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Buying efficiency: optimal hospital payment in the presence of double upcoding

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  • Simon B. Spika

    (Department of Economics, University of Konstanz)

  • Peter Zweifel

    (Department of Economics, Emeritus, University of Zürich)

Abstract

Background With DRG payments, hospitals can game the system by ’upcoding’ true patient’s severity of illness. This paper takes into account that upcoding can be performed by the chief physician and hospital management, with the extent of the distortion depending on hospital’s internal decision-making process. The internal decision making can be of the principal-agent type with the management as the principal and the chief physician as the agent, but the chief physicians may be able to engage in negotiations with management resulting in a bargaining solution. Results In case of the principal-agent mechanism, the distortion due to upcoding is shown to accumulate, whereas in the bargaining case it is avoided at the level of the chief physician. Conclusion In the presence of upcoding it may be appropriate for the sponsor to design a payment system that fosters bargaining to avoid additional distortions even if this requires extra funding.

Suggested Citation

  • Simon B. Spika & Peter Zweifel, 2019. "Buying efficiency: optimal hospital payment in the presence of double upcoding," Health Economics Review, Springer, vol. 9(1), pages 1-14, December.
    • Handle: RePEc:spr:hecrev:v:9:y:2019:i:1:d:10.1186_s13561-019-0256-4
    DOI: 10.1186/s13561-019-0256-4
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    References listed on IDEAS

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    Cited by:

    1. Yunhui Zhu & Ying Zhou, 2023. "Study on Sustainable Development Oriented Community Public Hospital in China Based on Optimal Decision Making Model for Environment Renovation," Sustainability, MDPI, vol. 15(9), pages 1-27, April.

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