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Hospital response to DRG refinements: the impact of multiple reimbursement incentives on inpatient length of stay

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  • Boyd H. Gilman

Abstract

Recent research has warned that the introduction of Diagnosis Related Groups (DRGs) based on hospital treatment decisions will lead to an increase in the rate of marginal procedures and to a resumption of high medical expenditure growth rates. This paper explores the often contradictory effects of the multiple reimbursement incentives created by refinements to the Prospective Payment System (PPS) (principally, the introduction of procedure‐based DRGs) on hospital resource allocation. Three effects are examined in the paper: (i) the change in primary or payment‐related procedures owing to marginal reimbursement incentives; (ii) the change in secondary or non‐payment‐related services owing to average price incentives; and (iii) the change in average severity of both medical and surgical admissions. The model suggests that the anticipated positive effect of marginal reimbursement incentives on overall hospital resource use may be offset by several factors, most notably the lower average payment incentives of non‐procedural DRGs. Copyright © 2000 John Wiley & Sons, Ltd.

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  • Boyd H. Gilman, 2000. "Hospital response to DRG refinements: the impact of multiple reimbursement incentives on inpatient length of stay," Health Economics, John Wiley & Sons, Ltd., vol. 9(4), pages 277-294, June.
    • Handle: RePEc:wly:hlthec:v:9:y:2000:i:4:p:277-294
    DOI: 10.1002/1099-1050(200006)9:4<277::AID-HEC513>3.0.CO;2-1
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    1. 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.
    2. David Dranove, 1987. "Rate-Setting by Diagnosis Related Groups and Hospital Specialization," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 417-427, Autumn.
    3. Joseph P. Newhouse, 1996. "Reimbursing Health Plans and Health Providers: Efficiency in Production versus Selection," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1236-1263, September.
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