Technological Diffusion Across Hospitals: The Case of a Revenue-Generating Practice (Updated July 26, 2016)
Abstract: Productivity-raising technologies tend to diffuse slowly, particularly in the health care sector. To understand how incentives drive adoption, I study a technology that generates revenue for hospitals: the practice of submitting detailed documentation about patients. After a 2008 reform, hospitals were able to raise their total Medicare revenue over 2% by always specifying a patient’s type of heart failure. I find that hospitals only captured around half of this revenue, indicating that large frictions impeded takeup. A major barrier is a principal-agent problem, since doctors supply the valuable information but are not paid for it. Exploiting the fact that many doctors practice at multiple hospitals, I find that four-fifths of the dispersion in adoption reflects differences in the ability of hospitals to extract documentation from physicians. Hospital adoption is also robustly correlated with the ability to generate survival for heart attack patients and the use of inexpensive survival-raising standards of care. These findings highlight the importance of agency conflicts in explaining variations in health care performance, and suggest that principal-agent problems may drive disparities in performance across firms more generally.
Healthcare Exceptionalism? Productivity and Allocation in the U.S. Healthcare Sector (with Amitabh Chandra, Amy Finkelstein, and Chad Syverson)
Abstract: The conventional wisdom in health economics is that large differences in average productivity across hospitals are the result of idiosyncratic, institutional features of the healthcare sector which dull the role of market forces. Strikingly, however, we find that productivity dispersion in heart attack treatment across hospitals is, if anything, smaller than in narrowly defined manufacturing industries such as ready-mixed concrete. While this fact admits multiple interpretations, we also find evidence against the conventional wisdom that the healthcare sector does not operate like an industry subject to standard market forces. In particular, we find that hospitals that are more productive at treating heart attacks have higher market shares at a point in time and are more likely to expand over time. For example, a 10 percent increase in hospital productivity today is associated with about 4 percent more patients in 5 years. Taken together, these facts suggest that the healthcare sector may have more in common with “traditional” sectors than is often assumed.