We study a 2008 policy reform in which Medicare revised its hospital payment system to better reflect patients' severity of illness. We construct a simulated instrument that predicts a hospital's policy-induced change in reimbursement using pre-reform patients and post-reform rules. The reform...

The modern hospital is at once the site of healing, the locus of medical learning and a cornerstone of the welfare state. Its technological and infrastructural costs have transformed health services into one of today's fastest growing sectors, absorbing substantial proportions of national income...