The Effect of Prospective Payment on Admission and Treatment Policy: Evidence from Inpatient Rehabilitation Facilities

39 Pages Posted: 11 Jul 2011 Last revised: 18 Apr 2021

See all articles by Neeraj Sood

Neeraj Sood

University of Southern California; National Bureau of Economic Research (NBER); RAND Corporation; University of Southern California - Schaeffer Center for Health Policy and Economics

Peter J. Huckfeldt

RAND Corporation

David C. Grabowski

Harvard University - Department of Health Care Policy

Joseph P. Newhouse

Harvard Medical School; Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Jose Escarce

University of California, Los Angeles (UCLA) - RAND Health Sciences Program; National Bureau of Economic Research (NBER)

Date Written: June 2011

Abstract

We examine provider responses to the Medicare inpatient rehabilitation facility (IRF) prospective payment system (PPS), which simultaneously reduced marginal reimbursement and increased average reimbursement. IRFs could respond to the PPS by changing the total number of patients admitted, admitting different types of patients, or changing the intensity of care for admitted patients. We use Medicare claims data to separately estimate each type of provider response to the PPS. We also examine changes in patient outcomes and spillover effects on other post acute care providers. We find that costs of care initially fell following the PPS implementation, which we attribute to changes in treatment decisions rather than the types of patients admitted to IRFs. However, the probability of admission to IRFs increased after the PPS due to the expanded admission policies of providers. We find modest spillover effects on skilled nursing home costs and no substantive impact on patient health outcomes.

Suggested Citation

Sood, Neeraj and Huckfeldt, Peter J. and Grabowski, David C. and Newhouse, Joseph P. and Escarce, José, The Effect of Prospective Payment on Admission and Treatment Policy: Evidence from Inpatient Rehabilitation Facilities (June 2011). NBER Working Paper No. w17125, Available at SSRN: https://ssrn.com/abstract=1882156

Neeraj Sood (Contact Author)

University of Southern California ( email )

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National Bureau of Economic Research (NBER)

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RAND Corporation ( email )

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Peter J. Huckfeldt

RAND Corporation ( email )

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David C. Grabowski

Harvard University - Department of Health Care Policy ( email )

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Joseph P. Newhouse

Harvard Medical School; Harvard Kennedy School (HKS) ( email )

Department of Health Care Policy
Boston, MA 02115
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harvard University - Harvard Kennedy School (HKS) ( email )

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Cambridge, MA 02138
United States

José Escarce

University of California, Los Angeles (UCLA) - RAND Health Sciences Program ( email )

Los Angeles, CA 90095
United States
310-794-3842 (Phone)
310-794-0726 (Fax)

National Bureau of Economic Research (NBER)

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