The Effects of Post-Acute Care Payment Reform on the Need for and Receipt of Caregiving

Alternative payment models, such as bundled payment, have been proposed as a solution to the high costs of health care. While these models are typically effective at constraining spending on post-acute care, the decrease in consumption of formal post-acute care may result in a compensatory increase in the need for and use of informal or family caregiving. We estimate the effect of a large, randomized experiment with Medicare bundled payment on the need for and receipt of caregiving. Using data on over 2 million Medicare beneficiaries undergoing knee or hip replacement and a difference-in-differences approach, we find the mandatory bundled payment caused a 1 to 2 percentage point absolute increase (a 9% to 14-15% relative increase) in both the need for and receipt of help with activities of daily living at the end of a home health episode, help which was likely provided by family caregivers. This increased caregiver burden was corroborated by a large shift away from nursing-home-based post-acute care (or care in a skilled nursing facility or SNF) after knee and hip replacement, a shift toward home health care, and an accompanying decline in the intensity of home care.