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Does prospective payment reduce inpatient length of stay?

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Author Info

  • Edward C. Norton

    (Department of Health Policy and Administration, School of Public Health, University of North Carolina at Chapel Hill, USA)

  • Courtney Harold Van Houtven

    (Cecil G. Sheps Center for Health Services Research, University of North Carolina at Chapel Hill, USA)

  • Richard C. Lindrooth

    (Center for Health Industry Market Economics, Kellogg School of Management, Northwestern University, USA)

  • Sharon-Lise T. Normand
  • Barbara Dickey

    (Department of Psychiatry, The Cambridge Hospital, Harvard Medical School, USA)

Abstract

A change in payment mechanism for inpatient care from per diem to per episode creates two incentives - a marginal and an average price effect - to change length of stay. The decrease in marginal price per day to zero should reduce the length of stay, while an increase in average price per inpatient stay should increase the length of stay. This study uses data from a natural experiment to estimate both marginal and average price elasticities, and to test whether the length of stay falls after the introduction of prospective payment in a sample of 8509 severely mentally ill patients. We estimate that the marginal price elasticity is zero, but the average price elasticity is between 0.16 and 0.20. The results were generally robust for short- and long stayers, and for persons admitted early and late after the change in payment mechanism. The model controlled for hospital fixed effects and individual random effects. Copyright © 2002 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/hec.675
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Health Economics.

Volume (Year): 11 (2002)
Issue (Month): 5 ()
Pages: 377-387

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Handle: RePEc:wly:hlthec:v:11:y:2002:i:5:p:377-387

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/5749

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References

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  2. Cutler, D.M., 1992. "The Incidence of Adverse Medical Outcome Under Prospective Payment," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1603, Harvard - Institute of Economic Research.
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  4. Ching-to Albert Ma & Thomas G. McGuire, 1995. "Optimal Health Insurance and Provider Payment," Papers, Boston University - Industry Studies Programme 0059, Boston University - Industry Studies Programme.
  5. Randall P. Ellis & Thomas G. McGuire, 1994. "Hospital Response to Prospective Payment: Moral Hazard, Selection, and Practice-Style Effects," Papers, Boston University - Industry Studies Programme 0050, Boston University - Industry Studies Programme.
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  8. Frank, Richard G. & McGuire, Thomas G., 2000. "Economics and mental health," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 16, pages 893-954 Elsevier.
  9. Breusch, T S & Pagan, A R, 1980. "The Lagrange Multiplier Test and Its Applications to Model Specification in Econometrics," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 47(1), pages 239-53, January.
  10. Rogerson, William P, 1994. "Choice of Treatment Intensities by a Nonprofit Hospital under Prospective Pricing," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 3(1), pages 7-51, Spring.
  11. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier.
  12. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, Econometric Society, vol. 46(1), pages 69-85, January.
  13. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
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Cited by:
  1. Helmut Herwartz & Christoph Strumann, 2012. "On the effect of prospective payment on local hospital competition in Germany," Health Care Management Science, Springer, Springer, vol. 15(1), pages 48-62, March.
  2. He, Daifeng & Mellor, Jennifer M., 2012. "Hospital volume responses to Medicare's Outpatient Prospective Payment System: Evidence from Florida," Journal of Health Economics, Elsevier, Elsevier, vol. 31(5), pages 730-743.
  3. Varabyova, Yauheniya & Schreyögg, Jonas, 2013. "International comparisons of the technical efficiency of the hospital sector: Panel data analysis of OECD countries using parametric and non-parametric approaches," Health Policy, Elsevier, Elsevier, vol. 112(1), pages 70-79.
  4. Cheng, Shou-Hsia & Chen, Chi-Chen & Chang, Wei-Ling, 2009. "Hospital response to a global budget program under universal health insurance in Taiwan," Health Policy, Elsevier, Elsevier, vol. 92(2-3), pages 158-164, October.
  5. Anurag Sharma, 2009. "Inter-DRG resource dynamics in a prospective payment system: a stochastic kernel approach," Health Care Management Science, Springer, Springer, vol. 12(1), pages 38-55, March.
  6. Jiale Zhang, 2007. "A DID analysis of the impact of health insurance reform in the city of Hangzhou," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(12), pages 1389-1402.
  7. Edward C. Norton & Jangho Yoon & Marisa Elena Domino & Joseph P. Morrissey, 2006. "Transitions between the public mental health system and jail for persons with severe mental illness: a Markov analysis," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 15(7), pages 719-733.
  8. Gao, Chen & Xu, Fei & Liu, Gordon G., 2014. "Payment reform and changes in health care in China," Social Science & Medicine, Elsevier, Elsevier, vol. 111(C), pages 10-16.
  9. Kuwabara, Hiroyo & Fushimi, Kiyohide, 2009. "The impact of a new payment system with case-mix measurement on hospital practices for breast cancer patients in Japan," Health Policy, Elsevier, Elsevier, vol. 92(1), pages 65-72, September.
  10. Perelman, Julian & Closon, Marie-Christine, 2007. "Hospital response to prospective financing of in-patient days: The Belgian case," Health Policy, Elsevier, Elsevier, vol. 84(2-3), pages 200-209, December.
  11. R. Konetzka & Edward Norton & Sally Stearns, 2006. "Medicare payment changes and nursing home quality: effects on long-stay residents," International Journal of Health Care Finance and Economics, Springer, Springer, vol. 6(3), pages 173-189, September.

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