. Of the reforms studied, modification of joint-and-several liability had the most significant and consistent effects in reducing Medicare reimbursements for all categories of spending analyzed, and total damage caps were also estimated to effectively slow the growth of spending in specifications without premiums.

Honors Thesis

Data Set 1

Data Set 2

Advisor: Tracy Falba | JEL Codes: I1, I18, I19 | Tagged: Defensive Medicine, Medical Malpractice, Tort Reform

Marijuana Pricing Structure and State-Level Price Determinants

By Rebecca Li

This study uses the PriceofWeed.com data set first examined in Thies (2012) to analyze the price-quantity relationship for marijuana transactions and to determine the effect of various state-level factors on marijuana prices. By applying the cost-based full fixed cost recovery pricing model developed by Britney, Kuzdrall, and Fartuch (1983), this paper finds support for an inverse price-quantity relationship for marijuana rather than a logarithmic or linear relationship. User-rated quality is robust and significant across all models, and price-quantity discount elasticity of -0.220 is observed empirically. An analysis of state-level legal, demand-side, and supply-side determinants of marijuana price demonstrates that medical marijuana has a negative relationship with price, perhaps due to the reduction in risk faced by suppliers when medical marijuana is legalized.

Honor’s Thesis

Data Set

Advisor: Michael Munger, Phil Cook | JEL Codes: D04, I18, K42 | Tagged: Marijuana, Price, Quality, Transaction Size

Trauma Center Eficacy: Certification Status and its Effect on Traffic Fatalities at Varying Radii

By Robert Van Dusen

The goal of the paper is to better inform policy makers on the optimal placement of trauma center facilities. Below, I examine the effect of Californian trauma centers vs. standard emergency departments on traffic fatalities for 2002 to 2008. Hospital addresses are geocoded and compared to the geographic coordinates of fatal car accidents provided through USDOT in order to create a dependent fatality density variable for every hospital at different radii. Demographic controls for different radii are constructed using ArcGIS
to serve as a model for traffic fatalities.

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Advisor: Frank Sloan, Kent Kimbrough | JEL Codes: I1, I10, I18 | Tagged: Healthcare,
Trauma, Trauma Center

Incentives and Characteristics that Explain Generic Prescribing Practices

By Rahul Nayak

This study uses the National Ambulatory Medical Care Survey (2006-2010) and Health Tracking Physician Survey (2008) to study the incentives and characteristics that explain physician generic prescribing habits. The findings can be characterized into four main categories: (1) financial/economic, (2) informational, (3) patient- dependent and (4) drug idiosyncratic effects. Physicians in practices owned by HMOs or practices that had at least one managed care contract are significantly more likely to prescribe generic medicines. Furthermore, physicians who have drug industry influence are less likely to prescribe generic medicines. This study also finds consistent evidence that generic prescribing is reduced for patients with pri- vate insurance compared to self-pay patients. Drug-specific characteristics play an important role for whether a drug is prescribed as a generic or brand-name – in- cluding not only market characteristics, such as monopoly duration length, public familiarity with the generic and the quality of the generic, but also non-clinical drug characteristics, such as the length of the generic name compared the length of the brand-name. In particular, the public’s familiarity with the generic has a large effect on the generic prescribing rate for a given drug. There are few differences between the generic prescribing habits of primary care physicians and specialists after controlling for the drugs prescribed.

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Advisor: Frank Sloan | JEL Codes: D82, D83, I11, I13, I18 | Tagged: Drug Market Charac- teristics, Efficient Prescribing, Electronic Prescribing, Generic Prescribing, HTPS, Industry Influence, NAMCS, Patient Preferences, Physician Incentives, Principle- Agent Problem

Price Discrimination and Bargaining Power in the Global Vaccine Market

By Linda Li

Since the 1980’s, the market structure of vaccines has become increasingly oligopolistic, and in some cases monopolistic. Alongside these supply trends, we see the emergence and growth of group procurement schemes on the demand side of the market. National government and international organization procure vaccines on behalf of end users. Two such organizations include the UNICEF Supply Division and the PAHO EPI Revolving Fund, for which participation is based on income or geography. Consistent with one of the main goals of group procurement, these groups obtain price discounts on vaccines relative to the private sector. This paper seeks to disentangle two possible explanations for this observed price dispersion using vaccine price data over the years 2002-2012 from UNICEF, PAHO, and the U.S. The two explanations are that of price discrimination and bargaining power. Using proxy variables in a fixed effects model, I find that price discrimination does have a significant impact on price discount. I also find support for a bargaining power effect, however with less certainty, and the existence of supply constraints. These findings have important policy implications for national governments, as well as procurement groups.

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Advisor: David Ridley | JEL Codes: I11, I18, L22 | Tagged: Bargaining Power, Group Procurement, Price Discrimination, Vaaccines

Debunking the Cost-Shifting Myth: An Analysis of Dnamic Price Discrimination in California Hospitals

By Omar Nazzal

Cost-shifting, a dynamic form of price discrimination, is a phenomenon in which hospitals shift the burden of decreases in government-sponsored healthcare reimbursement rates to private health insurers. In this paper, I construct a data set spanning 2007 – 2011 that matches financial metrics of California hospitals to hospital- and market-specific characteristics with theoretical implications in price discrimination. The subsequent analysis is split into three stages. In the first and second stages, I use a fixed-effects OLS model to derive a point estimate of the inverse correlation between private revenue and government revenue that is consistent with recent empirical work in cost-shifting, a body of literature almost entirely reliant upon fixed-effects and difference-in-difference OLS. These types of models are encumbered by the inherent causality loop connecting public and private payment sources. I address this endogeneity problem in the third stage by specifying a fixed-effects 2SLS model based on an instrument for government revenue constructed with data from the California Department of Health Care Services and the U.S. Census. This instrument performed well in canonical tests for relevance and validity. I find that an increase in government payments causes an increase in private payments, and that the relationship is statistically-significant at all reasonable levels. In addition, I comment on properties of the data set that suggest that the original inverse correlation was due to inadequate measurements of market power. I conclude with policy implications and suggestions for future research.

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Advisor: Frank Sloan | JEL Codes: I11, I13, I18, L11, L80 | Tagged: Health Insurance, Market Structure, Medicaid, Medicare, Price Discrimination

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Undergraduate Program Assistant
Jennifer Becker
dus_asst@econ.duke.edu

Director of the Honors Program
Michelle P. Connolly
michelle.connolly@duke.edu