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Paying for Joint Costs in Health Care

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  • Ching-to Albert Ma

    ()

  • Thomas G. McGuire

    ()

Abstract

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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Suggested Citation

  • Ching-to Albert Ma & Thomas G. McGuire, 1992. "Paying for Joint Costs in Health Care," Papers 0023, Boston University - Industry Studies Programme.
  • Handle: RePEc:fth:bostin:0023
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    Cited by:

    1. William P. Rogerson, 1993. "Choice of Treatment Intensities by a Nonprofit Hospital Under Prospective Pricing," Discussion Papers 1069, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    2. Glazer, Jacob & McGuire, Thomas G., 2002. "Multiple payers, commonality and free-riding in health care: Medicare and private payers," Journal of Health Economics, Elsevier, vol. 21(6), pages 1049-1069, November.
    3. Vivian Wu, 2010. "Hospital cost shifting revisited: new evidence from the balanced budget act of 1997," International Journal of Health Economics and Management, Springer, vol. 10(1), pages 61-83, March.

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