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One price for all? Sources of cost variations between public and private hospitals

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  • Zeynep Or

    ()
    (IRDES institut for research and information in health economics)

  • Thomas Renaud

    ()
    (IRDES institut for research and information in health economics)

  • Laure Com-Ruelle

    ()
    (IRDES institut for research and information in health economics)

Abstract

Within the framework of its activity-based payment system, introduced in 2005, the French government is now seeking to achieve price convergence between public and private hospitals. This paper questions the economic justification of this convergence by examining the literature on hospital costs variation and analyzing French hospital activity data. The literature on hospital economics identifies many factors which can generate cost differences between hospitals a part from efficiency. These include hospital size and its range of activity, differences in patient characteristics and quality of the care. The results from the literature suggest that DRG prices should be adjusted to take into account these factors, which are not always under the control of public hospitals but which have a direct impact on their costs. In addition, the analysis of French hospital activity indicates a strong partitioning of the type of care provided between the public and private sectors, corresponding to different hospital profiles. Not taking these different profiles into account when setting DRG prices could endanger the capacity of the hospital system to provide necessary care as well as equity of access.

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File URL: http://www.irdes.fr/EspaceRecherche/DocumentsDeTravail/DT25EcartsCoutHospitaliers.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by IRDES institut for research and information in health economics in its series Working Papers with number DT25.

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Length: 32 pages
Date of creation: May 2009
Date of revision: May 2009
Handle: RePEc:irh:wpaper:dt25

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Keywords: DRG; Activity based payment; hospital cost variation; regulation; France.;

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  1. Medhi Farsi & Massimo Filippini, 2006. "Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland," Quaderni della facoltà di Scienze economiche dell'Università di Lugano 0606, USI Università della Svizzera italiana.
  2. Pope, Gregory C., 1990. "Using hospital-specific costs to improve the fairness of prospective reimbursement," Journal of Health Economics, Elsevier, vol. 9(3), pages 237-251, November.
  3. Martin Gaynor & William B. Vogt, . "Antitrust and Competition in Health Care Markets," GSIA Working Papers 1999-E29, Carnegie Mellon University, Tepper School of Business.
  4. Keeler, Emmett B., 1990. "What proportion of hospital cost differences is justifiable?," Journal of Health Economics, Elsevier, vol. 9(3), pages 359-365, November.
  5. Ellis, Randall P. & Vidal-Fernández, Marian, 2007. "Activity-based payments and reforms of the English hospital payment system," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 435-444, October.
  6. Andrew Street & Kirsi Vitikainen & Afsaneh Bjorvatn & Anne Hvenegaard, 2007. "Introducing activity-based financing: a review of experience in Australia, Denmark, Norway and Sweden," Working Papers 030cherp, Centre for Health Economics, University of York.
  7. Malcomson, James M., 2007. "Hospital cost differences and payment by results," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 429-433, October.
  8. Street, Andrew & Maynard, Alan, 2007. "Activity based financing in England: the need for continual refinement of payment by results," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 419-427, October.
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