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Swiss DRGs: Patient Heterogeneity and Hospital Payments

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  • Michel Mougeot
  • Florence Naegelen

Abstract

In this paper, we analyze the prospective method of paying hospitals when the within-DRG variance is high. To avoid patients dumping, an outlier payment system is implemented. In the APDRG Swiss System, it consists in a mixture of fully prospective payments for low costs patients and partially cost-based system for high cost patients. We show how the optimal policy depends on the degree to which hospitals take patients' interest into account. A fixed-price policy is optimal when the hospital is sufficiently benevolent. When the hospital is weakly benevolent, a mixed policy solving a trade-off between rent extraction, efficiency and dumping deterrence must be preferred. Following Mougeot and Naegelen (2008), we show how the optimal combination of fixed price and partially costbased payment depends on the degree of benevolence of the hospital, the social cost of public funds and the distribution of patients severity.

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Bibliographic Info

Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 144 (2008)
Issue (Month): III (September)
Pages: 309-322

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Handle: RePEc:ses:arsjes:2008-iii-2

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Related research

Keywords: hospital price regulation; outlier payment; piecewise mechanism;

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  1. 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.
  2. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
  3. Ellis, Randall P. & McGuire, Thomas G., 1988. "Insurance principles and the design of prospective payment systems," Journal of Health Economics, Elsevier, vol. 7(3), pages 215-237, September.
  4. Billy Jack, 2001. "Purchasing Health Care Services from Providers with Unknown Altruism," Working Papers gueconwpa~03-03-13, Georgetown University, Department of Economics.
  5. Chalkley, Martin & Malcomson, James M., 2002. "Cost sharing in health service provision: an empirical assessment of cost savings," Journal of Public Economics, Elsevier, vol. 84(2), pages 219-249, May.
  6. Keeler, Emmett B. & Carter, Grace M. & Trude, Sally, 1988. "Insurance aspects of DRG outlier payments," Journal of Health Economics, Elsevier, vol. 7(3), pages 193-214, September.
  7. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services with unmonitored quality," Discussion Paper Series In Economics And Econometrics 9510, Economics Division, School of Social Sciences, University of Southampton.
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