Financial Incentives in End-of-Life Care: Evidence from Hospice Providers (JMP)

Abstract

End-of-life expenditures account for 25% of all Medicare spending. Over the past few decades, hospice care, which provides palliative rather than curative care at the end of life, has increased in prominence, being used by 47% of Medicare decedents in 2021. The simultaneous increase in per-patient hospice expenditures during this period has resulted in several policy attempts to rein in spending, though evidence on the impacts of these policies is limited. In this paper, I study hospice responses to a 2016 reform which decreased the profitability of long stays relative to short stays. Using variation in exposure to the policy and a difference-in-differences strategy, I find that this policy resulted in a 9% reduction in the share of long stays for more exposed hospices, with nonprofit hospices exhibiting larger responses through patient selection and for-profit hospices exhibiting larger responses through live discharges. At the patient level, in a sample of Medicare beneficiaries diagnosed with Alzheimer’s/dementia, I document a 7% reduction in hospice admission for those made less profitable by the policy, suggesting meaningful impacts on access to hospice care.