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Are For-Profit Hospitals Really Different? Medicare Upcoding and Market Structure

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  • Elaine Silverman
  • Jonathan Skinner

Abstract

How do for-profit and not-for-profit hospitals differ? We consider one dimension: the shifting of a patient's diagnostic related group (DRG) to one that yields a greater reimbursement from the Medicare system, also known as upcoding. It has played a major role in recent federal lawsuits against hospitals and hospital chains, but more importantly provides a valuable window for understanding how for-profit and not-for-profit hospitals make tradeoffs between pecuniary benefits and reputational or penalty costs. Our empirical work focuses primarily on hospital admissions involving pneumonia and respiratory infections; while the two diagnostic categories are often difficult to distinguish from one another, the latter pays about $2000 more to the hospital. Between 1989 and 1996, the incidence of the most expensive DRG (relative to all DRGs for pneumonia and respiratory infections) rose by 10 percentage points among stable not-for-profit hospitals, 23 percent among stable for-profit hospitals, and 37 percentage points among hospitals that had converted to for-profit status. (Since 1996, the upcoding index has dropped significantly in response to adverse publicity and lawsuits.) There is some evidence that not-for-profit hospitals operating in heavily for-profit markets were almost as likely to upcode as their for-profit brethren, as well as for important regional effects.

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  • Elaine Silverman & Jonathan Skinner, 2001. "Are For-Profit Hospitals Really Different? Medicare Upcoding and Market Structure," NBER Working Papers 8133, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8133
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    Cited by:

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    2. Joseph J. Doyle Jr., 2005. "Health Insurance, Treatment and Outcomes: Using Auto Accidents as Health Shocks," NBER Working Papers 11099, National Bureau of Economic Research, Inc.
    3. Nicholas Bloom & Carol Propper & Stephan Seiler & John Van Reenen, 2015. "The Impact of Competition on Management Quality: Evidence from Public Hospitals," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 82(2), pages 457-489.
    4. Donald Lien, 2002. "Competition between Nonprofit and For-Profit Firms," International Journal of Business and Economics, School of Management Development, Feng Chia University, Taichung, Taiwan, vol. 1(3), pages 193-207, December.
    5. Jill R. Horwitz, 2005. "Does Corporate Ownership Matter? Service Provision in the Hospital Industry," NBER Working Papers 11376, National Bureau of Economic Research, Inc.
    6. Mark Duggan, 2000. "Hospital Market Structure and the Behavior of Not-for-Profit Hospitals: Evidence from Responses to California's Disproportionate Share Program," NBER Working Papers 7966, National Bureau of Economic Research, Inc.
    7. Karen Eggleston & Richard Zeckhauser, 2002. "Government Contracting for Health Care," Discussion Papers Series, Department of Economics, Tufts University 0202, Department of Economics, Tufts University.
    8. Laurent Gobillon & Carine Milcent, 2008. "Regional disparities in mortality by heart attack: evidence from France," Working Papers halshs-00586837, HAL.
    9. Gillian Currie & Cam Donaldson & Mingshan Lu, 2003. "What Does Canada Profit from the For-Profit Debate on Health Care?," Canadian Public Policy, University of Toronto Press, vol. 29(2), pages 227-251, June.
    10. Carine Milcent, 2005. "Hospital ownership, reimbursement systems and mortality rates," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1151-1168, November.
    11. Charles Hegji, 2007. "A brief look at hospital profits by outpatient services offered," Economics Bulletin, AccessEcon, vol. 9(12), pages 1-10.
    12. Frank A. Sloan, 2002. "Hospital Ownership Conversions: Defining the Appropriate Public Oversight Role," NBER Chapters, in: Frontiers in Health Policy Research, Volume 5, pages 123-166, National Bureau of Economic Research, Inc.
    13. Tongil “TI” Kim & Diwas KC, 2020. "The Impact of Hospital Advertising on Patient Demand and Health Outcomes," Marketing Science, INFORMS, vol. 39(3), pages 612-635, May.
    14. Becker, David & Kessler, Daniel & McClellan, Mark, 2005. "Detecting Medicare abuse," Journal of Health Economics, Elsevier, vol. 24(1), pages 189-210, January.
    15. David Becker & Daniel Kessler & Mark McClellan, 2004. "Detecting Medicare Abuse," NBER Working Papers 10677, National Bureau of Economic Research, Inc.
    16. Ed Westerhout & Kees Folmer, 2013. "Why it may hurt to be insured: the effects of capping coinsurance payments," CPB Discussion Paper 239.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    17. Sabina Gandhi, 2012. "Differences between non-profit and for-profit hospices: patient selection and quality," International Journal of Health Economics and Management, Springer, vol. 12(2), pages 107-127, June.

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    JEL classification:

    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • I1 - Health, Education, and Welfare - - Health

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