Regulatory exploitation and management changes: Upcoding in the hospital industry

Leemore Dafny*, David Dranove

*Corresponding author for this work

Research output: Contribution to journalArticle

11 Scopus citations

Abstract

This paper investigates whether management teams that fail to exploit regulatory loopholes are vulnerable to replacement. We use the U.S. hospital industry in 1985-96 as a case study. A 1988 change in Medicare rules widened a preexisting loophole in the Medicare payment system, presenting hospitals with an opportunity to increase operating margins by 5 or more percentage points simply by "upcoding" patients to more lucrative codes. We find that having room to upcode is a statistically and economically significant predictor of whether a hospital replaces its management with a new team of for-profit managers. We also find evidence that hospitals that replace their management subsequently upcode more than a sample of similar hospitals whose management did notchange.

Original languageEnglish (US)
Pages (from-to)223-250
Number of pages28
JournalJournal of Law and Economics
Volume52
Issue number2
DOIs
StatePublished - May 1 2009

ASJC Scopus subject areas

  • Economics and Econometrics
  • Law

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