Project Summary/Abstract: Each year, Medicare spends an estimated $13 billion on medically unnecessary care (CMS 2011). Reducing payments for unnecessary services can improve the quality, affordability, and safety of healthcare delivery. The proposed dissertation project uses a data-driven, quasi-experimental approach to study the Recovery Audit Contractor (RAC) program, a large Medicare audit program aimed at detecting medically unnecessary care. Little research has been done evaluating the audit program, despite its large impact on providers. It is also theoretically ambiguous whether auditing decisions made under uncertainty, like the decisions that physicians make, can reduce unnecessary medical care without negative consequences. The research objective is to provide causal evidence on whether audits can reduce medically unnecessary care without compromising patient outcomes or imposing undue burden on providers. The proposed project focuses on the context of unnecessary hospital admissions and considers the effects of audits at both the patient-level and hospital-level. Aim 1 and Aim 2 seek to estimate the effect of audits on patient-level hospital admissions and health outcomes. The project leverages exogenous variation in audit rates across patient populations to causally estimate this effect. Preliminary results demonstrate that a udits reduce inpatient admissions. Providers responded to audits by reducing hospital admissions for relatively healthy patients, in line with a model where providers reduce medically unnecessary hospital admissions in response to audits. Preliminary results also demonstrate that the increased audit rate has no detectable effect on two patient outcomes: in-hospital mortality and r evisits. Aim 3 seeks to quantify the financial burden of audits on providers by comparing balance sheet data (i.e., administrative costs, hiring, investments) of hospitals that were differentially affected by RAC audits. The overarching objectives of the proposed dissertation project are to be one of the first studies to evaluate the efficacy of the RAC program, highlight the policy’s potential unintended consequences, and inform policymakers on how to leverage audits as a policy tool to reduce unnecessary care.