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Health Economics: Theory, Econometrics, and Data

Paper Session

Saturday, Jan. 5, 2019 2:30 PM - 4:30 PM

Atlanta Marriott Marquis, L507
Hosted By: Econometric Society
  • Chair: Neale Mahoney, University of Chicago

Long-Term Care Hospitals: A Case Study in Waste

Liran Einav
,
Stanford University
Amy Finkelstein
,
Massachusetts Institute of Technology
Neale Mahoney
,
University of Chicago

Abstract

There is widespread agreement that there is substantial waste in the U.S. health care system, but much less consensus on how that waste could be reduced. We study long-term care hospitals (LTCHs), a type of post-acute care facility that began as a regulatory carve-out for a few dozen specialty hospitals but has expanded into an industry with over 400 hospitals and $5.5 billion in annual Medicare spending. We estimate the impact of LTCHs on Medicare spending and patient outcomes using an event-study design based on the entry of LTCHs in local hospital markets. We find that most LTCH patients would have counterfactually received care at Skilled Nursing Facilities, which are post-acute facilities that provide medically similar care but receive substantially lower Medicare payments. Discharge to an LTCH appears to make patients unaffected or worse off on all measurable dimensions: they owe more out of pocket, are less likely to be home in 90 days, and – despite high baseline mortality rates – we can reject any decline in mortality. Our results imply that about 70 percent of Medicare’s LTCH spending – or roughly $3.9 billion per year – is incremental and could be avoided with no harm to patients by not sending Medicare patients to LTCHs.

How Acquisitions Affect Firm Behavior and Performance: Evidence from the Dialysis Industry

Paul Eliason
,
Brigham Young University
Benjamin Heebsh
,
Duke University
Ryan McDevitt
,
Duke University
James Roberts
,
Duke University

Abstract

Many markets have become increasingly concentrated through mergers and acquisitions, which in health care may have important consequences for spending and outcomes. Using a rich panel of Medicare claims data for nearly one million dialysis patients, we advance the literature on the effects of mergers and acquisitions by studying the precise ways in which providers change their behavior following an acquisition. We base our empirical analysis on more than 1,200 acquisitions of independent dialysis facilities by large chains over a twelve-year period, and find that chains transfer several prominent strategies to the facilities they acquire. Most notably, acquired facilities converge to the behavior of their new parent companies by increasing patients' doses of highly reimbursed drugs, replacing high-skill nurses with less-skilled technicians, and waitlisting fewer patients for kidney transplants. We then show that patients fare worse as a result of these changes: outcomes such as hospitalizations and mortality deteriorate, with our long panel allowing us to identify these effects from within-facility or within-patient variation around the acquisitions. Because overall Medicare spending increases at acquired facilities, mostly as a result of higher drug reimbursements, this decline in quality corresponds to an unambiguous decline in value for payers. We conclude our paper by linking these effects to measures of local market concentration, finding that an increase in market power cannot explain the decline in quality. Rather, the adoption of the acquiring firm's strategies and practices drives our main results.

An Empirical Framework for Sequential Assignment: The Allocation of Deceased Donor Kidneys

Nikhil Agarwal
,
Massachusetts Institute of Technology
Itai Ashlagi
,
Massachusetts Institute of Technology
Michael Rees
,
University of Toledo
Paulo Somaini
,
Stanford University

Abstract

An Empirical Framework for Sequential Assignment: The Allocation of Deceased Donor Kidneys

Nonparametric Estimates of the Demand for Health Insurance Among Low-Income Adults

Pietro Tebaldi
,
University of Chicago
Alexander Torgovitsky
,
University of Chicago
Hanbin Yang
,
University of Chicago

Abstract

We develop a nonparametric discrete choice model and use it to estimate the demand for health insurance tiers in the California Affordable Care Act marketplace. The main restriction of the model is that utility is quasilinear with respect to prices. In contrast to most of the related literature, we do not assume that the unobserved components of utility are distributed according to a parametric family. Instead, we consider a set of instrumental variable and bounded variation assumptions, then we provide a method for computing sharp bounds on counterfactual choice probabilities and changes in consumer surplus. Using the new method, we estimate that a $10 increase in monthly premiums would cause between a 5% and 13% decline in the proportion of low-income adults with coverage. The reduction in total annual consumer surplus from such a price increase would be between $47 and $56 million. Our estimates of price sensitivity are substantially greater than in comparable logit models.
JEL Classifications
  • I1 - Health
  • L1 - Market Structure, Firm Strategy, and Market Performance