Patients, Payors, and Procedures: Implications of Process Friction in Healthcare Delivery

Abstract

Healthcare service delivery is traditionally viewed as solely driven by patient needs, independent of economic considerations. This study tests this assumption by examining whether procedural differences arise in inpatient care for individuals aged 65 and older based on their primary payor (Medicare vs. private insurance). We argue that disparities in process friction across payors introduce procedural biases in providers’ (hospital and physician) decision-making, systematically influencing the number of procedures prescribed. Using inpatient discharge data from Florida acute care hospitals (2008–2015), we exploit Medicare reform (MR) programs introduced by CMS in 2011–12 as an exogenous variation. Our difference-in-differences analysis compares treatment patterns before and after the reform to assess provider behaviour shifts. Our findings reveal that before MR, when Medicare patients faced lower process friction, they received significantly more procedures than privately insured patients. Post-reform, this gap narrowed as process friction increased for Medicare patients to levels comparable with private insurance. These results highlight the role of administrative processes and payor policies in shaping clinical decision-making. These findings have broad implications. For hospital administrators, they highlight the need to minimise process friction and uphold a patient-centric approach to care. For policymakers, they illustrate both the intended (value-based reimbursements) and unintended (increased process friction) consequences of healthcare reforms. From a patient perspective, they underscore the importance of awareness and advocacy in mitigating potential disparity in care delivery.

Keywords: Process friction, Healthcare Management, Econometric Analysis, Process of care, Healthcare Insurance