NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Can Amputation Save the Hospital? The Impact of the Medicare Rural Flexibility Program on Demand and Welfare

Gautam Gowrisankaran, Claudio Lucarelli, Philip Schmidt-Dengler, Robert Town

NBER Working Paper No. 18894
Issued in March 2013, Revised in May 2017
NBER Program(s):Health Care, Industrial Organization

This paper seeks to understand the impact of the Medicare Rural Hospital Flexibility (Flex) Program on hospital choice and consumer welfare for rural residents. The Flex Program created a new class of hospital, the Critical Access Hospital (CAH), which receives more generous Medicare reimbursements in return for limits on capacity and length of stay. We find that conversion to CAH status resulted in a 4.7 percent drop in inpatient admissions to participating hospitals, almost all of which was driven by factors other than capacity constraints. The Flex Program increased consumer welfare if it prevented the exit of at least 6.5 percent of randomly selected converting hospitals.

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Document Object Identifier (DOI): 10.3386/w18894

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