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Does prospective payment reduce inpatient length of stay?

Author

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  • 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.

Suggested Citation

  • Edward C. Norton & Courtney Harold Van Houtven & Richard C. Lindrooth & Sharon-Lise T. Normand & Barbara Dickey, 2002. "Does prospective payment reduce inpatient length of stay?," Health Economics, John Wiley & Sons, Ltd., vol. 11(5), pages 377-387.
  • Handle: RePEc:wly:hlthec:v:11:y:2002:i:5:p:377-387
    DOI: 10.1002/hec.675
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    References listed on IDEAS

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    Cited by:

    1. Shigeoka, Hitoshi & Fushimi, Kiyohide, 2014. "Supplier-induced demand for newborn treatment: Evidence from Japan," Journal of Health Economics, Elsevier, vol. 35(C), pages 162-178.
    2. Theurl, Engelbert & Winner, Hannes, 2007. "The impact of hospital financing on the length of stay: Evidence from Austria," Health Policy, Elsevier, vol. 82(3), pages 375-389, August.
    3. 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, vol. 92(2-3), pages 158-164, October.
    4. He, Daifeng & Mellor, Jennifer M., 2012. "Hospital volume responses to Medicare's Outpatient Prospective Payment System: Evidence from Florida," Journal of Health Economics, Elsevier, vol. 31(5), pages 730-743.
    5. Perelman, Julian & Shmueli, Amir & Closon, Marie-Christine, 2008. "Deriving a risk-adjustment formula for hospital financing: Integrating the impact of socio-economic status on length of stay," Social Science & Medicine, Elsevier, vol. 66(1), pages 88-98, January.
    6. Perelman, Julian & Closon, Marie-Christine, 2007. "Hospital response to prospective financing of in-patient days: The Belgian case," Health Policy, Elsevier, vol. 84(2-3), pages 200-209, December.
    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., vol. 15(7), pages 719-733.
    8. David C. Grabowski & Edward C. Norton, 2012. "Nursing Home Quality of Care," Chapters,in: The Elgar Companion to Health Economics, Second Edition, chapter 29 Edward Elgar Publishing.
    9. Helmut Herwartz & Christoph Strumann, 2012. "On the effect of prospective payment on local hospital competition in Germany," Health Care Management Science, Springer, vol. 15(1), pages 48-62, March.
    10. 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, vol. 112(1), pages 70-79.
    11. Gao, Chen & Xu, Fei & Liu, Gordon G., 2014. "Payment reform and changes in health care in China," Social Science & Medicine, Elsevier, vol. 111(C), pages 10-16.
    12. R. Konetzka & Edward Norton & Sally Stearns, 2006. "Medicare payment changes and nursing home quality: effects on long-stay residents," International Journal of Health Economics and Management, Springer, vol. 6(3), pages 173-189, September.
    13. Anurag Sharma, 2009. "Inter-DRG resource dynamics in a prospective payment system: a stochastic kernel approach," Health Care Management Science, Springer, vol. 12(1), pages 38-55, March.
    14. Mark Pletscher, 2016. "Marginal revenue and length of stay in inpatient psychiatry," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(7), pages 897-910, September.
    15. 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, vol. 92(1), pages 65-72, September.
    16. Jiale Zhang, 2007. "A DID analysis of the impact of health insurance reform in the city of Hangzhou," Health Economics, John Wiley & Sons, Ltd., vol. 16(12), pages 1389-1402.

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