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How to regulate heterogenous hospitals?

  • Brigitte Dormont
  • Carine Milcent

Ways to regulate French public hospitals? The purpose of this paper is to study hospital costs in the event of introduction of a Prospective Payment System in France. We use a nested three dimensional database (stays-hospitals-years) in order to identify hospital unobservable heterogeneity and a transitory moral hazard component of cost variability. Econometric estimate are performed on a sample of 7,314 stays for acute myocardial infarction observed in 36 French public hospitals over the period 1994 to 1997. Transitory moral hazard is far from negligible : its estimated standard error is about 50 % of the standard error we estimate for cost variability due to permanent unobervable heterogeneity between hospitals. Simulations show that a cost reduction of about 16 % can be expected from implmentation of a payment system which allows for permanent unobserved heterogeneity and eliminates only transitory moral hazard.

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Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2003-19.

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Date of creation: 2003
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Handle: RePEc:del:abcdef:2003-19
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  1. 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.
  2. Dormont, Brigitte & Milcent, Carine, 2004. "The sources of hospital cost variability," Economics Papers from University Paris Dauphine 123456789/5426, Paris Dauphine University.
  3. Pope, Gregory C., 1990. "Using hospital-specific costs to improve the fairness of prospective reimbursement," Journal of Health Economics, Elsevier, vol. 9(3), pages 237-251, November.
  4. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  5. Keeler, Emmett B., 1990. "What proportion of hospital cost differences is justifiable?," Journal of Health Economics, Elsevier, vol. 9(3), pages 359-365, November.
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