Long‐Term Impact of Medicare Payment Reductions on Patient Outcomes

Objective To examine the long‐term impact of M edicare payment reductions on patient outcomes for M edicare acute myocardial infarction ( AMI ) patients. Data Sources Analysis of secondary data compiled from 100 percent M edicare P rovider A nalysis and R eview between 1995 and 2005, M edicare hospital cost reports, I npatient P rospective P ayment S ystem P ayment I mpact F iles, A merican H ospital A ssociation annual surveys, I nter S tudy, A rea R esource F iles, and C ounty B usiness P atterns. Study Design We used a natural experiment—the B alanced B udget A ct ( BBA ) of 1997—as an instrument to predict cumulative M edicare revenue loss due solely to the BBA , and basing on the predicted loss categorized hospitals into small, moderate, or large payment‐cut groups and followed M edicare AMI patient outcomes in these hospitals over an 11‐year panel between 1995 and 2005. Principal Findings We found that while M edicare AMI mortality trends remained similar across hospitals between pre‐ BBA and initial‐ BBA periods, hospitals facing large payment cuts saw smaller improvement in mortality rates relative to that of hospitals facing small cuts in the post‐ BBA period. Part of the relatively higher AMI mortalities among large‐cut hospitals might be related to reductions in staffing levels and operating costs, and a small part might be due to patient selection. Conclusions We found evidence that hospitals facing large M edicare payment cuts as a result of BBA of 1997 were associated with deteriorating patient outcomes in the long run. Medicare payment reductions may have an unintended consequence of widening the gap in quality across hospitals.