Hospital Response to Changes in Medicaid Reimbursement

Changes to reimbursement levels and reimbursement methodology have become increasingly common as public health insurance programs seek to slow the rate of cost growth. Despite the fact that Medicaid is a major public health insurance program, little is known about how hospitals respond to price cuts by Medicaid. On the other hand, existing research on hospital response to a commonly used payment method (prospective payment) by Medicaid is largely based on policy changes from the 1980s. In this dissertation, I study 1) how hospitals in California responded to a 10% payment reduction by Medicaid in 2008, and 2) how hospitals in California responded to the 2013 introduction of a prospective payment system by Medicaid. For both analyses, I make use of hospital and emergency department discharge records from the California Office of Statewide Health Planning and Development, and study outcomes related to access to hospital care and intensity of care. I find little response to the 10% payment cut along these margins; suggesting that hospitals may have responded along other margins. In the analysis of hospital response to prospective payment, I find results consistent with theoretical predictions as well as the existing literature. Hospitals responded to prospective payment by reducing average inpatient length of stay. Furthermore, this response was driven primarily by hospitals with the strongest incentives---those previously paid on a per diem basis. These results suggest that hospitals may not respond strongly to across-the-board payment cuts in the way that they treat patients. On the other hand, hospitals had a strong, immediate, and predictable response to a change in the payment methodology, suggesting that perhaps this is a more effective policy tool. Degree Type Dissertation Degree Name Doctor of Philosophy (PhD) Graduate Group Health Care Management & Economics First Advisor Mark Pauly