Childhood Mental Health and Long-run Financial Outcomes
Dragana Cvijanovic, Moritz Wiedemann, Atlas Wu
We investigate the relationship between childhood mental health conditions and financial outcomes later in life. We find that individuals with childhood mental health conditions are significantly less likely to hold any assets, accumulate fewer total assets both unconditionally and conditionally on asset ownership, and are less likely to be homeowners over the life cycle. They also tend to accumulate more debt, and in particular more non-mortgage debt. These results are largely driven by white and male demographic groups. Financial literacy mitigates most of these effects. Childhood mental health is also linked to a lower likelihood of overconfidence, shorter life span expectancy and financial planning horizons, more pessimistic economic outlook, and reduced cognitive abilities, all of which may jointly explain the observed differences in financial outcomes.
Competition and Fraud in Healthcare
Ryan McDevitt
Corporate Behavior When Running the Firm for Stakeholders: Evidence from Hospitals
Christoph Herpfer, Jianzhang Lin, Gonzalo Maturana
We study how stakeholder orientation impacts firm management and performance. We exploit state-level law changes governing the conversion of hospitals from nonprofit to for-profit and find that for-profit orientation reduces hospital spending on emergency rooms and Medicaid patients,while increasing focus on revenue and affecting investment decisions. Consistent with spillovers, nonprofit hospitals located near converting hospitals experience increased emergency room visits and expenditures. We investigate governance channels that align corporate behavior with stake-holders and find that converted for-profit hospitals adjust their boards by replacing MDs with MBAs, and that the tax code is a major source of governance for nonprofits.
Firm Investment in the Face of Tail Risk: Evidence From Hospitals
Meghan Esson and Jingshu Luo
We examine how organizations navigate investment decisions when confronted with tail risk -- the small possibility of extreme financial loss. We focus on hospital investments in trauma centers faced with medical malpractice risk. We focus on hospitals for three reasons: first, medical malpractice insurance inherently leaves hospitals exposed to substantial tail risk; second, the consequential financial stakes of medical liability for hospitals are quite large; and third, while trauma centers are financially beneficial, they are also exceptionally susceptible to tail risk given the critical nature of their services. For identification, we exploit the staggered adoption of caps on non-economic damages across states from 1991 to 2011, treating this as a quasi-random modulation of tail risk. These caps impose a ceiling on potential awards in malpractice lawsuits, thereby attenuating the tail risk. Employing a staggered synthetic control methodology, we find a 25% increase in the likelihood that a hospital has a trauma center following the reduction of tail risk. This effect is predominantly driven by non-profit hospitals and new investments (i.e., trauma center openings) rather than disinvestment (i.e., decrease in trauma center closures), indicating a one-sided response to decreased tail risk. We demonstrate that this increased presence of trauma centers is associated with a 3% reduction in traffic fatalities, with more pronounced effects in areas prone to mass casualty incidents. The timing of health improvements aligns closely with the increase in trauma centers, suggesting a direct link between hospital investment decisions and improved public health outcomes.
On the Economic Infeasibility of Personalized Medicine, and a Solution
Marina Chiara Garassino, Kunel Odunsi, Marciano Siniscalchi, Pietro Veronesi
Technological advances and genomic sequencing opened the road to personalized medicine, specialized therapies targeted to patients displaying specific molecular alterations. In oncology, targeted therapies are now available even for alterations affecting less than 1% of lung cancer patients. Summing across alterations, targeted therapies are available for over 50% of patients and greatly contributed to increasing their life expectancy. In an investment model of drug development, we show that the current infrastructure requiring experimentation and FDA approval of each therapy will fail as researchers identify increasingly rarer alterations. We also show that AI-based drug discovery is instead viable under the paradigm shift in which the FDA approves the process for personalized drug discovery rather than individual therapies.
Overbilling and Killing? An Examination of the Skilled Nursing Industry
John M. Griffin and Alex Priest
Skilled Nursing Facility (SNF) systems that provided excess rehab therapy just above revenue thresholds quickly begin upcoding previously unidentified comorbidities under the new PDPM billing regime. Patients at these opportunistic systems develop more than 50% greater preventable conditions and have twice as many verified reviews indicating abuse. Opportunistic systems mask adverse outcomes through underreporting to CMS. Instrumental variable estimates indicate that opportunistic SNF systems are responsible for an additional 35,000 hospitalizations and 30,000 deaths since PDPM was enacted, while overbilling Medicare $4.3 billion. Opportunistic SNF systems are spreading with more than 2.5 times the acquisition rate of accurate billing systems.
Valuing Pharmaceutical Innovation
Gaurab Aryal, Federico Ciliberto, Leland E. Farmer, Ekaterina Khmelnitskaya
We propose a methodology to estimate the market value of pharmaceutical drugs. Our approach combines an event study with a model of discounted cash flows and uses stock market responses to drug development announcements to infer the values. We estimate that, on average, a successful drug is valued at $1.62 billion, and its value at the discovery stage is $64.3 million, with substantial heterogeneity across major diseases. Leveraging these estimates, we also determine the average drug development costs at various stages. Furthermore, we explore applying our estimates to design policies that support drug development through drug buyouts and cost-sharing agreements.
When Private Equity Comes to Town: The Local Economic Consequences of Rising Healthcare Costs
Cyrus Aghamolla, Jash Jain, Richard T. Thakor
We examine the effect of increased healthcare costs on local economic conditions. We use private equity buyouts of hospital systems as a shock to the healthcare costs faced by firms in affected areas. We provide evidence that private equity buyouts of hospital systems result in higher healthcare insurance premiums paid by firms, and such rises in premiums lead to higher business bankruptcies, an increase in business loan volume, slower employment and establishment growth, and reduced innovative output. The effects are more pronounced in areas with less competitive hospital markets, higher labor intensity, and fewer insurers providing coverage.
