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Does How Much and How You Pay Matter? Evidence from the Inpatient Rehabilitation Facility Prospective Payment System

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  • Neeraj Sood
  • Melinda Beeuwkes Buntin
  • Jose J. Escarce

Abstract

We use the implementation of a new prospective payment system (PPS) for inpatient rehabilitation facilities (IRFs) to investigate the effect of changes in marginal and average reimbursement on costs. The results show that the IRF PPS led to a significant decline in costs and length of stay. Changes in marginal reimbursement associated with the move from a cost based system to a PPS led to a 7 to 11% reduction in costs. The elasticity of costs with respect average reimbursement ranged from 0.26 to 0.34. Finally, the IRF PPS had little or no impact on costs in other sites of care, mortality, or the rate of return to community residence.

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File URL: http://www.nber.org/papers/w12556.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12556.

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Date of creation: Oct 2006
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Publication status: published as Sood, Neeraj, Melinda Beeuwkes Buntin, and Jose J. Escarce. "Does How Much and How You Pay Matter? Evidence from the Inpatient Rehabilitation Facility Prospective Payment System." Journal of Health Economics 27, 4 (July 2008): 1046-1059.
Handle: RePEc:nbr:nberwo:12556

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  1. Frank, Richard G. & McGuire, Thomas G., 2000. "Economics and mental health," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 16, pages 893-954 Elsevier.
  2. Ellis, Randall P. & McGuire, Thomas G., 1996. "Hospital response to prospective payment: Moral hazard, selection, and practice-style effects," Journal of Health Economics, Elsevier, vol. 15(3), pages 257-277, June.
  3. Shen, Yu-Chu, 2003. "The effect of financial pressure on the quality of care in hospitals," Journal of Health Economics, Elsevier, vol. 22(2), pages 243-269, March.
  4. Cutler, D.M., 1992. "The Incidence of Adverse Medical Outcome Under Prospective Payment," Harvard Institute of Economic Research Working Papers 1603, Harvard - Institute of Economic Research.
  5. Hodgkin, Dominic & McGuire, Thomas G., 1994. "Payment levels and hospital response to prospective payment," Journal of Health Economics, Elsevier, vol. 13(1), pages 1-29, March.
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Cited by:
  1. Galina Besstremyannaya & Dmitry Shapiro, 2012. "Heterogeneous effect of prospective payment system on hospital’s volume and quality," Working Papers w0181, Center for Economic and Financial Research (CEFIR).

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