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The Impact of Medicare Nonpayment: A Quasi-Experimental Approach

By Audrey Kornkven   

In October 2008, a provision of the Deficit Reduction Act of 2005 known as Medicare “Nonpayment” went into effect, eliminating reimbursement for the marginal costs of  preventable hospital-acquired conditions in an effort to correct perverse incentives in hospitals and improve patient safety. This paper contributes to the existing debate surrounding Nonpayment’s efficacy by considering varying degrees of fiscal pressure among hospitals; potential impacts on healthcare utilization; and differences between Medicare and non-Medicare patient populations. It combines data on millions of hospital discharges in New York from 2006-2010 with hospital-, hospital referral region-, and county-level data to isolate the policy’s impact. Analysis exploits the quasi-experimental nature of Nonpayment via difference-in-differences with Mahalanobis matching and fuzzy regression discontinuity designs. In line with results from Lee et al. (2012), Schuller et al. (2013), and Vaz et al. (2015), this paper does not find evidence that Nonpayment reduced the likelihood that Medicare patients would develop a hospital-acquired condition, and concludes that the policy is not likely the success claimed by policymakers. Results also suggest that providers may select against unprofitable Medicare patients when possible, and are likely to vary in their responses to financial incentives. Specifically, private non-profit hospitals appear to have been most responsive to the policy. These findings have important implications for pay-for-performance initiatives in American healthcare.

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Advisors: Professor Charles Becker, Professor Frank Sloan, Professor Grace Kim| JEL Codes: I1, I13, 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”

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

Integrating Medicare and Medicaid Healthcare Delivery and Reimbursement Policies for Dual Eligible Beneficiaries: A Cost-Efficiency Analysis of Managed Care

By Kan Zhang

The extreme underpricing of Chinese Initial Public Offerings in the early days of the Chinese equity markets was reduced by several reforms instituted by the Chinese government from around 2000 to 2002. These reforms reduced 1-day returns on IPOs from 295% to 72%. The reforms reduced IPO underpricing by decreasing the inequality between IPO supply and demand. These reforms, while announced between 2000 and 2002, likely took until around 2004 to take full effect. In addition to inequality between supply and demand, other factors such as information asymmetry and government/quality signaling contributed to underpricing both before and after the reforms.

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Advisor: Frank Sloan | JEL Codes: D61, I0, I11, I12, I18 | Tagged: Dual Eligibles, Managed Care, Medicare


Undergraduate Program Assistant
Jennifer Becker

Director of the Honors Program
Michelle P. Connolly