Cover: The Effect of Prospective Payment on Admission and Treatment Policy

The Effect of Prospective Payment on Admission and Treatment Policy

Evidence from Inpatient Rehabilitation Facilities

Published in: Journal of Health Economics, v. 32, no. 5, Sep. 2013, p. 965-979

Posted on Sep 1, 2013

by Neeraj Sood, Peter J. Huckfeldt, David C. Grabowski, Joseph P. Newhouse, Jose J. Escarce

We examine provider responses to the Medicare inpatient rehabilitation facility (IRF) prospective payment system (PPS), which simultaneously reduced marginal reimbursement and increased average reimbursement. IRFs could respond to the PPS by changing the number of patients admitted, admitting different types of patients, or changing the intensity of care. We use Medicare claims data to separately estimate each type of provider response. We also examine changes in patient outcomes and spillover effects on other post-acute care providers. We find that costs of care initially fell following the PPS, which we attribute to changes in treatment decisions rather than the characteristics of patients admitted to IRFs within the diagnostic categories we examine. However, the probability of admission to IRFs increased after the PPS due to the expanded admission policies of providers. We find modest spillover effects in other post-acute settings and negative health impacts for only one of three diagnostic groups studied.

This report is part of the RAND external publication series. Many RAND studies are published in peer-reviewed scholarly journals, as chapters in commercial books, or as documents published by other organizations.

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.