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Essays on the Hospital Industry

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This dissertation studies the forces that drive the allocation of patients to hospitals in the United States. Even though it seems there is some market discipline in the hospital industry, we observe that many patients go to hospitals far from the quality frontier and we still do not have a full understanding of why that is the case. The chapters of this thesis study different forces that play a role in the allocative process in this industry. Chapters 1 and 2 study persistence in hospital choices of patients in the State of New York. Specifically, I analyze the causal impact of the previous hospital choice of a patient on her current choice. Although the conventional wisdom is that patients are loyal to hospitals, there is actually little hard evidence supporting this idea. While inertia in consumer choice has been documented in many settings, there are very few studies on inertia in choice of medical provider. The first two chapters of this dissertation try to fill this gap by exploring the extent and determinants of patient loyalty toward hospitals. Chapter 1 studies persistence in hospital choices of patients across different medical conditions. To disentangle state dependence from persistent unobserved heterogeneity, I exploit choice set variation across episodes due to emergency hospitalizations and temporary hospital closures due to Hurricane Sandy. I find that patients who are forced to switch hospitals by an exogenous shock are more likely to continue using the new hospital in the future than similar patients. After showing that there is state dependence in my setting, I study whether it stands in the way of the reallocation of patients to high quality providers in the context of hospital choice for heart surgery. Chapter 2 is a complement to Chapter 1. It analyzes persistence in hospital choices of patients for childbirth. For identification, I follow a more traditional strategy than in Chapter 1 that relies on the existence of consumers who are new to the market (first-time mothers) and experienced consumers (mothers who had births before). I show that on average a mother is more likely to choose the same hospital used in the previous birth for her current birth than an observationally similar first-time mother. The results are in line with the findings of Chapter 1, suggesting that patient loyalty is a general phenomenon. Finally, Chapter 3 analyzes the impact of provider financial incentives on hospital behavior. It focuses on a major regulatory reform to the Long-Term Care Hospital industry that substantially reduced payments for about half the Medicare patient population treated in this setting. I study the strategies that Long-Term Care Hospitals have implemented to mitigate the impact of the new regulatory framework and the effects of these actions on access to care and treatment intensity. I find evidence that hospitals screen patients who are referred for long-term acute care more actively than before the reform and are more likely to reject those patients for which reimbursement decreased. In addition, many hospitals altered their discharge patterns in a way that is hard to explain given the way that financial incentives changed with the reform.

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  • 04/01/2019
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