Algorithmic decision-making in health care: Evidence from post-acute care in Medicare Advantage

Health insurers use predictive algorithms to determine the necessary level of care and deny services they deem unnecessary. Using a difference-in-differences design, I study the partnership of a large Medicare Advantage insurer with a firm that uses a predictive algorithm to aid post-acute care coverage decisions. This partnership led to an immediate and sustained 13 percent decline in the length of skilled nursing facility stays. This effect was partially driven by large declines in longer skilled nursing facility stays (over 30 days). Despite reductions in health care use, I do not observe changes in health outcomes following the adoption of the predictive algorithm.