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The Role of Overbilling in Hospitals’ Earnings Management Decisions

Jonas Heese ()
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Jonas Heese: Harvard Business School, Accounting and Management Unit

No 18-026, Harvard Business School Working Papers from Harvard Business School

Abstract: This paper examines the role of overbilling in hospitals' earnings management choices. Overbilling by hospitals is a form of revenue manipulation that involves misclassifying a patient into a diagnosis-related group that yields higher reimbursement. As overbilling allows hospitals to increase revenues without altering operations, affecting costs, or having to reverse such behavior in the future, I propose and find that overbilling reduces hospitals' use of managing accruals or cutting discretionary expenditures. Next, I find that hospital managers prefer overbilling to managing accruals (cutting discretionary expenditures) when cutting discretionary expenditures (managing accruals) is constrained, and vice versa. Collectively, my findings suggest that overbilling is an important alternative manipulation tool in hospitals.

Keywords: Overbilling; accrual-based earnings management; real activities manipulation; for-profit hospitals (search for similar items in EconPapers)
JEL-codes: I11 I18 M41 M48 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2017-09
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