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Paying for Joint Costs in Health Care

  • Ching-to Albert Ma

    ()

  • Thomas G. McGuire

    ()

The paper analyzes a regulatory game between a public and a private payer to finance hospital joint costs (mainly capital and technology expenses). The public payer (inspired by the federal Medicare program) may both directly reimburse for joint costs ("pass-through" payments) and add a margin over variable costs paid per discharge, while the private payer can only use a margin policy. The hospital chooses joint costs in response to payers' overall payment incentives. Without pass-through payments, under provision of joint costs results from free-riding behavior of payers and the first-mover advantage of the public payer. Using pass-through policy in its self-interest, the public payer actually may moderate the under provision of joint costs; under some conditions, the equilibrium allocation may be socially efficient. Our results bear directly on current Medicare policy, which is phasing out pass-through payments. Copyright 1993 by MIT Press.

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Paper provided by Boston University - Industry Studies Programme in its series Papers with number 0023.

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Date of creation: Jan 1992
Date of revision:
Handle: RePEc:fth:bostin:0023
Contact details of provider: Postal: Boston University, Industry Studies Program; Department of Economics, 270 Bay Road, Boston, Massachusetts 02215.
Phone: 617-353-4389
Fax: 617-353-4449
Web page: http://www.bu.edu/econ/isp/
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