The effect of entry regulation in the health care sector: The case of home health

The consequences of government regulation in the post-acute care sector are not well understood. We examine the effect of entry regulation on quality of care in home health care by analyzing the universe of hospital discharges during 2006 for publicly insured beneficiaries (about 4.5 million) and subsequent home health admissions to determine whether there is a significant difference in home health utilization, hospital readmission rates, and health care expenditures in states with and without Certificate of Need laws (CON) regulating entry. We identify these effects by looking across regulated and nonregulated states within Hospital Referral Regions, which characterize well-defined health care markets and frequently cross state boundaries. We find that CON states use home health less frequently, but system-wide rehospitalization rates, overall Medicare expenditures, and home health practice patterns are similar. Removing CON for home health would have negligible system-wide effects on health care costs and quality.