Paying to Care

Kevin Lewis

March 08, 2021

Does Competition Improve Service Quality? The Case of Nursing Homes Where Public and Private Payers Coexist
Susan Feng Lu et al.
Management Science, forthcoming


Competition plays an ambiguous role in nursing home markets where public and private payers coexist. Using U.S. nursing home data with a wide range of market structures, we find a U-shaped relationship between competition and service quality when nursing homes serve a mix of public and private segments, and a monotonically increasing relationship when nursing homes mostly serve the public, price-regulated, segment. The outcomes can be explained by the interplay of two opposing effects of competition: the reputation-building effect, whereby competing firms choose high quality to build a good reputation, and the rent-extraction effect, whereby competition hinders investment for quality improvements by lowering price premia. These observations are consistent with a repeated game model that incorporates public and private-payer segments.

Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes
Atul Gupta et al.
NBER Working Paper, February 2021


The past two decades have seen a rapid increase in Private Equity (PE) investment in healthcare, a sector in which intensive government subsidy and market frictions could lead high-powered for-profit incentives to be misaligned with the social goal of affordable, quality care. This paper studies the effects of PE ownership on patient welfare at nursing homes. With administrative patient-level data, we use a within-facility differences-in-differences design to address non-random targeting of facilities. We use an instrumental variables strategy to control for the selection of patients into nursing homes. Our estimates show that PE ownership increases the short-term mortality of Medicare patients by 10%, implying 20,150 lives lost due to PE ownership over our twelve-year sample period. This is accompanied by declines in other measures of patient well-being, such as lower mobility, while taxpayer spending per patient episode increases by 11%. We observe operational changes that help to explain these effects, including declines in nursing staff and compliance with standards. Finally, we document a systematic shift in operating costs post-acquisition toward non-patient care items such as monitoring fees, interest, and lease payments.

Magnitude and Effects of “Sludge” in Benefits Administration: How Health Insurance Hassles Burden Workers and Cost Employers
Jeffrey Pfeffer et al.
Academy of Management Discoveries, September 2020, Pages 325-340


Administrative burdens may have substantial direct and indirect costs for employers and employees, making them important research topics. Here, we examine the time employees spend dealing with their health benefits administrators. Using a nationally representative sample, we found that the direct cost of the time spent by employees dealing with health insurance administration was approximately $21.57 billion, with 53 percent of that time spent ($11.4 billion) at work. The time spent on administrative burdens can also have spillover effects on employee attitudes. Specifically, we found that, controlling for self-reported health and various demographics, people who spent more time on the phone with their health insurer were less satisfied with their current workplace, less engaged, more likely to report significant stress, more likely to have missed a day or more of work, and more likely to feel burned out at work. The estimated cost of additional absence was $26.4 billion, and the productivity cost of reduced satisfaction was approximately $95.6 billion. Benefits constitute about 30 percent of employee costs, but there has been little study of how the “sludge” associated with accessing those benefits absorbs employee time and affects attitudes. Therefore, understanding administrative efficiency in benefits administration is an important topic.

Identifying outlier patterns of inconsistent ambulance billing in Medicare
Prachi Sanghavi et al.
Health Services Research, forthcoming

Data Sources: US Medicare claims for a 20% simple random sample of 2010‐2014 fee‐for‐service beneficiaries.

Study Design: We identified instances in which ambulance suppliers billed Medicare for transporting a patient to a hospital, but no corresponding hospital visit appeared in billing claims. We estimated the distributions of outlier supplier and county rates of such “ghost rides” by fitting a nonparametric empirical Bayes model with flexible distributional assumptions to account for sampling variation.

Principal Findings: “Ghost ride” rates varied considerably across both ambulance suppliers and counties. We estimated 6.1% of suppliers and 5.0% of counties had rates that exceeded 3.6%, which was twice the national average of “ghost rides” (1.8% of all ambulance transports).

Physician behaviour, malpractice risk and defensive medicine: An investigation of cesarean deliveries
David Mushinski, Sammy Zahran & Aanston Frazier
Health Economics, Policy and Law, forthcoming


Analyzing whether physicians use cesarean sections (c-sections) as defensive medicine (DM) has proven difficult. Using natural experiments arising out of Oregon court decisions overturning a state legislative cap on non-economic damages in tort cases, we analyze the impact of patient conditions on estimates of DM. Consistent with theory, we find heterogeneous impacts of tort laws across patient conditions. When medical exigencies dictate a c-section, tort laws have no impact on physician decisions. When physicians have latitude in their decision making, we find evidence of DM. When we estimate a model combining all women and not accounting for patient conditions (such as models estimated in previous studies) we obtain a result which is the opposite of DM, which we call offensive medicine (OM). The OM result appears to arise out of a bias in the difference-in-differences estimator associated with changes in the marginal distributions of patient conditions in control and treatment groups. The changes in the marginal distributions appear to arise from the impact of tort law on the market for midwives (substitutes for physicians for low-risk women). Our analysis suggests that not accounting for theoretically expected heterogeneity in physician reactions to changes in tort laws may produce biased estimates of DM.

An empirical evaluation of the physician offsetting response
Christopher Brunt & Joshua Hendrickson
Applied Economics Letters, forthcoming

Using data on office visits for Medicare-treating physicians, this study examines the effects of several policy changes that reduced real reimbursement for some, but not all physicians, from 2012 to 2017. Using genetic propensity score weighted Difference-in-Differences (DID) models that include individual physician and county fixed-effects, this study finds strong evidence that those who experienced a reimbursement reduction increased their service provision, indicative of a supplier-induced demand response. Our estimates imply that 27–33% of a reimbursement reduction will be offset through changes in provider behavior.

Provider Teams Outperform Solo Providers In Managing Chronic Diseases And Could Improve The Value Of Care
Maximilian Pany et al.
Health Affairs, March 2021, Pages 435-444


Scope-of-practice regulations, including prescribing limits and supervision requirements, may influence the propensity of providers to form care teams. Therefore, policy makers need to understand the effect of both team-based care and provider type on clinical outcomes. We examined how care management and biomarker outcomes after the onset of three chronic diseases differed both by team-based versus solo care and by physician versus nonphysician (that is, nurse practitioner and physician assistant) care. Using 2013–18 deidentified electronic health record data from US primary care practices, we found that provider teams outperformed solo providers, irrespective of team composition. Among solo providers, physicians and nonphysicians exhibited little meaningful difference in performance. As policy makers contemplate scope-of-practice changes, they should consider the effects of not only provider type but also team-based care on outcomes. Interventions that may encourage provider team formation, including scope-of-practice reforms, may improve the value of care.

The Effect of Health Insurance Coverage on Homeownership and Housing Prices: Evidence from the Medicaid Expansion
Masanori Kuroki & Xiangbo Liu
Social Science Quarterly, forthcoming

Methods: To estimate the causal effects of health insurance coverage, we exploit the Medicaid expansion provisions of the Affordable Care Act as a source of exogenous variation in health insurance coverage and use it as an instrumental variable.

Results: Using county‐level data from 2010 to 2018, this study finds that an increase in health insurance coverage among low‐income people results in an increase in homeownership rates and housing prices for bottom‐tier houses, and the results are robust.

Effect of Medicaid Expansions on HIV Diagnoses and Pre-Exposure Prophylaxis Use
Bita Fayaz Farkhad, David Holtgrave & Dolores Albarracín
American Journal of Preventive Medicine, March 2021, Pages 335-342

Methods: A difference-in-differences design was used to estimate the effects of the Medicaid expansions using data on HIV diagnoses per 100,000 population, awareness of HIV status, and pre-exposure prophylaxis use. The analyses involved first calculating differences in new diagnoses and pre-exposure prophylaxis use before and after the expansions and then comparing these differences between treatment counties (i.e., all counties in states that expanded Medicaid) and control counties (i.e., all counties in states that did not expand Medicaid). Further analyses to investigate mechanisms addressed associations with HIV incidence, rates of sexually transmitted infections, and substance use. Analyses were conducted between August 2019 and July 2020.

Results: Medicaid expansions were associated with an increase in HIV diagnoses of 0.508 per 100,000 population, or 13.9% (p=0.037), particularly for infections contracted via injection drug use and among low-income, rural counties with a high share of pre–Affordable Care Act uninsured rates that were most likely to be affected by the expansions. In addition, Medicaid expansions were associated with improvements in the knowledge of HIV status and pre-exposure prophylaxis use. There was no impact of the expansions on incident HIV, substance use, or sexually transmitted infection rates with the exception of gonorrhea, which decreased after the expansions. Altogether, these results suggest that the changes in new HIV diagnoses, awareness of HIV status, and pre-exposure prophylaxis were not simply because of a higher incidence or an increase in infection risk.

How Much Do Outside Options Matter? The Effect of Subsidized Health Insurance on Social Security Disability Insurance Benefit Receipt
Bradley Heim et al.
Journal of Health Economics, March 2021


New government health insurance programs may affect participation in existing safety-net benefits that provide health insurance as a secondary aim. We examine whether the outside options for health insurance made available by the Affordable Care Act affected Social Security Disability Insurance (DI) application decisions. Using the universe of U.S. individual income tax records spanning 2007-2016, we first estimate the effect of Medicaid expansions using a state difference-in-differences identification strategy, but find small and statistically insignificant estimates. However, when we estimate the effect of being eligible for high vs. low Marketplace subsidies based on geography, we find some evidence consistent with subsidies increasing DI claiming among those with prior access to Employer Sponsored Insurance, and decreasing DI claiming otherwise. Overall, we find suggestive evidence that outside options for health insurance do matter, though magnitudes are small and results are statistically precise only for Marketplace coverage.

How does losing health insurance affect disability claims? Evidence from the Affordable Care Act's dependent care mandate
Michael Levere, Heinrich Hock & Nancy Early
Health Economics, forthcoming


We estimate the impacts of losing access to parental health insurance on Supplemental Security Income (SSI) participation, focusing on the age‐26 limit for dependent coverage. We analyze the age pattern of SSI claims to develop counterfactual predictions that assume no change in access to insurance. Relative to this prediction, we find a 3.4% spike in SSI applications in the months immediately surrounding the 26th birthday, along with a slightly smaller increase in awards. These claims are primarily motivated by losing coverage; there might be more direct ways to address unmet insurance needs without also increasing reliance on cash payments.

An Employer-Provider Direct Payment Program Is Associated With Lower Episode Costs
Christopher Whaley et al.
Health Affairs, March 2021, Pages 445-452


Bundled payment has shown promise in reducing medical spending while maintaining quality. However, its impact among commercially insured populations has not been well studied. We examined the impacts on episode cost and patient cost sharing of a program that applies bundled payments for orthopedic and surgical procedures in a commercially insured population. The program we studied negotiates preferred prices for selected providers that cover the procedure and all related care within a thirty-day period after the procedure and waives cost sharing for patients who receive care from these providers. After implementation, episode prices for three selected surgical procedures declined by $4,229, a 10.7 percent relative reduction. Employers captured approximately 85 percent of the savings, or $3,582 per episode (a 9.5 percent relative decrease), and patient cost-sharing payments decreased by $498 per episode (a 27.7 percent relative decrease).


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