Effects of Competition on the Cost and Quality of Inpatient Rehabilitation Care Under Prospective Payment

Objective. To determine the effect of competition in postacute care (PAC) markets on resource intensity and outcomes of care in inpatient rehabilitation facilities (IRFs) after prospective payment was implemented. Data Sources. Medicare claims, Provider of Services file, Enrollment file, Area Resource file, Minimum Data Set. Study Design. We created an exogenous measure of competition based on patient travel distances and used instrumental variables models to estimate the effect of competition on inpatient rehabilitation costs, length of stay, and death or institutionalization. Data Extraction Methods. A file was constructed linking data for Medicare patients discharged from acute care between 2002 and 2003 and admitted to an IRF with a diagnosis of hip fracture or stroke. Principal Findings. Competition had different effects on treatment intensity and outcomes for hip fracture and stroke patients. In the treatment of hip fracture, competition increased costs and length of stay, while increasing rates of death or institutionalization. In the treatment of stroke, competition decreased costs and length of stay and produced inferior outcomes. Conclusions. The effects of competition in PAC markets may vary by condition. It is important to study the effects of competition by diagnostic condition and to study the effects across populations that vary in severity. Our finding that higher competition under prospective payment led to worse IRF outcomes raises concerns and calls for additional research.