The Long-term Impact of Medicare Payment Reductions on Patient Outcomes

Vivian Y. Wu, Yu-Chu Shen

NBER Working Paper No. 16859
Issued in March 2011, Revised in April 2012
NBER Program(s):Health Care

This study examines the long term impact of Medicare payment reductions on patient outcomes using a natural experiment - the Balance Budget Act (BBA) of 1997. We use predicted Medicare revenue changes due to BBA, with simulated BBA payment cuts as an instrument, to categorize hospitals by degrees of payment cuts (small, moderate, or large), and follow Medicare patient outcomes in these hospitals over a 11 year panel: 1995-1997 pre-BBA, 1998-2000 initial years of BBA, and 2001-2005 post-BBA years. We find that Medicare AMI mortality trends stay similar across hospitals when comparing between pre-BBA and initial-BBA periods. However, the trends began to diverge in 2001-2005: hospitals facing large payment cuts saw increased mortality rates relative to that of hospitals facing small cuts in the post-BBA period (2001-2005) after controlling for their pre-BBA trends. We find support that part of the higher AMI mortalities among large-cut hospitals are explained by reductions in staffing level and operating cost following the payment cuts.

download in pdf format
   (498 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w16859

Published: Vivian Y. Wu & Yu-Chu Shen, 2014. "Long-Term Impact of Medicare Payment Reductions on Patient Outcomes," Health Services Research, vol 49(5), pages 1596-1615.

Users who downloaded this paper also downloaded* these:
Klenow and Rodríguez-Clare The Neoclassical Revival in Growth Economics: Has It Gone Too Far?
Sood, Huckfeldt, Grabowski, Newhouse, and Escarce w17125 The Effect of Prospective Payment on Admission and Treatment Policy: Evidence from Inpatient Rehabilitation Facilities
Brown, Duggan, Kuziemko, and Woolston w16977 How does Risk Selection Respond to Risk Adjustment? Evidence from the Medicare Advantage Program
Dafny w9972 How Do Hospitals Respond to Price Changes?
Garthwaite w17070 The Doctor Might See You Now: The Supply Side Effects of Public Health Insurance Expansions
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us