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The Long-term Impact of Medicare Payment Reductions on Patient Outcomes

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  • Vivian Y. Wu
  • Yu-Chu Shen

Abstract

This study examines the long term impact of Medicare payment reductions on patient outcomes using a natural experiment - the Balance Budget Act (BBA) of 1997. We use predicted Medicare revenue changes due to BBA, with simulated BBA payment cuts as an instrument, to categorize hospitals by degrees of payment cuts (small, moderate, or large), and follow Medicare patient outcomes in these hospitals over a 11 year panel: 1995-1997 pre-BBA, 1998-2000 initial years of BBA, and 2001-2005 post-BBA years. We find that Medicare AMI mortality trends stay similar across hospitals when comparing between pre-BBA and initial-BBA periods. However, the trends began to diverge in 2001-2005: hospitals facing large payment cuts saw increased mortality rates relative to that of hospitals facing small cuts in the post-BBA period (2001-2005) after controlling for their pre-BBA trends. We find support that part of the higher AMI mortalities among large-cut hospitals are explained by reductions in staffing level and operating cost following the payment cuts.

Suggested Citation

  • Vivian Y. Wu & Yu-Chu Shen, 2011. "The Long-term Impact of Medicare Payment Reductions on Patient Outcomes," NBER Working Papers 16859, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:16859
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    Cited by:

    1. Jing Hua Zhang, 2015. "Bend the healthcare cost curve without pain? The health outcome after the Medicare reimbursement cut in 1997," International Journal of Health Planning and Management, Wiley Blackwell, vol. 30(2), pages 164-172, April.
    2. Thomas Allen & Eleonora Fichera & Matt Sutton, 2016. "Can Payers Use Prices to Improve Quality? Evidence from English Hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 56-70, January.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health

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