This paper examines the extent to which government programs should monitor for wasteful expenditure when outsourcing to third parties, taking into account the costs and savings associated with monitoring. I use novel administrative data to study the largest Medicare monitoring program aimed at identifying and reclaiming payments for unnecessary inpatient admissions. I exploit plausibly exogenous variation across hospitals and across patients, and find that the majority of savings are due to the deterrence of future admissions. I do not find evidence that the marginal patient denied admission is harmed, suggesting that hospitals fine-tune their response to target unnecessary care. But in doing so, they incur compliance costs and adopt technology specifically aimed at assessing the medical necessity of care. For every $1,000 in savings to Medicare, hospitals incur $216 in compliance costs. My welfare calculations imply that despite the costs, increasing monitoring improves welfare.
DATE: Wednsday, January 12, 2022
TIME: 3:30-5:0 p.m.
LOCATION: Meeting ID: 919 5021 5269 Password: 514821