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Strategic Patient Discharge: The Case of Long-Term Care Hospitals

Paul J. Eliason, Paul L. E. Grieco, Ryan C. McDevitt, James W. Roberts

NBER Working Paper No. 22598
Issued in September 2016, Revised in January 2017
NBER Program(s):Health Care, Health Economics, Industrial Organization

Medicare's prospective payment system for long-term acute-care hospitals (LTCHs) pro- vides modest reimbursements at the beginning of a patient's stay before jumping discontinuously to a large lump-sum payment after a pre-specified number of days. We show that LTCHs respond to financial incentives by disproportionately discharging patients after they cross the large-payment threshold, resulting in worse outcomes for patients. We find this occurs more often at for-profit facilities, facilities acquired by leading LTCH chains, and facilities co-located with other hospitals. Using a dynamic structural model, we evaluate counterfactual payment policies that would provide substantial savings for Medicare without adversely affecting patients.

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A non-technical summary of this paper is available in the 2016 number 3 issue of the NBER Bulletin on Aging and Health. You can sign up to receive the NBER Bulletin on Aging and Health by email.

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Document Object Identifier (DOI): 10.3386/w22598

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