| All three papers of this dissertation address health care providers' behavioral responses to financial incentives in the context of Medicare home health care. In the first paper, I address the unexpected increase in Medicare home health spending under the prospective payment system that was introduced to control rising home health spending. I examine the underlying forces behind the growth in the three factors that contributed to the total spending increase: 1) the number of home health patients, 2) the number of episodes per patient, and 3) the payment amount per episode. I find strong empirical support that the prospective payment system provided unintended incentives such that home health agencies adjusted service provision patterns to further increase profits. This led to an increase in all three factors, independent of the health needs of patients. In addition, many profit maximizing behaviors were most evident among for-profit home health agencies.;The second paper focuses on the interaction between for-profit and non-profit home health agencies in a market. Building on the existing economic theory of for-profit and non-profit behavior in competition, I propose three mechanisms that explain how behavior changes over time. First, health care providers continue to enter the market if they perceive opportunities for high profit margins, and those entrants pursue profit-seeking behaviors to a greater degree. Second, profit-seeking behaviors among entrants encourage neighboring incumbents to resemble entrants' behaviors. Third, existing, chain-affiliated health care providers learn profit-seeking behaviors from others in the chain. I find that the proposed mechanisms explain the changes in behaviors of for-profit and non-profit home health agencies over time.;The third paper examines how Medicare's introduction of the 10 percent per-agency cap on outlier payments affected patients who have diabetes with long-term use of insulin. I find that the 10 percent cap dramatically decreased the number of home health visits for diabetic patients. The 10 percent cap also compelled agencies to drop the sickest patients and send them to more costly health care settings such as nursing homes and hospitals. These findings suggest that the net effect of the 10 percent cap on total health spending is ambiguous. |
