Certificate of Need Regulation and Hospital Behavior: Evidence from MRIs in North Carolina (Job Market Paper)
Certificate of Need (CON) regulations—restrictions on capital investment—are a key feature of the regulatory environment facing the US hospital industry, yet there is remarkably little evidence on how these regulations affect hospital investment and patient care in practice. In this paper, I use newly collected data on the magnetic resonance imaging (MRI) market in North Carolina and patient-level Medicare claims data to estimate the dynamic effects of marginal relaxations of CON restrictions on provider investment and patient care. Using a regression discontinuity approach that takes advantage of regulatory approval thresholds, I document two sets of key findings. First, CON regulations are a binding constraint on hospital investment. In response to this constraint, there is an active market for unregulated mobile MRI scanners that enable health care providers to mitigate the impact of CON restrictions. Second, CON rules affect not only hospital investment but also restricts utilization of MRI scans. In a specific case, CON regulations reduce the number of scans patients with low back pain receive, reducing medical spending by roughly $400. There is no evidence that this decrease in the intensity of care comes at the cost of increased future low back pain.
Research in Progress
Hospital Responses to Medicare Reimbursement Rate Changes: New Evidence from Medicare's Rural Floor
Hospitals face an environment of declining real per patient reimbursement from Medicare. Understanding the provider response to changing Medicare prices is critical for balancing the complex incentives of hospitals and patients with the fiscal and social objectives of the public insurance program. In this paper I exploit the Medicare rural floor, a discontinuity in geographic adjustments to Medicare payments to hospitals, in a regression kink design to estimate the impact of Medicare reimbursement rate changes on the level and mix of hospital services provided. I find that hospitals respond to higher Medicare reimbursement by admitting more Medicare patients, but that the average duration of a patient stay declines. I also document a previously unstudied spillover of Medicare reimbursement on the volume of admitted patients with non-Medicare insurance. Contrary to the prediction of existing standard models, both Medicaid and private patient utilization significantly increase in response to Medicare rate hikes. Higher Medicare prices coupled with higher utilization across all patient categories leads to a large increase in hospital revenue. Hospitals deploy the revenue, almost exclusively, in expenses for patient care.