Long-Term Impact of Medicare Payment Reductions on Patient Outcomes


  • Vivian Y. Wu Ph.D., M.S.,

    Corresponding author
    1. Sol Price School of Public Policy, University of Southern California, Los Angeles, CA
    • Address correspondence to Vivian Y. Wu, Ph.D., M.S., Assistant Professor, Sol Price School of Public Policy, University of Southern California, 3335 S. Figueroa St, Gateway A, 101L, Los Angeles, CA 90089-7273; e-mail: vivianwu@usc.edu.

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  • Yu-Chu Shen Ph.D.

    1. Graduate School of Business and Public Policy, Naval Postgraduate School, Monterey, CA
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To examine the long-term impact of Medicare payment reductions on patient outcomes for Medicare acute myocardial infarction (AMI) patients.

Data Sources

Analysis of secondary data compiled from 100 percent Medicare Provider Analysis and Review between 1995 and 2005, Medicare hospital cost reports, Inpatient Prospective Payment System Payment Impact Files, American Hospital Association annual surveys, InterStudy, Area Resource Files, and County Business Patterns.

Study Design

We used a natural experiment—the Balanced Budget Act (BBA) of 1997—as an instrument to predict cumulative Medicare revenue loss due solely to the BBA, and basing on the predicted loss categorized hospitals into small, moderate, or large payment-cut groups and followed Medicare AMI patient outcomes in these hospitals over an 11-year panel between 1995 and 2005.

Principal Findings

We found that while Medicare AMI mortality trends remained similar across hospitals between pre-BBA and initial-BBA periods, hospitals facing large payment cuts saw smaller improvement in mortality rates relative to that of hospitals facing small cuts in the post-BBA period. Part of the relatively higher AMI mortalities among large-cut hospitals might be related to reductions in staffing levels and operating costs, and a small part might be due to patient selection.


We found evidence that hospitals facing large Medicare payment cuts as a result of BBA of 1997 were associated with deteriorating patient outcomes in the long run. Medicare payment reductions may have an unintended consequence of widening the gap in quality across hospitals.