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Heterogeneity of Hospitals

Author

Listed:
  • Brigitte Dormont

    (LEDa - Laboratoire d'Economie de Dauphine - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres, Legos - Laboratoire d'Economie et de Gestion des Organisations de Santé - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres)

Abstract

Payment methods based on a fixed price per diagnosis related group provide hospitals with a perfect incentive for cost reduction. However, costs can rise for some hospitals because of exogenous factors. This situation may bring them to select patients and lower care quality to avoid bankruptcy. To prevent this, payments should allow for legitimate sources of cost heterogeneity. It is possible to design a payment method which allows for unobservable sources of cost heterogeneity, provided they are time invariant. While it reimburses hospitals for extra costs resulting from undesirable long-term moral hazard, this method can induce substantial savings because it provides incentives to reduce costs linked to transitory moral hazard.

Suggested Citation

  • Brigitte Dormont, 2014. "Heterogeneity of Hospitals," Post-Print hal-02447570, HAL.
    • Handle: RePEc:hal:journl:hal-02447570
    DOI: 10.1016/B978-0-12-375678-7.01314-6
    as

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