Team research
She joined forces with Katherine Baicker, a health economist who now heads the University of Chicago’s Harris School of Public Policy. They quickly assembled a team that included doctors, an epidemiologist, health services researchers, statisticians, and partners in the state government.
“She has appreciated the power of the team research model in economics, which has become very popular,” Poterba says.
Finkelstein traveled to Oregon multiple times, to meet with people in the health care system and the state government and watch focus group interviews with study participants. The team conducted mail surveys as well as in-person interviews and health exams over the first two years after the lottery.
Their conclusions: Medicaid significantly increased the probability of using medical care of all kinds—primary care, preventive care, emergency room visits, and hospital admissions—increasing total health care spending by about 25 percent. Medicaid also bolstered financial security and reduced people’s risk of suffering from depression.
The Oregon experiment coincided with a debate over the costs and benefits of expanding Medicaid as part of the Affordable Care Act, which was enacted in 2010. Supporters argued that expanded coverage would reduce costs by improving health and so cutting down on inefficient use of hospitals. Many critics said Medicaid provided little benefit that recipients couldn’t get on their own. Finkelstein’s results cast doubt on both arguments.
Similarly, in a 2016 paper, Finkelstein and her coauthors took on the widely accepted view that health care responds little to the competitive market forces of other industries.
They looked at which hospitals Medicare patients (or their doctors) chose for conditions and procedures such as heart attacks and hip replacement surgery, which accounted for almost a fifth of Medicare spending. They found compelling evidence that higher-quality hospitals had greater market share, which tended to grow over time, suggesting that market forces played a bigger role than previously thought.
“She’s a strong believer in the evidence, and if the evidence goes against the conventional wisdom or it goes against the theory. . .you ought to pay attention to it,” says Harvard’s Lawrence Katz, who taught the undergraduate course that inspired Finkelstein’s love of economics.
Finkelstein’s interest gradually shifted from the impact of health policy on consumer behavior and welfare to looking at how health care providers respond to incentives. And while she generally sticks to the measured language of scholarly publications, the title of a 2021 paper, co-written with Stanford University’s Liran Einav and Neale Mahoney, seems intended to provoke controversy—“Long-Term Care Hospitals: A Case Study in Waste.”
Until the early 1980s, there were only a few dozen such hospitals in the United States. But when a new payment system limited Medicare reimbursements for so-called acute care hospitals, it made an exception for long-term care hospitals (LTCHs), which are reimbursed at far higher rates than comparable skilled nursing facilities. The result: the number of LTCHs eventually mushroomed to more than 400.
Finkelstein and her collaborators found that when LTCHs come into a market, they essentially care for patients who would otherwise have gone to a skilled nursing facility. They were paid about a thousand dollars a day more and had “no measurable benefits on, say, mortality or the chance you’ll be home in 90 days,” she says.
After crunching 17 years of data, they concluded that Medicare could save about $4.6 billion a year by reimbursing LTCHs on the same basis as skilled nursing facilities—with no harm to patients.
Finkelstein says the paper is an example of what MIT professor and Nobel laureate Esther Duflo calls the “plumbing approach” to economics—identifying specific flaws that can be fixed relatively easily, as opposed to coming up with big systemic solutions that may have disappointing results or unintended consequences.
