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Choice of Treatment Intensities by a Nonprofit Hospital under Prospective Pricing

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  • Rogerson, William P
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    Abstract

    Under prospective pricing, payers for health care essentially use price regulation of hospitals as a way of indirectly regulating the provision of treatment intensity. This paper presents a theory of how a nonprofit hospital selects treatment intensities for its products given the payer's choice of prices and then determines how the payer should select prices in light of this theory. The main result is that, in equilibrium, the ratio of price to marginal cost will vary across products inversely with the elasticity of demand with respect to treatment intensity. This means that, generally, the hospital will earn positive (negative) accounting profit on products with low-(high-) intensity elasticities of demand. Copyright 1994 by MIT Press.

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    Bibliographic Info

    Article provided by Wiley Blackwell in its journal Journal of Economics & Management Strategy.

    Volume (Year): 3 (1994)
    Issue (Month): 1 (Spring)
    Pages: 7-51

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    Handle: RePEc:bla:jemstr:v:3:y:1994:i:1:p:7-51

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    Web page: http://www.kellogg.northwestern.edu/research/journals/JEMS/

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    Web: http://www.blackwellpublishing.com/journal.asp?ref=1058-6407&site=1

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    Cited by:
    1. Randall P. Ellis & Thomas G. McGuire, 1994. "Hospital Response to Prospective Payment: Moral Hazard, Selection, and Practice-Style Effects," Papers 0050, Boston University - Industry Studies Programme.
    2. Ching-to Albert MA & Ting Liu, 2011. "Health Insurance, Treatment Plan, and Delegation to Altruistic Physician," Boston University - Department of Economics - Working Papers Series WP2011-022, Boston University - Department of Economics.
    3. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November.
    4. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May.
    5. Calem, Paul S. & Dor, Avi & Rizzo, John A., 1999. "The welfare effects of mergers in the hospital industry," Journal of Economics and Business, Elsevier, vol. 51(3), pages 197-213, May.
    6. Edward C. Norton & Courtney Harold Van Houtven & Richard C. Lindrooth & Sharon-Lise T. Normand & Barbara Dickey, 2002. "Does prospective payment reduce inpatient length of stay?," Health Economics, John Wiley & Sons, Ltd., vol. 11(5), pages 377-387.
    7. Yoshida, Atsushi & Kawamura, Akira, 2009. "Who has benefited from the health services system for the elderly in Japan?," Japan and the World Economy, Elsevier, vol. 21(3), pages 256-269, August.
    8. Vislie, Jon, 2009. "Incentive Contracts for Public Health Care Provision under Adverse Selection and Moral Hazard," HERO On line Working Paper Series 2001:6, Oslo University, Health Economics Research Programme.
    9. Chalkley, Martin & Malcomson, James M., 1998. "Contracting for health services when patient demand does not reflect quality," Journal of Health Economics, Elsevier, vol. 17(1), pages 1-19, January.
    10. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
    11. Olivella, Pau, 2003. "Shifting public-health-sector waiting lists to the private sector," European Journal of Political Economy, Elsevier, vol. 19(1), pages 103-132, March.
    12. repec:rdg:wpaper:em-dp2004-25 is not listed on IDEAS
    13. Feess, Eberhard & Ossig, Sonja, 2007. "Reimbursement schemes for hospitals, malpractice liability, and intrinsic motivation," International Review of Law and Economics, Elsevier, vol. 27(4), pages 423-441, December.
    14. Makoto Kakinaka & Ryuta Ray Kato, 2011. "Regulated Medical Fee Schedule of the Japanese Health Care System," Working Papers EMS_2011_13, Research Institute, International University of Japan.
    15. Joy Grossman & Dwayne Banks, 1998. "Unrestricted Entry and Nonprice Competition: The Case of Technological Adoption in Hospitals," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(2), pages 223-245.
    16. Richard G. Frank & Jacob Glazer & Thomas G. McGuire, 1998. "Measuring Adverse Selection in Managed Health Care," NBER Working Papers 6825, National Bureau of Economic Research, Inc.
    17. Alessandra Ferrari, 2004. "The payment of hospital services: a waiting lists model," Economic Analysis Research Group Working Papers earg-wp2004-05, Henley Business School, Reading University.
    18. Thomas G. McGuire & Jacob Glazer, 2000. "Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care," American Economic Review, American Economic Association, vol. 90(4), pages 1055-1071, September.

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