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Reductions in Medicare Payments and Patient Outcomes: An Analysis of 5 Leading Medicare Conditions

Shen, Yu-Chu PhD*,†; Wu, Vivian Y. PhD, MS

doi: 10.1097/MLR.0b013e3182a98337
Original Articles

Background: The Affordable Care Act enacted significant Medicare payment reductions to providers, yet the effects of such major reductions on patients remain unclear. We used the Balanced Budget Act (BBA) of 1997 as a natural experiment to study the long-term consequence of major payment reductions on patient outcomes.

Objectives: To analyze whether mortality trends diverge over the years between hospitals facing different levels of payment cuts because of the BBA for 5 leading conditions: acute myocardial infarction, congestive heart failure, stroke, pneumonia, and hip fracture.

Research Design: Using 100% Medicare claims between 1995 and 2005, hospital database, and published reports on BBA policy components, we compared changes in outcomes between hospitals facing small and large BBA payment reductions across 3 periods (pre-BBA, initial-BBA, and post-BBA) using instrumental variable hospital fixed-effects regression models.

Setting: All general, acute, nonrural, short-stay hospitals in the United States 1995—2005.

Main Outcome Measures: Hospital risk-adjusted mortality rates (7, 30, 90 d, and 1 y).

Results: Mortality trends between hospitals in small and large payment-cut categories were similar between pre-BBA and initial-BBA periods, but diverged in the post-BBA period. Relative to the small-cut hospitals, hospitals in the large-cut category experienced smaller decline in 1-year mortality rates in the post-BBA period compared with their pre-BBA trends by 0.8–1.4 percentage points, depending on the condition (P<0.05 for all conditions, except for hip fracture).

Conclusion: We found consistent evidence across multiple conditions that reductions in Medicare payments are associated with slower improvement in mortality outcomes.

Supplemental Digital Content is available in the text.

*Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, CA

National Bureau of Economic Research, Cambridge, MA

Sol Price School of Public Policy, University of Southern California, Los Angeles, CA

Supplemental Digital Content is available for this article. Direct URL citations appear in the printed text and are provided in the HTML and PDF versions of this article on the journal's Website,

Supported by the Center for Medicare and Medicaid Services, Office of Actuary (HHSM-500-2011-00139P).

The authors declare no conflict of interest.

Reprints: Yu-Chu Shen, PhD, Graduate School of Business and Public Policy, Naval Postgraduate School. 555 Dyer Road, Code GB, Monterey, CA 93943. Email:

© 2013 by Lippincott Williams & Wilkins.