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.
Bibliographical noteFunding Information:
The authors wish to acknowledge the role of Melinda Beeuwkes Buntin who was a critical part of the research team at the outset of this project. This study was funded in part by National Institute of Aging (NIA) Grant R01-AG031260 and AHRQ Grant R01-HS018541 .
- Cream skimming
- Prospective payment