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One price for all? Sources of cost variations between public and private hospitals

Author

Listed:
  • Zeynep Or

    () (IRDES institut for research and information in health economics)

  • Thomas Renaud

    () (IRDES institut for research and information in health economics)

  • Laure Com-Ruelle

    () (IRDES institut for research and information in health economics)

Abstract

Within the framework of its activity-based payment system, introduced in 2005, the French government is now seeking to achieve price convergence between public and private hospitals. This paper questions the economic justification of this convergence by examining the literature on hospital costs variation and analyzing French hospital activity data. The literature on hospital economics identifies many factors which can generate cost differences between hospitals a part from efficiency. These include hospital size and its range of activity, differences in patient characteristics and quality of the care. The results from the literature suggest that DRG prices should be adjusted to take into account these factors, which are not always under the control of public hospitals but which have a direct impact on their costs. In addition, the analysis of French hospital activity indicates a strong partitioning of the type of care provided between the public and private sectors, corresponding to different hospital profiles. Not taking these different profiles into account when setting DRG prices could endanger the capacity of the hospital system to provide necessary care as well as equity of access.

Suggested Citation

  • Zeynep Or & Thomas Renaud & Laure Com-Ruelle, 2009. "One price for all? Sources of cost variations between public and private hospitals," Working Papers DT25, IRDES institut for research and information in health economics, revised May 2009.
  • Handle: RePEc:irh:wpaper:dt25
    as

    Download full text from publisher

    File URL: http://www.irdes.fr/EspaceRecherche/DocumentsDeTravail/DT25EcartsCoutHospitaliers.pdf
    File Function: First version, 2009
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gaynor, Martin & Vogt, William B., 2000. "Antitrust and competition in health care markets," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 27, pages 1405-1487 Elsevier.
    2. Mehdi Farsi & Massimo Filippini, 2008. "Effects of ownership, subsidization and teaching activities on hospital costs in Switzerland," Health Economics, John Wiley & Sons, Ltd., vol. 17(3), pages 335-350.
    3. Keeler, Emmett B., 1990. "What proportion of hospital cost differences is justifiable?," Journal of Health Economics, Elsevier, vol. 9(3), pages 359-365, November.
    4. Street, Andrew & Maynard, Alan, 2007. "Activity based financing in England: the need for continual refinement of payment by results," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 419-427, October.
    5. 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.
    6. John A. Romley & Dana P. Goldman, 2011. "How Costly is Hospital Quality? A Revealed‐Preference Approach," Journal of Industrial Economics, Wiley Blackwell, vol. 59(4), pages 578-608, December.
    7. Malcomson, James M., 2007. "Hospital cost differences and payment by results," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 429-433, October.
    8. Ellis, Randall P. & Vidal-Fernández, Marian, 2007. "Activity-based payments and reforms of the English hospital payment system," Health Economics, Policy and Law, Cambridge University Press, vol. 2(04), pages 435-444, October.
    9. Andrew Street & Kirsi Vitikainen & Afsaneh Bjorvatn & Anne Hvenegaard, 2007. "Introducing activity-based financing: a review of experience in Australia, Denmark, Norway and Sweden," Working Papers 030cherp, Centre for Health Economics, University of York.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    DRG; Activity based payment; hospital cost variation; regulation; France.;

    JEL classification:

    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H4 - Public Economics - - Publicly Provided Goods
    • L8 - Industrial Organization - - Industry Studies: Services

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