Endogenous quality investments in the U.S. hospital market.

High and increasing hospital prices could reflect market imperfections, including provider concentration. Yet high prices could also reflect increased willingness to pay by privately insured consumers for clinical and non-clinical quality. In this paper, we explore strategic quality choices where hospitals make quality investments to increase private revenue. We then measure the relationship between potential prices and numerous quality measures including patient satisfaction, hospital processes, risk-adjusted mortality, the revealed preferences of current Medicare patients, technology adoption, physician quality, and ED wait times. We show that across a range of measures quality is correlated with the profitability of the payer mix: hospitals with more potential privately insured patients are of higher quality.

The economics of medical procedure innovation.

This paper explores the economic incentives for medical procedure innovation. Using a proprietary dataset on billing code applications for emerging medical procedures, we highlight two mechanisms that could hinder innovation. First, the administrative hurdle of securing permanent, reimbursable billing codes substantially delays innovation diffusion. We find that Medicare utilization of innovative procedures increases nearly nine-fold after the billing codes are promoted to permanent (reimbursable) from provisional (non-reimbursable). However, only 29 percent of the provisional codes are promoted within the five-year probation period. Second, medical procedures lack intellectual property rights, especially those without patented devices. When appropriability is limited, specialty medical societies lead the applications for billing codes. We indicate that the ad hoc process for securing billing codes for procedure innovations creates uncertainty about both the development process and the allocation and enforceability of property rights. This stands in stark contrast to the more deliberate regulatory oversight for pharmaceutical innovations.

Insurance access and demand response: Pricing and welfare implications.

We present a model in which health insurance allows liquidity-constrained patients access to otherwise unaffordable treatments. A monopolist's profit-maximizing price for an insured treatment is greater (for any cost sharing) than it would be if the treatment was not covered. Consumer surplus may also be less. These results are based on a different mechanism than would operate in a standard moral hazard model. Our model also provides an economic rationale for the common claim that pharmaceutical firms set prices that exceed the value their products create. We show this problem is exacerbated when health insurance covers additional monopoly-provided services.

Insurance Expansion and Hospital Emergency Department Access: Evidence From the Affordable Care Act.

BACKGROUND: Little is known about whether insurance expansion affects the location and type of emergency department (ED) use. Understanding these changes can inform state-level decisions about the Medicaid expansion under the Patient Protection and Affordable Care Act (ACA). OBJECTIVE: To investigate the effect of the 2014 ACA Medicaid expansion on the location, insurance status, and type of ED visits. DESIGN: Quasi-experimental observational study from 2012 to 2014. SETTING: 126 investor-owned, hospital-based EDs. PARTICIPANTS: Uninsured and Medicaid-insured adults aged 18 to 64 years. INTERVENTION: ACA expansion of Medicaid in January 2014. MEASUREMENTS: Number of ED visits overall, type of visit (for example, nondiscretionary or nonemergency), and average travel time to the ED. Interrupted time-series analyses comparing changes from the end of 2013 to end of 2014 for patients from Medicaid expansion versus nonexpansion states were done. RESULTS: There were 1.06 million ED visits among patients from 17 Medicaid expansion states, and 7.87 million ED visits among patients from 19 nonexpansion states. The EDs treating patients from Medicaid expansion states saw an overall 47.1% decrease in uninsured visits (95% CI, -65.0% to -29.3%) and a 125.7% (CI, 89.2% to 162.6%) increase in Medicaid visits after 12 months of ACA expansion. Average travel time for nondiscretionary conditions requiring immediate medical care decreased by 0.9 minutes (-6.2% [CI, -8.9% to -3.5%]) among all Medicaid patients from expansion states. We found little evidence of similar changes among patients from nonexpansion states. LIMITATION: Results reflect shifts in ED care at investor-owned facilities, which limits generalizability to other hospital types. CONCLUSION: Meaningful changes in insurance status and location and type of ED visits in the first year of ACA Medicaid expansion were found, suggesting that expansion provides patients with a greater choice of hospital facilities. PRIMARY FUNDING SOURCE: Robert Wood Johnson Foundation.

Uncompensated Care Decreased At Hospitals In Medicaid Expansion States But Not At Hospitals In Nonexpansion States.

One pillar of the Affordable Care Act (ACA) was its expected impact on the growing burden of uncompensated care costs for the uninsured at hospitals. However, little is known about how this burden changed as a result of the ACA's enactment. We examine how the Affordable Care Act (ACA)'s coverage expansions affected uncompensated care costs at a large, diverse sample of hospitals. We estimate that in states that expanded Medicaid under the ACA, uncompensated care costs decreased from 4.1 percentage points to 3.1 percentage points of operating costs. The reductions in Medicaid expansion states were larger at hospitals that had higher pre-ACA uncompensated care burdens and in markets where we predicted larger gains in coverage through expanded eligibility for Medicaid. Our estimates suggest that uncompensated care costs would have decreased from 5.7 percentage points to 4.0 percentage points of operating costs in nonexpansion states if they had expanded Medicaid. Thus, while the ACA decreased the variation in uncompensated care costs across hospitals within Medicaid expansion states, the difference between expansion and nonexpansion states increased substantially. Policy makers and researchers should consider how the shifting uncompensated care burden affects other hospital decisions as well as the distribution of supplemental public funding to hospitals.

Investment subsidies and the adoption of electronic medical records in hospitals.

In February 2009 the U.S. Congress unexpectedly passed the Health Information Technology for Economic and Clinical Health Act (HITECH). HITECH provides up to $27 billion to promote adoption and appropriate use of Electronic Medical Records (EMR) by hospitals. We measure the extent to which HITECH incentive payments spurred EMR adoption by independent hospitals. Adoption rates for all independent hospitals grew from 48 percent in 2008 to 77 percent by 2011. Absent HITECH incentives, we estimate that the adoption rate would have instead been 67 percent in 2011. When we consider that HITECH funds were available for all hospitals and not just marginal adopters, we estimate that the cost of generating an additional adoption was $48 million. We also estimate that in the absence of HITECH incentives, the 77 percent adoption rate would have been realized by 2013, just 2 years after the date achieved due to HITECH.

The economic downturn and its lingering effects reduced medicare spending growth by $4 billion in 2009-12.

Previous work has found a strong connection between the most recent economic recession and reductions in private health spending. However, the effect of economic downturns on Medicare spending is less clear. In contrast to studies involving earlier time periods, our study found that when the macroeconomy slowed during the Great Recession of 2007-09, so did Medicare spending growth. A small (14 percent) but significant share of the decline in Medicare spending growth from 2009 to 2012 relative to growth from 2004 to 2009 can be attributed to lingering effects of the recession. Absent the economic downturn, Medicare spending would have been $4 billion higher in 2009-12. A major reason for the relatively small impact of the macroeconomy is the relative lack of labor-force participation among people ages sixty-five and older. We estimate that if they had been working at the same rate as the nonelderly before the recession, the effect of the downturn on Medicare spending growth would have been twice as large.

Health spending slowdown is mostly due to economic factors, not structural change in the health care sector.

The source of the recent slowdown in health spending growth remains unclear. We used new and unique data on privately insured people to estimate the effect of the economic slowdown that began in December 2007 on the rate of growth in health spending. By exploiting regional variations in the severity of the slowdown, we determined that the economic slowdown explained approximately 70 percent of the slowdown in health spending growth for the people in our sample. This suggests that the recent decline is not primarily the result of structural changes in the health sector or of components of the Affordable Care Act, and that-absent other changes in the health care system-an economic recovery will result in increased health spending.

The impact of early discharge laws on the health of newborns.

Using an interrupted time series design and a census of births in California over a 6-year period, we show that state and federal laws passed in the late 1990s designed to increase the length of postpartum hospital stays reduced considerably the fraction of newborns that were discharged early. The law had little impact on re-admission rates for privately insured, vaginally delivered newborns, but reduced re-admission rates for privately insured c-section-delivered and Medicaid-insured vaginally delivered newborns by statistically significant amounts. Our calculations suggest the program was not cost saving.