Essays on Economics of Facilities for End-of-Life Care

Abstract

This dissertation consists of three essays on the economics of facilities caring elderly population. Chapter 1 investigates the financial incentive in the nonprofit sector driven by monetary donations. Specifically, this paper examines whether reliance on donations provides an incentive for nonprofit hospices to admit patients with a shorter length of stay (LOS). Given a hospice's capacity and serving volume, shortening the average LOS makes patients turn over faster. Thus, the hospice serves more people and expands the potential donation network. I proxy for hospices' donation reliance by using the long-run donation-to-profit ratio, indicating the importance of the donations for the profitability. The 2SLS regression results suggest that a standard deviation increase in the donation reliance causes patient LOS to decrease by 8.3%. I also find that hospices make the LOS lower by targeting the specific diagnoses and patient ages. Overall, these findings suggest that monetary donations alter the behavior of nonprofit firms through financial incentives. The second and third chapters focus on the nursing home industry. Chapter 2 studies the effect of the Affordable Care Act (ACA), which authorized the historically largest expansion of public health insurance coverage in 2014. This chapter analyzes the effect of the ACA's expansion on nursing homes' utilization, crowd-outs, and quality of care. In the facility-level Difference-in-Difference analyses, the expansion caused a 9.7% increase in Medicaid-covered patient-days, with minimal crowd-out effects. Using the expansion to instrument for the number of Medicaid patient-days, I find that the quality supplied deteriorates: fewer nursing hours and more inspection violations. With the help of parameters in the literature, my findings imply that the annual social welfare in a typical nursing home changes by 1. gains of consumer surplus of $414.9 thousand from expanded utilization and $109.9 thousand loss of dollar-valued quality, 2. loss in profits of $55.5 thousand from additional Medicaid patients, and 3. government spending of $448.6 thousand in Medicaid reimbursement. Overall, the net social welfare decreases, while patients benefit a lot from government spending. Chapter 3 discusses the issue of nursing homes' quality of care. The inefficient quality of care in the U.S. nursing home industry has been a concern for decades. The center of Medicare and Medicaid (CMS) conducts random inspections to enforce quality improvement. I build a dynamic discrete choice model on nursing homes' investment in the quality of care to minimize the long-run cost for compliance, where they take the random inspection as given. Using the nationwide facility-quarter level data from 2014 to 2018, I estimate the investment cost of $31.12 thousand. Linking my data with literature, I find the average gain in consumer surplus in a nursing home is about $113.69 thousand due to an investment. My analyses imply that such quality investment boosts social welfare extensively.