Long-Term Care Hospitals: A Case Study in Waste

70 Pages Posted: 27 Aug 2018 Last revised: 24 Apr 2019

See all articles by Liran Einav

Liran Einav

Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: April 21, 2019

Abstract

There is substantial waste in U.S. healthcare, but little consensus on how to identify or combat it. We identify one specific source of waste: long-term care hospitals (LTCHs). These post-acute care facilities began as a regulatory carve-out for a few dozen specialty hospitals, but have expanded into an industry with over 400 hospitals and $5.4 billion in annual Medicare spending in 2014. We use the entry of LTCHs into local hospital markets and an event study design to estimate LTCHs’ impact. We find that most LTCH patients would have counterfactually received care at Skilled Nursing Facilities – post-acute care facilities that provide medically similar care to LTCHs but are paid significantly less – and that substitution to LTCHs leaves patients unaffected or worse off on all dimensions we can objectively measure. Our results imply that Medicare could save about $4.6 billion per year – with no harm to patients – by not allowing for discharge to LTCHs.

Keywords: Healthcare, waste, long-term care hospitals, post-acute care

JEL Classification: I1, I18

Suggested Citation

Einav, Liran and Finkelstein, Amy and Mahoney, Neale, Long-Term Care Hospitals: A Case Study in Waste (April 21, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2018-68. Available at SSRN: https://ssrn.com/abstract=3239360 or http://dx.doi.org/10.2139/ssrn.3239360

Liran Einav

Stanford University - Department of Economics ( email )

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Amy Finkelstein

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Neale Mahoney (Contact Author)

University of Chicago Booth School of Business ( email )

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Chicago, IL 60637
United States
773.702.9278 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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