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 hospice expenditures during this period has resulted in several policy attempts to rein in spending. In this paper, I study hospice provider 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 the policy resulted in a 9% reduction in the share of long stays for more exposed hospices. The margins of response are heterogeneous across hospice type, with nonprofit hospices exhibiting larger responses through the admissions margin and for-profit hospices exhibiting larger responses through the discharge margin. 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