On Hospice Operations Under Medicare Reimbursement Policies

Management Science, Vol. 59, No. 5 (2013) pp. 1027-1044.

32 Pages Posted: 6 Jul 2012 Last revised: 31 Oct 2013

See all articles by Baris Ata

Baris Ata

Northwestern University - Kellogg School of Management

Brad Killaly

Emory University - Goizueta Business School

Tava Olsen

University of Auckland

Rodney P. Parker

Indiana University Bloomington

Date Written: June 9, 2012

Abstract

This paper analyzes the United States Medicare hospice reimbursement policy. The existing policy consists of a daily payment for each patient under care with a global cap of revenues accrued during the Medicare year, which increases with each newly admitted patient. We investigate the hospice’s expected profit and provide reasons for a spate of recent provider bankruptcies related to the reimbursement policy; recommendations to alleviate these problems are given. We also analyze a hospice’s incentives for patient management, finding several unintended consequences of the Medicare reimbursement policy. Specifically, a hospice may seek short-lived patients (such as cancer patients) over patients with longer expected length-of-stay and the effort with which they seek-out, or recruit, such patients will vary during the year. Further, the effort they apply to actively discharge patients whose condition has stabilized may also depend on the time of year. These phenomena are unintended and undesirable but are a direct consequence of the Medicare reimbursement policy. We propose an alternative reimbursement policy which ameliorates these shortcomings.

Keywords: healthcare, operations, hospices, Medicare, fluid model, optimization

JEL Classification: C61, H51, I18

Suggested Citation

Ata, Baris and Killaly, Brad and Olsen, Tava and Parker, Rodney P., On Hospice Operations Under Medicare Reimbursement Policies (June 9, 2012). Management Science, Vol. 59, No. 5 (2013) pp. 1027-1044., Available at SSRN: https://ssrn.com/abstract=2080501 or http://dx.doi.org/10.2139/ssrn.2080501

Baris Ata

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Brad Killaly

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Tava Olsen

University of Auckland ( email )

Dept of Property, 12 Grafton Rd
The University of Auckland Business School
Auckland Central, 1010
New Zealand

Rodney P. Parker (Contact Author)

Indiana University Bloomington ( email )

1309 E 10th Street, HH4129
Bloomington, IN 47405
United States

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