Do Religious Non-Profit and For-Profit Organizations Respond Differently to Financial Incentives? The Hospice Industry

Department of Health Administration and Policy, Center for Health Economic and Policy Studies, Medical University of South Carolina, 151 Rutledge Avenue, Building B, PO Box 250961, Charleston, SC 29525, USA.
Journal of Health Economics (Impact Factor: 2.58). 04/2007; 26(2):342-57. DOI: 10.1016/j.jhealeco.2006.09.003
Source: PubMed


We study how for-profit and religious nonprofit hospices respond to an exogenous Medicare reimbursement incentive that encourages maximization of patient length of stay. Hospices have the incentive to selectively admit patients with longer expected lengths of stay, and admit patients sooner after a hospital discharge. We find that for-profit hospices are significantly less likely to admit patients with shorter, less profitable, expected lengths of stay. We do not find any difference in the timing of admission by ownership. Incentives for efficiency could be strengthened by a Medicare pricing system that replaced the current flat per diem payment with one that reflected the high costs at the beginning and end of hospice stay and the lower costs in between.

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Available from: Richard C Lindrooth
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    • "A more general version of the model, incorporating these features, can be found in an appendix that will be supplied upon request. All results presented here for the simple model in (2) and (3) are valid for, and can easily be extended to, the general model. 2 See Terza (1994 a and b), Coulson et al.(1995), Neslusan et al. (1999), Treglia et al. (1999), McGeary and French (2000), Kenkel and Terza (2001), Terza (1998, 1999, 2002), DeSimone (2002), Pryor and Terza (2002), Basur et al. 2004, Norton and Van Houtven (2006), Gibson et al. (2006), Terza (2006 a and b), Terza and Tsai (2006), Shin and Moon (2007), Shea et al. (2007), Stuart et al. (2007), Lindrooth and Weisbrod (2007), and Terza (2007). 3 Terza (2006a) shows that the GMM cannot, in general, be directly applied to the model defined in (2). "
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    ABSTRACT: The paper focuses on two estimation methods that have been widely used to address endogeneity in empirical research in health economics and health services research-two-stage predictor substitution (2SPS) and two-stage residual inclusion (2SRI). 2SPS is the rote extension (to nonlinear models) of the popular linear two-stage least squares estimator. The 2SRI estimator is similar except that in the second-stage regression, the endogenous variables are not replaced by first-stage predictors. Instead, first-stage residuals are included as additional regressors. In a generic parametric framework, we show that 2SRI is consistent and 2SPS is not. Results from a simulation study and an illustrative example also recommend against 2SPS and favor 2SRI. Our findings are important given that there are many prominent examples of the application of inconsistent 2SPS in the recent literature. This study can be used as a guide by future researchers in health economics who are confronted with endogeneity in their empirical work.
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