Effects of Medicare Payment Reform

Evidence from the Home Health Interim and Prospective Payment Systems

Published in: Journal of Health Economics, v. 34, Mar. 2014

Posted on RAND.org on January 21, 2014

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

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Medicare continues to implement payment reforms that shift reimbursement from fee-for-service toward episode-based payment, affecting average and marginal payment. We contrast the effects of two reforms for home health agencies. The home health interim payment system in 1997 lowered both types of payment; our conceptual model predicts a decline in the likelihood of use and costs, both of which we find. The home health prospective payment system in 2000 raised average but lowered marginal payment with theoretically ambiguous effects; we find a modest increase in use and costs. We find little substantive effect of either policy on readmissions or mortality.

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