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Does Competition under Medicare Prospective Payment Selectively Reduce Expenditures on High-Cost Patients?

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  • David Meltzer
  • Jeanette Chung
  • Anirban Basu

Abstract

Competition and prospective payment have been widely used to control health care costs but may together provide incentives to selectively reduce expenditures on high-cost relative to low-cost users. We use patient discharge and hospital financial data from California to examine the effects of competition on costs for high- and low-cost admissions in the 12 largest Diagnosis-Related Groups before and after the Medicare Prospective Payment System (PPS). We find that competition increased costs before PPS, but that this effect decreased afterward, especially in patients with the highest costs. We conclude that competition and PPS selectively reduced spending among the most expensive patients and that careful assessment of these patients' outcomes is important.

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Bibliographic Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 33 (2002)
Issue (Month): 3 (Autumn)
Pages: 447-468

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Handle: RePEc:rje:randje:v:33:y:2002:i:autumn:p:447-468

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Cited by:
  1. Dormont, Brigitte & Milcent, Carine, 2004. "The sources of hospital cost variability," Economics Papers from University Paris Dauphine 123456789/5426, Paris Dauphine University.
  2. Clark, Andrew E. & Milcent, Carine, 2010. "Public Employment and Political Pressure: The Case of French Hospitals," IZA Discussion Papers 4994, Institute for the Study of Labor (IZA).
  3. Jiale Zhang, 2007. "A DID analysis of the impact of health insurance reform in the city of Hangzhou," Health Economics, John Wiley & Sons, Ltd., vol. 16(12), pages 1389-1402.
  4. Eldenburg, Leslie & Krishnan, Ranjani, 2003. "Public versus private governance: a study of incentives and operational performance," Journal of Accounting and Economics, Elsevier, vol. 35(3), pages 377-404, August.
  5. Björn A. Kuchinke & Ansgar Wübker, 2009. "Defizite von öffentlichen Allgemeinkrankenhäusern in Deutschland: Empirische Befunde von 1998 bis 2004 und wirtschaftspolitische Implikationen," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 10(3), pages 290-308, 08.
  6. Lien, Hsien-Ming & Chou, Shin-Yi & Liu, Jin-Tan, 2008. "Hospital ownership and performance: Evidence from stroke and cardiac treatment in Taiwan," Journal of Health Economics, Elsevier, vol. 27(5), pages 1208-1223, September.
  7. Zack Cooper & Stephen Gibbons & Simon Jones & Alistair McGuire, 2012. "Does Competition Improve Public Hospitals' Efficiency? Evidence from a Quasi-Experiment in the English National Health Service," CEP Discussion Papers dp1125, Centre for Economic Performance, LSE.
  8. Grabowski, David C. & Afendulis, Christopher C. & McGuire, Thomas G., 2011. "Medicare prospective payment and the volume and intensity of skilled nursing facility services," Journal of Health Economics, Elsevier, vol. 30(4), pages 675-684, July.
  9. Chen, Chi-Chen & Cheng, Shou-Hsia, 2010. "Hospital competition and patient-perceived quality of care: Evidence from a single-payer system in Taiwan," Health Policy, Elsevier, vol. 98(1), pages 65-73, November.
  10. Vivian Ho, 2006. "Does certificate of need affect cardiac outcomes and costs?," International Journal of Health Care Finance and Economics, Springer, vol. 6(4), pages 300-324, December.

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