Date of Award
Doctor of Philosophy (PhD)
I investigate how competition and vertical integration affect a firm's customer acquisition versus retention strategies in the context of home health agencies. Under Medicare, these agencies are paid a lump-sum payment for each new or current patient's home health episode, lasting up to 60 days. I focus on the agency's strategic choice to retain, or recertify, patients for an additional episode when under changing competitive dynamics or under vertical integration with a hospital. Using data on Medicare beneficiaries who transition from an acute stay to post-acute care from 2007 to 2013, I show that non-vertically integrated agencies facing increasing competition for new patients under this payment system recertify more patients in order to compensate for diminishing quantity (and profits). In contrast, vertically integrated agencies are insulated from these competitive pressures and have fewer recertifications by 3.43 percentage points (or 22%) on average without increases in readmissions. To control for patient selection and provider-level selection bias into vertical arrangements, I use a combination of instrumental variables approach and fixed effects at the hospital-agency pair level over time. I also construct a Herfindahl--Hirschman index using a conditional logit model based on relatively exogenous travel distances. The results indicate that, in this setting, vertical integration can reduce Medicare spending on post-acute care episodes through referral control without adverse effects on readmissions by 5.8-7.5%. Competition for new patients among non-integrated agencies may exacerbate the unnecessary retention of current patients, resulting in 4-5.5% increase in HHA spending.
Chen, Vicki, "Paying To Stay: Effects Of Vertical Integration And Competition In A Post-Acute Care Setting" (2018). Publicly Accessible Penn Dissertations. 2957.