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Turbocharging Profits? Contract Gaming and Revenue Allocation in Healthcare

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Listed:
  • Atul Gupta
  • Ambar La Forgia
  • Adam Sacarny

Abstract

Firms often exploit loopholes in government contracts to boost revenues. The welfare consequences of this behavior depend on how firms use the marginal windfall dollar, yet little evidence exists to guide policymakers. This paper studies how hospitals allocated over $3 billion obtained from gaming a Medicare payment loophole. The average gaming hospital increased both Medicare and total revenue by around 10%, implying large spillovers on other payers. Consistent with theories of organizational behavior, nonprofit hospitals deployed most of the windfall toward operating costs, while for-profits deducted the entire amount off their balance sheet, distributing a substantial portion to executives and shareholders. Accordingly, we detect modest reductions in mortality rates at nonprofits but no changes at for-profits. Our results imply that the consequences of such engineered windfalls vary substantially by hospital ownership.

Suggested Citation

  • Atul Gupta & Ambar La Forgia & Adam Sacarny, 2024. "Turbocharging Profits? Contract Gaming and Revenue Allocation in Healthcare," NBER Working Papers 32564, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32564
    Note: AG EH
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    More about this item

    JEL classification:

    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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