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How Do Hospitals Respond to Price Changes?

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Author Info
Leemore S. Dafny
Abstract

This paper examines hospital responses to changes in diagnosis-specific prices by exploiting a 1988 policy reform that generated large price changes for 43 percent of Medicare admissions. I find hospitals responded primarily by "upcoding" patients to diagnosis codes with the largest price increases. This response was particularly strong among for-profit hospitals. I find little evidence hospitals increased the volume of admissions differentially for diagnoses subject to the largest price increases, despite the financial incentive to do so. Neither did they increase intensity or quality of care in these diagnoses, suggesting hospitals do not compete for patients at the diagnosis level.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 95 (2005)
Issue (Month): 5 (December)
Pages: 1525-1547
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Handle: RePEc:aea:aecrev:v:95:y:2005:i:5:p:1525-1547

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. David Dranove, 1987. "Rate-Setting by Diagnosis Related Groups and Hospital Specialization," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 417-427, Autumn. [Downloadable!] (restricted)
  2. Mark G. Duggan, 2000. "Hospital Ownership And Public Medical Spending," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1343-1373, November. [Downloadable!] (restricted)
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  3. Boyd H. Gilman, 2000. "Hospital response to DRG refinements: the impact of multiple reimbursement incentives on inpatient length of stay," Health Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 277-294.
  4. David M. Cutler, 1998. "Cost Shifting or Cost Cutting? The Incidence of Reductions in Medicare Payments," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 1-28 National Bureau of Economic Research, Inc. [Downloadable!]
  5. Ellis, Randall P. & McGuire, Thomas G., 1996. "Hospital response to prospective payment: Moral hazard, selection, and practice-style effects," Journal of Health Economics, Elsevier, vol. 15(3), pages 257-277, June. [Downloadable!] (restricted)
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  6. Mark Duggan, 2002. "Hospital Market Structure and the Behavior of Not-For-Profit Hospitals," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 433-446, Autumn.
  7. Dafny, Leemore & Gruber, Jonathan, 2005. "Public insurance and child hospitalizations: access and efficiency effects," Journal of Public Economics, Elsevier, vol. 89(1), pages 109-129, January. [Downloadable!] (restricted)
  8. Dranove, David, 1988. "Pricing by non-profit institutions : The case of hospital cost-shifting," Journal of Health Economics, Elsevier, vol. 7(1), pages 47-57, March. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Gian Paolo Barbetta & Gilberto Turati & Angelo Zago, 2004. "Behavioral Differences Between Public and Private Not-For-Profit Hospitals in the Italian National Health Service," Working Papers 12, Università di Verona, Dipartimento di Scienze economiche. [Downloadable!]
    Other versions:
  2. Moreno-Serra, Rodrigo & Wagstaff, Adam, 2009. "System-wide impacts of hospital payment reforms : evidence from central and eastern Europe and central Asia," Policy Research Working Paper Series 4987, The World Bank. [Downloadable!]
  3. Joseph J. Doyle, Jr. & Steven M. Ewer & Todd H. Wagner, 2008. "Returns to Physician Human Capital: Analyzing Patients Randomized to Physician Teams," NBER Working Papers 14174, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Berta, P & Callea, G & Martini, G & Vittadini, G, 2009. "The effects of upcoding, cream skimming and readmissions on the Italian hospitals efficiency: a population–based investigation," MPRA Paper 17671, University Library of Munich, Germany. [Downloadable!]
  5. Katherine Ho & Matthew Neidell, 2009. "Equilibrium effects of public goods: The impact of community water fluoridation on dentists," NBER Working Papers 15056, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Kuhn, Michael & Siciliani, Luigi, 2008. "Upcoding and Optimal Auditing in Health Care (or The economics of DRG creep)," CEPR Discussion Papers 6689, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Daron Acemoglu & Amy Finkelstein, 2006. "Input and Technology Choices in Regulated Industries: Evidence From the Health Care Sector," NBER Working Papers 12254, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Christoph Schwierz & Ansgar Wübker & Björn A. Kuchinke, 2009. "The Impact of Private versus Social Health Insurance on Offered Waiting Times in German Acute Care Hospitals," Ruhr Economic Papers 0120, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  9. Marco Castaneda & Dino Falaschetti, 2008. "Does a Hospital’s Profit Status Affect its Operational Scope?," Review of Industrial Organization, Springer, vol. 33(2), pages 129-159, September. [Downloadable!] (restricted)
  10. Leemore Dafny & David Dranove, 2006. "Regulatory Exploitation and the Market for Corporate Controls," NBER Working Papers 12438, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Leemore S. Dafny, 2005. "Estimation and Identification of Merger Effects: An Application to Hospital Mergers," NBER Working Papers 11673, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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