Competition, ownership type, and provider behavior in the hospice industry

The hospice industry in the United States has grown substantially more competitive in recent years as hospice has become an increasingly common choice for end-of-life care. Along with intensifying competition, there has been a shift in hospice provider ownership type. While the industry was once dominated by nonprofit providers, the majority of hospice providers are now for-profit. Meanwhile, the structure of hospice provider reimbursements has not changed since the introduction of the Medicare Hospice Benefit in 1982. Because providers receive fixed per diem payments but typically have U-shaped patient care costs over the course of patient episodes, longer patient stays on hospice tend to be more profitable. This dissertation studies hospice provider behavior in the face of this pattern of profitability and the changing competitive landscape in the hospice industry. I develop a theoretical model in which hospice providers, facing regulated prices at the patient-day level, compete on quality per patient episode. Providers can influence the price of a patient episode by altering average length of stay through marketing efforts that encourage earlier enrollment in hospice or target longer expected length of stay patients for enrollment. The model predicts that competition and nonprofit status will each result in higher quality per patient. Empirical analysis offers evidence that providers in more competitive markets, independent of ownership type, have higher quality on dimensions more visible to patients, and that these providers have longer average lengths of stay driven by longer noncancer patient stays. I also find evidence that for-profit providers, independent of market competitiveness, enroll a greater share of noncancer patients.