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Pricing Rules for Hospitals

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  • Jeffrey E. Harris

Abstract

The widespread cross subsidization observed in hospital rate structures has become the focus of increasing controversy. This paper shows how this pricing practice can play a critical role in compensating for distortions and inequalities in existing health insurance coverage. The hospital pricing decision is modeled as a problem in public enterprise pricing. Theoretically derived prices are then compared with those charges actually observed in a representative hospital. Cross subsidization among ancillary services, special procedures, and daily accommodations is found to have potentially significant welfare gains. These results suggest that the frequently cited norm of average cost pricing in hospitals may have serious drawbacks.

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  • Jeffrey E. Harris, 1979. "Pricing Rules for Hospitals," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 224-243, Spring.
    • Handle: RePEc:rje:bellje:v:10:y:1979:i:spring:p:224-243
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    Cited by:

    1. Thomas Kniesner & W. Viscusi & James Ziliak, 2010. "Policy relevant heterogeneity in the value of statistical life: New evidence from panel data quantile regressions," Journal of Risk and Uncertainty, Springer, vol. 40(1), pages 15-31, February.
    2. William P. Rogerson, 1993. "Choice of Treatment Intensities by a Nonprofit Hospital Under Prospective Pricing," Discussion Papers 1069, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    3. William P. Rogerson, 1994. "Choice of Treatment Intensities by a Nonprofit Hospital Under Prospective Pricing," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 7-51, March.
    4. Rosella Levaggi & Michele Moretto & Vincenzo Rebba, 2009. "Investment decisions in hospital technology when physicians are devoted workers," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 18(5), pages 487-512.
    5. Alessandro Avenali & Tiziana D’Alfonso & Pierfrancesco Reverberi, 2022. "Optimal pricing and investment for resources with alternative uses and capacity limits," Journal of Regulatory Economics, Springer, vol. 61(3), pages 222-229, June.
    6. Charles E. Phelps, 1995. "Perspectives in health economics," Health Economics, John Wiley & Sons, Ltd., vol. 4(5), pages 335-353, September.
    7. Seema S. Sonnad & Stephen Earl Foreman, 1997. "An incentive approach to physician implementation of medical practice guidelines," Health Economics, John Wiley & Sons, Ltd., vol. 6(5), pages 467-477, September.
    8. Rosella Levaggi, 2007. "Regulating internal markets for hospital care," Journal of Regulatory Economics, Springer, vol. 32(2), pages 173-193, October.
    9. Joseph P. Newhouse, 1994. "Symposium on Health Care Reform," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 3-11, Summer.
    10. Kesteloot, K. & Voet, N., 1998. "Incentives for cooperation in quality improvement among hospitals--the impact of the reimbursement system," Journal of Health Economics, Elsevier, vol. 17(6), pages 701-728, December.

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