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Price of Medicaid and Uncompensated Care compared to Medicare and Private care: A translog shadow pricing approach for Floridian hospital outputs

  • Jean-Philippe Boussemart

    (IESEG School of Management (LEM-CNRS) and University of Lille)

  • Hervé Leleu

    ()

    (CNRS-LEM and IESEG School of Management)

  • Viviane Valdmanis

    (University of the Sciences in Philadelphia)

Since the passage of the Affordable Care Act (ACA) of 2010, issues still remain regarding the mandated purchase of insurance to ensure more universal coverage. One such issue is the pricing of these insurance packages and whether or not the reimbursements will cover necessary services. Therefore, there are policy concerns that increasing the number of insured individuals may not curtail costs. Conversely, providers may not wish to treat patients covered by excessively frugal plans such as Medicaid; hence the tradeoffs between access and cost control. In this paper, we present findings from a cost function and a productivity approach to determine the shadow prices of providing inpatient hospital care for hospitals operating in Florida during 2005. Using these methodological approaches, we are able to use the marginal rate of transformation to determine the relative shadow prices while controlling for hospital technical and allocative inefficiency. By including both reimbursement rates under conditions of hospital efficiency, we can ascertain payment schemes that should, at least in theory, cover necessary costs for patient care without leading to excessive input usage.

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Paper provided by IESEG School of Management in its series Working Papers with number 2013-ECO-02.

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Length: 18 pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:ies:wpaper:e201302
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  1. Daniel Bilodeau & Pierre-Yves Crémieux & Pierre Ouellette, 2000. "Hospital Cost Function In A Non-Market Health Care System," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 489-498, August.
  2. Baker, Laurence C. & Phibbs, Ciaran S. & Guarino, Cassandra & Supina, Dylan & Reynolds, James L., 2004. "Within-year variation in hospital utilization and its implications for hospital costs," Journal of Health Economics, Elsevier, vol. 23(1), pages 191-211, January.
  3. Tong Li & Robert Rosenman, 2001. "Estimating hospital costs with a generalized Leontief function," Health Economics, John Wiley & Sons, Ltd., vol. 10(6), pages 523-538.
  4. Dor, Avi & Farley, Dean E., 1996. "Payment source and the cost of hospital care: Evidence from a multiproduct cost function with multiple payers," Journal of Health Economics, Elsevier, vol. 15(1), pages 1-21, February.
  5. Kumbhakar, Subal C. & Tsionas, Efthymios G., 2005. "Measuring technical and allocative inefficiency in the translog cost system: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 126(2), pages 355-384, June.
  6. Grannemann, Thomas W. & Brown, Randall S. & Pauly, Mark V., 1986. "Estimating hospital costs : A multiple-output analysis," Journal of Health Economics, Elsevier, vol. 5(2), pages 107-127, June.
  7. Vita, Michael G., 1990. "Exploring hospital production relationships with flexible functional forms," Journal of Health Economics, Elsevier, vol. 9(1), pages 1-21, June.
  8. Grosskopf, S. & Margaritis, D. & Valdmanis, V., 1995. "Estimating output substitutability of hospital services: A distance function approach," European Journal of Operational Research, Elsevier, vol. 80(3), pages 575-587, February.
  9. Kumbhakar, Subal C., 1997. "Modeling allocative inefficiency in a translog cost function and cost share equations: An exact relationship," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 351-356.
  10. Greene, William H., 1980. "On the estimation of a flexible frontier production model," Journal of Econometrics, Elsevier, vol. 13(1), pages 101-115, May.
  11. Paul W. Wilson & Kathleen Carey, 2004. "Nonparametric analysis of returns to scale in the US hospital industry," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(4), pages 505-524.
  12. Cremieux, Pierre-Yves & Ouellette, Pierre, 2001. "Omitted variable bias and hospital costs," Journal of Health Economics, Elsevier, vol. 20(2), pages 271-282, March.
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