Provider payment incentives: Evidence from the U.S. hospice industry.

Area of Science:

• Health Economics
• Healthcare Management
• Public Health Policy

Background:

• Revenue caps aim to reduce healthcare inefficiency.
• Provider behavior, such as patient census churning, can undermine these caps.
• The U.S. hospice industry faces specific Medicare payment structures with annual revenue caps.

Purpose of the Study:

• To investigate patient census churning in the U.S. hospice industry as a response to revenue caps.
• To quantify the extent to which hospice providers engage in enrollment and discharge manipulation.
• To assess the financial impact of such churning on providers and its effect on care quality.

Main Methods:

• Utilizing the nonlinear design of Medicare's hospice revenue cap and fiscal year transitions to create quasi-experimental variation.
• Analyzing changes in hospice enrollment and live discharge rates in the fourth quarter for programs nearing the revenue cap.
• Estimating the financial impact of churning and characterizing the marginal enrollees.

Main Results:

• Hospice programs nearing the revenue cap increased enrollment by 5.8% and live discharges by 4.3% in the fourth quarter.
• This churning behavior mitigated excess revenue by at most 10%, falling short of eliminating financial penalties.
• Marginal enrollees exhibited longer lifetimes and more fragmented hospice stays, indicating potentially weaker demand for hospice services.

Conclusions:

• Patient census churning is a detectable response to revenue caps in the hospice industry, but it is not a fully effective strategy for providers to avoid financial penalties.
• The practice may lead to the enrollment of patients with weaker hospice needs, potentially affecting care intensity and quality.
• Findings have implications for the design and effectiveness of payment policies aimed at controlling healthcare costs and improving allocative efficiency.