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Politics, hospital behaviour and health care spending

Cooper, Zack and Kowalski, Amanda and Neff Powell, Eleanor and Wu, Jennifer (2017) Politics, hospital behaviour and health care spending. CEP Discussion Papers, CEPDP1523. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Abstract

This paper examines the link between legislative politics, hospital behaviour, and health care spending. When trying to pass sweeping legislation, congressional leaders can attract votes by adding targeted provisions that steer money toward the districts of reluctant legislators. This targeted spending provides tangible local benefits that legislators can highlight when fundraising or running for re-election. We study a provision - Section 508 – that was added to the 2003 Medicare Modernization Act (MMA). Section 508 created a pathway for hospitals to apply to get their Medicare payment rates increased. We find that hospitals represented by members of the House of Representatives who voted ‘Yea’ on the MMA were significantly more likely to receive a 508 waiver than hospitals represented by members who voted ‘Nay.’ Following the payment increase generated by the 508 program, recipient hospitals treated more patients, increased payroll, hired nurses, added new technology, raised CEO pay, and ultimately increased their spending by over $100 million annually. Section 508 recipient hospitals formed the Section 508 Hospital Coalition, which spent millions of dollars lobbying Congress to extend the program. After the vote on the MMA and before the vote to reauthorize the 508 program, members of Congress with a 508 hospital in their district received a 22% increase in total campaign contributions and a 65% increase in contributions from individuals working in the health care industry in the members’ home states. Our work demonstrates a pathway through which the link between politics and Medicare policy can dramatically affect US health spending.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2017 The Authors
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HJ Public Finance
R Medicine > RA Public aspects of medicine > RA0421 Public health. Hygiene. Preventive Medicine
JEL classification: D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior
H - Public Economics > H5 - National Government Expenditures and Related Policies > H51 - Government Expenditures and Health
I - Health, Education, and Welfare > I1 - Health > I10 - General
P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Series: Working Papers > CEP Discussion Papers
Date Deposited: 01 Feb 2018 14:59
Last Modified: 19 Sep 2018 09:00
Funders: Economic and Social Research Council
URI: http://eprints.lse.ac.uk/id/eprint/86620

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