Hospital Readmissions Reduction Program Does Not Provide the Right Incentives: Issues and Remedies by Kenan Arifoglu, Hang Ren, Tolga Tezcan :: SSRN

January 2, 2019

The Hospital Readmissions Reduction Program (HRRP) reduces Medicare payments to hospitals with higher-than-expected readmission rates where the expected readmission rate for each hospital is determined based on national average readmission levels. Although similar relative performance-based schemes are shown to lead to socially optimal outcomes in other settings, HRRP differs from these schemes in three respects: (i) deviation from the targets are adjusted using a multiplier; (ii) the total financial penalty for a hospital with higher-than-expected readmission rate is capped; and (iii) hospitals with lower-than-expected readmission rates do not receive bonus payments. We study three regulatory schemes derived from HRRP to determine the impact of each feature, and use a principle-agent model to show that: (i) HRRP over-penalizes hospitals with excess readmissions because of the multiplier and its effect can be substantial; (ii) having a penalty cap can curtail the effect of financial incentives and result in a no-equilibrium outcome when the cap is too low; and (iii) not allowing bonus payments leads to many alternative symmetric equilibria, including one where hospitals exert no effort to reduce readmissions. These results show that HRRP does not provide the right incentives for hospitals to reduce readmissions. Next we show that a bundled payment type reimbursement method, which reimburses hospitals once for each episode of care (including readmissions), leads to socially optimal cost and readmissions reduction efforts. Finally we show that, when delays to accessing care are inevitable, the reimbursement schemes need to provide additional incentives for hospitals to invest sufficiently in capacity.

via Hospital Readmissions Reduction Program Does Not Provide the Right Incentives: Issues and Remedies by Kenan Arifoglu, Hang Ren, Tolga Tezcan :: SSRN


An Integrative Approach to Evaluating Healthcare Provider Mergers in the Era of the ACA by Kent Bernard :: SSRN

January 21, 2017

Annual healthcare spending in the United States is estimated at about $3 trillion, and is projected to grow to over $4.5 trillion by 2020. The healthcare industry impacts every American, involves serious amounts of money, and has an expenditure growth rate that may well be unsustainable.

Yet, in reviewing how U.S. authorities apply antitrust law to the markets for healthcare provider services, it becomes apparent that the agencies do not readily incorporate the policy goals of healthcare reform legislation such as The Affordable Care Act into their analysis and are instead assuming that the industry today still must fit into the boxes of traditional analysis. But incentives and practices have changed the delivery of healthcare services. The antitrust enforcement agencies and courts need to account for these incentives and look at the realities of the delivery of medical services today. They need to integrate the antitrust analysis that has served us so well with the realities driving the delivery of healthcare going forward.

The thesis of the analysis here is that the antitrust review process should not stop once there is a determination that a provider merger is likely to substantially lessen competition in a narrow market for the specific provider services in question. That analysis needs to move on from the narrow relevant market used to make the initial prediction of whether there is likely to be an adverse effect from a merger to consider more broadly whether there is sufficient evidence presented that such a loss of competition in one relevant product market is counterbalanced, or outweighed, by projected cost savings in the broader market for healthcare provider services (e.g., a hypothesized increase in the cost of primary care physician services that is compared to a hypothesized decrease in hospital admissions and the costs thereof).

Source: An Integrative Approach to Evaluating Healthcare Provider Mergers in the Era of the ACA by Kent Bernard :: SSRN


The Cost, Quality and Spillover Effects of Specialization Strategies in Hospitals – An Analysis of the Patient’s Value Chain by Oliver Unger, Andrea Szczesny, Prof. Dr. Chris Ernst, Sabine W. Foster-Jackson :: SSRN

December 10, 2016

High-powered reimbursement systems such as capped budgets or prospective payment systems offer powerful incentives to hospitals to reduce their expenses, particularly in high cost areas such as operating rooms (ORs). Specialization is one prominent response strategy to such pressures. This study aims to explore how isolated specialization-based cost-reduction strategies in high cost areas affect the entire value chain. Our proxy for the follow-up costs of a patient’s case – and therefore of the value chain as a whole – is the probability of a patient experiencing a complication in the post anesthesia care unit (PACU). We focus on a specialization strategy that may result in individual (isolated) and/or organizational learning effects in the OR and/or lower costs from economies of scale. We found that this economic response strategy and short-term quality offered our hospital strategic complements, as specialization increased quality by reducing the probability of complications in the PACU, thus lowering follow-up costs. Notably, this finding held for both specialized and other types of surgery, which suggests the presence of spillover or organizational learning effects, thus confirming a decrease in overall costs by reducing overall follow-up costs. Thus, we find no evidence that specialization-based cost-reduction strategies threaten the overall development of value chain costs.

Source: The Cost, Quality and Spillover Effects of Specialization Strategies in Hospitals – An Analysis of the Patient’s Value Chain by Oliver Unger, Andrea Szczesny, Prof. Dr. Chris Ernst, Sabine W. Foster-Jackson :: SSRN


Geographical Distribution of Emergency Department Closures and Consequences on Heart Attack Patients by Yu-Chu Shen, Renee Hsia :: SSRN

December 10, 2016

We develop a conceptual framework and empirically investigate how a permanent emergency department (ED) closure affects patients with acute myocardial infarction (AMI). We first document that large increases in driving time to closest ED are more likely to happen in low-income communities and communities that had fewer medical resources at baseline. Then using a difference-in-differences design, we estimate the effect of an ED closure on access to cardiac care technology, treatment, and health outcomes among Medicare patients with AMI who lived in 24,567 ZIP codes that experienced no change, an increase of <10 minutes, 10 to <30 minutes, and ≥30 minutes in driving time to their closest ED. Overall, access to cardiac care declined in all communities experiencing a closure, with access to a coronary care unit decreasing by 18.64 percentage points (95% CI -30.15, -7.12) for those experiencing ≥30-minute increase in driving time. Even after controlling for access to technology and treatment, patients with the longest delays experienced a 6.58 (95% CI 2.49, 10.68) and 6.52 (95% CI 1.69, 11.35) percentage point increase in 90-day and 1-year mortality, respectively, compared with those not experiencing changes in distance. Our results also suggest that the predominant mechanism behind the mortality increase appeared to be time delay as opposed to availability of specialized cardiac treatment.

Source: Geographical Distribution of Emergency Department Closures and Consequences on Heart Attack Patients by Yu-Chu Shen, Renee Hsia :: SSRN


Healthcare Stocks Are Crashing As The End Of Obamacare Looms | Zero Hedge

November 9, 2016

With Republicans holding the House, the Senate, and the Presidency, healthcare stocks are collapsing this morning on the “worst possible outcome” of the election and the implicit looming end of Obamacare.

Source: Healthcare Stocks Are Crashing As The End Of Obamacare Looms | Zero Hedge


Health Reform and the Changing Safety Net in the United States — NEJM

November 7, 2016

The authors describe the implications of the Affordable Care Act for safety-net health systems and how hospital-based safety-net care systems are responding to health care reform.

Source: Health Reform and the Changing Safety Net in the United States — NEJM


Association Between 2014 Medicaid Expansion and US Hospital Finances | Health Care Reform | JAMA | The JAMA Network

October 15, 2016

In this observational study, Medicaid expansion was associated with significant declines in uncompensated care costs and increases in Medicaid revenue in 2014 among hospitals in 19 states that expanded Medicaid compared with hospitals in 25 states that did not expand Medicaid. Hospitals in states that expanded Medicaid also had better financial margins.

Source: Association Between 2014 Medicaid Expansion and US Hospital Finances | Health Care Reform | JAMA | The JAMA Network