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The Incidence of Adverse Medical Outcomes Under Prospective Payments

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David M. Cutler

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Abstract

This paper examines the effect of prospective payment for hospital care on adverse medical outcomes. In 1983, the federal government replaced its previous cost-based reimbursement method with a prospective payment system, where reimbursement depends only On the diagnosis of the patient. Hospitals thus lost the marginal reimbursement they formally received for providing additional treatments. In addition, the average price each received changed with fixed reimbursement. This paper related each of these changes to adverse outcomes, with two conclusions. First, there is a change in the timing of deaths associated with changes in average prices. In hospitals with price declines, a greater share of deaths occur in the hospital or shortly after discharge, but by one or two years post-discharge, this difference in mortality rates disappears. Second, there is a trend increase in readmission rates caused by the elimination of marginal reimbursement. This appears to be due to accounting changes on the part of hospitals, however, rather than true changes in morbidity.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4300.

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Date of creation: Mar 1993
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Publication status: published as Econometrica, February 1995, pp. 29-50
Handle: RePEc:nbr:nberwo:4300

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Find related papers by JEL classification:
H40 - Public Economics - - Publicly Provided Goods - - - General
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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  1. Jeffrey E. Harris, 1977. "The Internal Organization of Hospitals: Some Economic Implications," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 467-482, Autumn. [Downloadable!] (restricted)
  2. Han, Aaron & Hausman, Jerry A, 1990. "Flexible Parametric Estimation of Duration and Competing Risk Models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 5(1), pages 1-28, January-M. [Downloadable!] (restricted)
  3. Feldstein, Martin S, 1977. "Quality Change and the Demand for Hospital Care," Econometrica, Econometric Society, vol. 45(7), pages 1681-1702, October. [Downloadable!] (restricted)
  4. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March. [Downloadable!] (restricted)
  5. Chamberlain, Gary, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Blackwell Publishing, vol. 47(1), pages 225-38, January. [Downloadable!] (restricted)
  6. Alan M. Garber & Victor R. Fuchs & James F. Silverman, 1984. "Case Mix, Costs, and Outcomes: Differences Between Faculty and Community Services in a University Hospital," NBER Working Papers 1159, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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