Essays on Health Care Markets and the Safety Net

Abstract

This dissertation focuses on how private health care organizations respond to government and market incentives to serve low-income and vulnerable patients. In Chapter 1, I explore how hospitals interact in markets for unprofitable safety net care. I specifically focus on the market for inpatient psychiatric care, one of the least profitable services for hospitals. Exploiting sharp variation in the timing of hospital inpatient psychiatric unit closures across markets in California, I analyze how neighboring hospitals respond to closures. I find that nearby hospitals treat less than a third of the number of patients that would have been seen in the closing psychiatric unit and strategically reduce their own psychiatric capacity to avoid increased financial losses. My findings suggest that hospitals crowd-in one another in markets for safety net care, and that some hospitals may only provide charitable services in the presence of positive spillovers. Chapter 2 studies how nonprofit hospitals set their policies for providing free and discounted care to uninsured patients. While the cost of hospital care for uninsured and underinsured patients is of growing policy interest, relatively little is known about when hospitals decide to bill uninsured patients. To answer this question, I combine new panel data on nonprofit hospital charity care policies from IRS tax returns with hand-collected data on state hospital regulations and funding. I show that hospitals significantly increase the generosity of their billing policies in response to changes in state nonprofit and community benefit regulations. In contrast, they do not respond to changes in community need or hospital financial status in the two years following Medicaid expansion. My results indicate that extrinsic motivation may be the driving factor behind changes in hospital charity, not altruism. Chapter 3 (with Craig Garthwaite and Ariel Stern) examines whether pharmaceutical innovation responded to increased demand from Medicaid beneficiaries post- Affordable Care Act. Prior research has documented a causal relationship between pharmaceutical market size and research and development activities. Despite Medicaid expansion representing an increase in market size that is larger than those previously seen in the literature, we find no evidence Medicaid expansion changed research and development investments by pharmaceutical firms. Our finding is likely a result of Medicaid's low reimbursement for pharmaceuticals, which has implications for how policymakers should think about incentivizing private innovation in markets where opportunities for profits are small.