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On Hospice Operations Under Medicare Reimbursement Policies

Author

Listed:
  • Barış Ata

    (Northwestern University, Evanston, Illinois 60208)

  • Bradley L. Killaly

    (Emory University, Atlanta, Georgia 30322)

  • Tava Lennon Olsen

    (University of Auckland, Auckland 1142, New Zealand)

  • Rodney P. Parker

    (University of Chicago, Chicago, Illinois 60637)

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 lengths of stay. The effort with which hospices seek out, or recruit, such patients will vary during the year. Furthermore, the effort they apply to actively discharge a patient 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 to ameliorate these shortcomings. This paper was accepted by Christian Terwiesch, operations management.

Suggested Citation

  • Barış Ata & Bradley L. Killaly & Tava Lennon Olsen & Rodney P. Parker, 2013. "On Hospice Operations Under Medicare Reimbursement Policies," Management Science, INFORMS, vol. 59(5), pages 1027-1044, May.
  • Handle: RePEc:inm:ormnsc:v:59:y:2013:i:5:p:1027-1044
    DOI: 10.1287/mnsc.1120.1606
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    References listed on IDEAS

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    1. Gary D. Eppen, 1979. "Note--Effects of Centralization on Expected Costs in a Multi-Location Newsboy Problem," Management Science, INFORMS, vol. 25(5), pages 498-501, May.
    2. Taylor Jr, Donald H. & Ostermann, Jan & Van Houtven, Courtney H. & Tulsky, James A. & Steinhauser, Karen, 2007. "What length of hospice use maximizes reduction in medical expenditures near death in the US Medicare program?," Social Science & Medicine, Elsevier, vol. 65(7), pages 1466-1478, October.
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    Cited by:

    1. Yuqian Xu & Lingjiong Zhu & Michael Pinedo, 2020. "Operational Risk Management: A Stochastic Control Framework with Preventive and Corrective Controls," Operations Research, INFORMS, vol. 68(6), pages 1804-1825, November.
    2. Anil Aswani & Zuo-Jun Max Shen & Auyon Siddiq, 2019. "Data-Driven Incentive Design in the Medicare Shared Savings Program," Operations Research, INFORMS, vol. 67(4), pages 1002-1026, July.
    3. Pengfei Guo & Christopher S. Tang & Yulan Wang & Ming Zhao, 2019. "The Impact of Reimbursement Policy on Social Welfare, Revisit Rate, and Waiting Time in a Public Healthcare System: Fee-for-Service Versus Bundled Payment," Service Science, INFORMS, vol. 21(1), pages 154-170, January.
    4. Noa Zychlinski & Avishai Mandelbaum & Petar Momčilović & Izack Cohen, 2020. "Bed Blocking in Hospitals Due to Scarce Capacity in Geriatric Institutions—Cost Minimization via Fluid Models," Manufacturing & Service Operations Management, INFORMS, vol. 22(2), pages 396-411, March.
    5. Tinglong Dai & Sridhar Tayur, 2020. "OM Forum—Healthcare Operations Management: A Snapshot of Emerging Research," Manufacturing & Service Operations Management, INFORMS, vol. 22(5), pages 869-887, September.
    6. Elodie Adida & Hamed Mamani & Shima Nassiri, 2017. "Bundled Payment vs. Fee-for-Service: Impact of Payment Scheme on Performance," Management Science, INFORMS, vol. 63(5), pages 1606-1624, May.
    7. Hamsa Bastani & Joel Goh & Mohsen Bayati, 2019. "Evidence of Upcoding in Pay-for-Performance Programs," Management Science, INFORMS, vol. 65(3), pages 1042-1060, March.
    8. Fainman, Emily Zhu & Kucukyazici, Beste, 2020. "Design of financial incentives and payment schemes in healthcare systems: A review," Socio-Economic Planning Sciences, Elsevier, vol. 72(C).
    9. Noa Zychlinski, 2023. "Applications of fluid models in service operations management," Queueing Systems: Theory and Applications, Springer, vol. 103(1), pages 161-185, February.

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