TY  - JOUR
AU  - Dafny,Leemore
AU  - Dranove,David
TI  - Regulatory Exploitation and the Market for Corporate Controls
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 12438
PY  - 2006
Y2  - August 2006
UR  - http://www.nber.org/papers/w12438
L1  - http://www.nber.org/papers/w12438.pdf
N1  - Author contact info:
Leemore Dafny
Department of Management and Strategy
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL  60208-2001
Tel: 847/467-7511
Fax: 847/467-1777
E-Mail: l-dafny@kellogg.northwestern.edu

David Dranove
Management & Strategy Department
Kellogg School of Management
Northwestern University
2001 Sheridan Road
Evanston, IL 60208-2001
E-Mail: d-dranove@kellogg.northwestern.edu
M3  - presented at "Health Care Program Meeting", May 5, 2006
AB  - This paper investigates whether managers who fail to exploit regulatory loopholes are vulnerable to replacement.  We use the U.S. hospital industry in 1985-1996 as a case study. A 1988 change in Medicare rules widened a pre-existing loophole in the Medicare payment system, presenting hospitals with an opportunity to increase operating margins by five or more percentage points simply by “upcoding” patients to more lucrative codes.  We find that “room to upcode” is a statistically and economically significant predictor of whether a hospital replaces its management with a new team of for-profit managers.  We also find that hospitals replacing their management subsequently upcode more than a sample of similar hospitals that did not, as identified by propensity scores.
ER  -