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Hospital ownership of postacute care providers and the cost of care

Carroll, Nathan W.; Hearld, Larry R.; Joseph, Reena

doi: 10.1097/HMR.0000000000000235
Features: PDF Only

Background Hospitals are facing incentives to manage the total cost of care for episodes of illness, including the costs of inpatient care as well as the cost of care provided by physicians and postacute care (PAC) providers. PAC is an especially important component of the overall cost of care. One strategy hospitals employ in managing this cost is to own PAC providers. Prior work on the relationship between PAC ownership and cost has reached mixed conclusions.

Purpose The aim of this study was to examine the associations between the episodic costs of care and hospital ownership of PAC providers, including skilled nursing facilities (SNFs), home health agencies (HHAs), and inpatient rehabilitation facilities (IRF).

Methodology We examine panel data on hospital ownership of PAC providers from the American Hospital Association for 2013–2015 and cost of care data from Centers for Medicare & Medicaid Services’ Value-Based Purchasing Program. Using ordinary least squares, we quantify the association between a hospital’s PAC ownership choice (both ownership of any PAC provider and ownership of particular types of providers) and the episodic cost of care.

Results In 2015, 80% of hospitals owned some type of PAC provider. We find that ownership of SNFs and HHAs is associated with a lower episodic cost of care, whereas ownership of inpatient rehabilitation facilities is associated with higher episodic costs of care. The effects of ownership do not differ for hospitals that participate in a voluntary shared saving program (Bundled Payment for Care Improvement).

Conclusion The effects of PAC ownership vary by the type of PAC provider owned. Our results suggest that ownership of SNFs and HHAs may be a viable strategy for success in reimbursement programs that reward hospitals for managing the total costs for episodes of care.

Nathan W. Carroll, PhD, is Assistant Professor, Department of Health Services Administration, University of Alabama at Birmingham. E-mail:

Larry R. Hearld, PhD, is Associate Professor, Department of Health Services Administration, University of Alabama at Birmingham.

Reena Joseph, MHA, is Doctoral Student, Department of Health Services Administration, University of Alabama at Birmingham.

The authors have disclosed that they have no significant relationship with, or financial interest in, any commercial companies pertaining to this article.

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