The impact of Medicare reimbursement policy, profit status & competition on quality in the dialysis services industry

This thesis examines the interactive effects of Medicare payment policy, firm profit status, and market competition on dialysis adequacy and anemia management in the dialysis services industry. Medicare pays dialysis providers a prospective payment for dialysis services. This payment is adjusted for differences in local wage rates. Medicare's adjustment methodology for the study period (1998-2003) was based on wage indices for the years 1980 and 1986. If wage rates have evolved at variable rates across markets, then Medicare's payment rate for some providers may be relatively mis-aligned with the current wage rates faced by these facilities. We construct a wage cost to payment ratio that measures this (mis)-alignment across facilities and across time. We hypothesize that the varying degrees of such mis-alignment may differentially impact quality levels across providers. We also hypothesize that increased competition and not-for-profit status will lead to improved output quality. We obtain panel data for freestanding dialysis providers for the years 1998-2003 that includes information on the percentage of patients in each facility receiving adequate dialysis dose and anemia management. We utilize a pooled specification, a fixed time effects specification, a fixed group effects specification, and a random effects specification to generate inferences about our hypotheses. Our results support the hypothesis that wage cost to payment rate variability leads to differential quality across providers. The analysis provides no conclusive evidence that NFP facilities produce at higher quality levels than do FP facilitates. The analysis provides moderate evidence that NFP firms are not affected by competition, and stronger evidence that FP firms deliver lower levels of dialysis adequacy and anemia management in more competitive environments. Opportunities to extend the analysis include obtaining data for hospital-based facilities, facility case-mix and additional quality dimensions; constructing a multi-dimensional quality index; and employing a mixed model estimation methodology. Implications are for more research on the effect of payment on quality, and for Medicare to monitor for distributive effects of wage cost to payment mis-alignment.