In many sectors, privatization is pursued to improve efficiency but raises concerns about cost-cutting and underprovision. In health care, however, the dominant margin of response may be overprovision—higher spending driven by billing and coding efforts rather than by increased value. I study this mechanism in the context of Arkansas’s 2016 sale of its statewide public home health agency network to a national for-profit chain. A stylized model predicts that privatization shifts managerial attention toward billing effort—resources devoted to documentation, coding, and service mix decisions—that raise the effective reimbursement per episode and expand care along an upward-sloping cost curve. Consistent with these predictions, difference-in-differences estimates using Medicare data from 2010–2021 show that privatization increased effective reimbursement per episode by 27 percent and statewide home health use by roughly 10 percent, with no evidence of reduced access for high-cost or rural populations. Spending rose substantially, but measurable quality and outcomes remained flat. These findings suggest that when payment is endogenous to provider behavior, privatization may reshape the trade-offs typically associated with ownership change, increasing spending and access without necessarily increasing the value of care.

Medicare home health care is often characterized as a postacute care benefit, yet community-entry users—those admitted without a preceding hospitalization—account for nearly half of all spending and episodes in traditional Medicare. Using Medicare administrative data from 2017, 2019, and 2021, we analyzed differences between community-entry and postacute home health users. Community-entry beneficiaries were older; were more likely to be dually eligible; and had substantially higher rates of cognitive impairment, Alzheimer’s disease, and depression compared with postacute users. Despite these clinical differences, visit patterns remained similar between groups. We documented significant state-level variation in community-entry prevalence, with changes in community-entry share that were positively associated with changes in overall home health spending. Our findings reveal a fundamental tension between policies that favor postacute care and the reality of Medicare home health use, which serves a substantial population with clinical and demographic profiles that differ from those of postacute care users.

Home health care has long been characterized as highly responsive to supply-side factors. Despite this widespread perception, there is limited direct evidence on how supply affects patterns of use. This study leverages variation in home health agency entry and exit across time and local areas to examine the supply sensitivity of home health care and its downstream consequences. Analyzing how changes in home health supply differentially affect post-acute versus community-entry patients reveals stark differences in responsiveness: although changes in supply have minimal effects on post-acute care use, they substantially increase community-entry use . Beyond these direct effects on use, expanded access generates complex shifts in broader healthcare use. These effects operate through both substitution and complementarity channels: expanded access reduces hospitalizations and Medicaid-funded nursing homes, but also increases prescription drug use and hospice use. The increase in total Medicare spending suggests that expanded home health access represents a net addition to Medicare services rather than pure substitution. Together, these two sets of results - the differential supply sensitivity between care pathways and the complex healthcare use patterns that result from expanded access - challenge the conventional view of home health care as primarily a substitute for institutional post-acute care.

This paper examines how Medicare payment policy influences the supply of home health agencies (HHAs). I exploit a 2006 reform that redefined the geographic boundaries used to calculate Medicare’s home health wage index, creating plausibly exogenous variation in episode-based payment rates across local markets. Using national provider data from 2002–2022 and an event study design, I find that HHAs respond to negative payment shocks by reducing employment and slowing entry, while responses to positive shocks are more muted—consistent with already-high Medicare margins reducing the incentive to expand. A case study of California suggests that these supply-side changes do not translate into short-run changes in utilization. These findings shed light on how regulated prices shape firm behavior and market structure in a low-fixed-cost segment of the health care sector.