Hospital quality and medicare payment: A theoretical and empirical investigation

HOSPITAL QUALITY AND MEDICARE PAYMENT:A THEORETICAL AND EMPIRICAL INVESTIGATION byJINGHUA HUANGMay 2011Advisor: Gail SummersMajor: EconomicsDegree: Doctor of PhilosophyDoes Medicare’s payment rate for a hospital stay influence thequality of care received by a patient? This question is examined,theoretically and empirically. First, a model is developed whichgenerates the key hypothesis -that Medicare’s payment rate peradmission should be positively related to care quality. This hypothesis istested by estimating the relationship between Medicare’s DRG paymentfor pneumonia, heart failure and heart attacks and care quality, usingclinically-recognized measures of the quality of pneumonia care, heartfailure care and heart attack care. Newly available data on acutehospitals in 2007 from “Hospital Compare” (maintained by CMS) areanalyzed. Similar results are provided from pneumonia care and heartfailure care. It is found that a significant positive relationship betweenMedicare’s payment rate and care quality for some hospitals in bothpneumonia care and heart failure care, but not for others, and where it is