Curriculum Vitae

 Contact Information

  Department of Economics

  Brown University

  64 Waterman Street

  Providence, RI 02912

  daeho_kim@brown.edu

Research and Teaching Fields

Health Economics, Public Economics, Labor Economics

Job Market Paper

"Medicare Payment Reform and Hospital Costs: Evidence from the Prospective Payment System and the Treatment of Cardiac Disease"

Medicare’s Prospective Payment System (PPS) reform in 1983 tied hospital payments to the national average cost of each medical technology with the expectation of reducing health care costs. I show that an unintended consequence of PPS was to generate financial incentives for hospitals to expand treatments that had average costs greater than marginal costs due to sizable fixed investments – i.e., the Medicare payment would be greater than the treatment cost at the margin. In the context of cardiac treatments, coronary artery bypass graft (CABG) surgery has a greater average-to-marginal cost ratio than angioplasty, whose ratio is greater than drug therapy’s. I document that the PPS reform induced a profit margin that was five times higher for CABG than for angioplasty. I derive a simple model that allows each treatment’s effectiveness to vary by patient illness severity. The model predicts that hospitals, in response to PPS, will expand CABG use by treating patients for whom angioplasty is more cost-effective in order to exploit the greater economies of scale. To identify the impact of PPS on cardiac procedures, I exploit the discontinuity in Medicare eligibility at the age of 65. Utilizing data from before–and–after the PPS reform, I find a discontinuous change in CABG use at age-65 after the reform that implies an increase of 50 to 60 percent. Nearly all of the increase is driven by a composition change in the patients who receive CABG, with treatment expanded to patients who are observably healthier (i.e., fewer grafts or no comorbidity). Possible competing hypotheses do not exhibit changes at the age-65 threshold (e.g., disease incidence, insurance rates). The increased CABG use was not cost effective – the lower bound estimate of the cost per quality-adjusted life year was over one million dollars. The average cost payments of PPS provided incentives for hospitals to expand the use of technologies that have high fixed costs; an expansion that increased health care costs with possibly little health benefits.

Working Paper

"Medicare, Hospital Utilization and Mortality: Evidence from the Program's Origins" (with Kenneth Chay and Shailender Swaminathan)

We examine changes in hospital utilization and mortality rates after Medicare's introduction in July of 1966 with the most comprehensive data ever used. The analysis applies the "age discontinuity" design of recent research to data both before and after Medicare's introduction, which allows us to account for pre-existing trends that vary by age. We find: i) clear evidence that Medicare increased hospital care utilization and costs among the elderly, but at a lower rate than previously found; ii) significant mortality reductions in the eligible population that exhibit an age discontinuity only after Medicare's introduction -- patterns not found in nations that did not introduce a Medicare-style program in the 1960's; and iii) the sharpest mortality reductions in acute causes of death (heart disease). We estimate that Medicare's introduction had a cost-per-life year ratio below $200 (in 1982-84 dollars). We then analyze changes over time in the characteristics of the "marginal" person who benefited from Medicare coverage. We find that the age-65 discontinuity in insurance rates fell over time, more so for blacks, the less-educated, poor and disabled. We also document a sharp increase in the mid-1980s in the use of coronary artery bypass graft (CABG) surgery on the Medicare eligible, which coincided with an increase in the relative Medicare reimbursement rate for this procedure.

Professor Kenneth Y. Chay (Chair)

Department of Economics, Brown University

401-863-6296

kenneth_chay@brown.edu

Professor Brian Knight

Department of Economics, Brown University

401-863-1584

brian_knight@brown.edu

Professor Anna Aizer

Department of Economics, Brown University

401-863-9526

anna_aizer@brown.edu

Professor Kaivan Munshi

Department of Economics, Brown University

401-863-9331

kaivan_munshi@brown.edu

November 2011