Patient vs. Provider Incentives in Long Term Care

Martin B. Hackmann, R. Vincent Pohl

NBER Working Paper No. 25178
Issued in October 2018
NBER Program(s):Aging, Health Care, Health Economics, Industrial Organization, Public Economics

How do patient and provider incentives affect mode and cost of long-term care? Our analysis of 1 million nursing home stays yields three main insights. First, Medicaid-covered residents prolong their stays instead of transitioning to community-based care due to limited cost-sharing. Second, nursing homes shorten Medicaid stays when capacity binds to admit more profitable out-of-pocket payers. Third, providers react more elastically to financial incentives than patients, so moving to episode-based provider reimbursement is more effective in shortening Medicaid stays than increasing resident cost-sharing. Moreover, we do not find evidence for health improvements due to longer stays for marginal Medicaid beneficiaries.

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Document Object Identifier (DOI): 10.3386/w25178