Hospital executives are under continual pressure to control spending and improve quality. While prior studies have focused on the relationship between overall hospital spending and quality, the relationship between spending on specific services and quality has received minimal attention. The literature thus provides executives limited guidance regarding how they should allocate scarce resources. Using Medicare claims and cost report data, we examined the association between hospital spending for specific services and 30-day readmission rates for heart failure, pneumonia, and acute myocardial infarction. We found that occupational therapy is the only spending category where additional spending has a statistically significant association with lower readmission rates for all three medical conditions. One possible explanation is that occupational therapy places a unique and immediate focus on patients' functional and social needs, which can be important drivers of readmission if left unaddressed.
Keywords: hospital management; hospital spending; occupational therapy; quality; readmissions.