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Objectives. The goal of this study was to assess the impact of providing enhanced Medicare payments to frontier clinics for extended stay services on the use and cost of emergency care.

Study Design. The study is based on a difference-in-differences design in which we compare changes in emergency transfers, hospitalizations, and payments among beneficiaries treated at participating clinics after the introduction of enhanced payments compared with changes among beneficiaries from nonparticipating clinics.

Data Sources/Study Setting. The study is based on an analysis of Medicare enrollment and claims data, as well as extended stay encounter data for beneficiaries treated at four ambulatory health clinics in frontier regions of Alaska from 2008 through 2013.

Methods. We used a linear probability regression model to estimate the impact of the demonstration on the probability of having an emergency transfer or an inpatient admission within seven days of a clinic visit. Our difference-in-differences study design controls for unobservable differences in transfer and hospitalization rates between demonstration and comparison clinics unrelated to the demonstration and external trends in transfer rates affecting all clinics. We control directly for beneficiary characteristics (age, gender, race/ethnicity, dual eligibility, disability, and mortality) likely to be associated with being transferred and hospitalized.

Results. Enhanced payments for extended stay services led to a 21.4% reduction in emergency transfers and a 23.9% reduction in hospitalizations. Reimbursement for extended stay services at participating clinics also resulted in a net reduction in Medicare payments of $7,707 per extended stay episode of care.

Conclusions. Coverage for extended stays has the potential for reducing avoidable transfers and hospitalizations and lowering costs for patients treated for potentially serious illness or injury in frontier communities. However, the savings might not be sufficient to offset the investments needed to build and maintain extended stay capacity at frontier clinics without higher payment rates or adoption by other payers.