Decreases In Readmissions Credited to Medicare's Program to Reduce Hospital Readmissions Have Been Overstated

Christopher  Ody; Lucy  Msall; Leemore S. Dafny; David  Grabowski; David  Cutler

Article | Health Affairs

Decreases In Readmissions Credited to Medicare's Program to Reduce Hospital Readmissions Have Been Overstated

by Christopher Ody, Lucy Msall, Leemore S. Dafny, David Grabowski and David Cutler

Abstract

Medicare’s Hospital Readmissions Reduction Program (HRRP) has been credited with lowering risk-adjusted readmission rates for targeted conditions at general acute care hospitals. However, these reductions appear to be illusory or overstated. This is because a concurrent change in electronic transaction standards allowed hospitals to document a larger number of diagnoses per claim, which had the effect of reducing risk-adjusted patient readmission rates. Prior studies of the HRRP relied upon control groups’ having lower baseline readmission rates, which could falsely create the appearance that readmission rates are changing more in the treatment than in the control group. Accounting for the revised standards reduced the decline in risk-adjusted readmission rates for targeted conditions by 48 percent. After further adjusting for differences in pre-HRRP readmission rates across samples, we found that declines for targeted conditions at general acute care hospitals were statistically indistinguishable from declines in two control samples. Either the HRRP had no effect on readmissions, or it led to a system-wide reduction in readmissions that was roughly half as large as prior estimates have suggested.

Keywords: readmission rates; Hospitals; acute care hospitals; Medicare; myocardial infarction; heart failure; Health Care and Treatment;

Format: Print

Find at Harvard Purchase

Citation:

Ody, Christopher, Lucy Msall, Leemore S. Dafny, David Grabowski, and David Cutler. "Decreases In Readmissions Credited to Medicare's Program to Reduce Hospital Readmissions Have Been Overstated." Health Affairs 38, no. 1 (January 2019): 36–43.

There is limited empirical evidence about the impact of for-profit health insurers on various outcomes. I study the effects of conversions to for-profit status by Blue Cross Blue Shield (BCBS) affiliates in 11 states, spanning 28 geographic markets. I find both the BCBS affiliate and its rivals increased premiums following conversions in markets where the converting affiliate had substantial market share. Medicaid enrollment rates also increased in these markets, a pattern consistent with "crowd in" of families who were formerly privately insured. The results suggest for-profit insurers are likelier than not-for-profit insurers to exercise market power when they possess it.

Working Paper | 2018

The Price Effects of Cross-Market Mergers: Theory and Evidence from the Hospital Industry

Leemore S. Dafny, Katherine Ho and Robin S. Lee

So-called “horizontal mergers" of firms whose products are direct substitutes at the point of sale have garnered significant attention from researchers and regulators alike. We consider the effect of mergers between firms whose products are not viewed as direct substitutes for the same good or service, but are bundled by a common intermediary. Focusing on the case of hospital mergers across distinct geographic markets (“cross-market" mergers), we show that such combinations can reduce competition among the merging firms for inclusion in insurers' networks, leading to higher prices (or lower-quality care). The result derives from the presence of “common customers" (i.e. purchasers of insurance plans) who value hospitals belonging to both merging parties, as well as (one or more) “common insurers" with which price and network status is negotiated. We test our theoretical predictions using two samples of cross-market hospital mergers, focusing exclusively on hospitals that are bystanders rather than the likely drivers of the transactions in order to address concerns about the endogeneity of merger activity. We find that hospitals gaining system members in-state (but not in the same geographic market) experience price increases of 7-10 percent relative to control hospitals, while hospitals gaining system members out-of-state exhibit no statistically significant changes in price. The former group are likelier to share common customers and insurers. The results suggest that cross-market, within-state hospital mergers increase hospital systems' leverage when bargaining with insurers.

Keywords: Mergers and Acquisitions; Markets; Geographic Scope; Price; Outcome or Result; Insurance; Health Industry;

Citation:

Dafny, Leemore S., Katherine Ho, and Robin S. Lee. "The Price Effects of Cross-Market Mergers: Theory and Evidence from the Hospital Industry." NBER Working Paper Series, No. 22106, October 2018. (RAND Journal of Economics, https://doi.org/10.1111/1756-2171.12270.) View Details

Cite View Details Find at Harvard Read Now

Faculty & Research

Decreases In Readmissions Credited to Medicare's Program to Reduce Hospital Readmissions Have Been Overstated

Abstract

Citation:

About the Author

More from the Author