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Does How Much and How You Pay Matter? Evidence from the Inpatient Rehabilitation Facility Prospective Payment System

  • Neeraj Sood
  • Melinda Beeuwkes Buntin
  • Jose J. Escarce

We use the implementation of a new prospective payment system (PPS) for inpatient rehabilitation facilities (IRFs) to investigate the effect of changes in marginal and average reimbursement on costs. The results show that the IRF PPS led to a significant decline in costs and length of stay. Changes in marginal reimbursement associated with the move from a cost based system to a PPS led to a 7 to 11% reduction in costs. The elasticity of costs with respect average reimbursement ranged from 0.26 to 0.34. Finally, the IRF PPS had little or no impact on costs in other sites of care, mortality, or the rate of return to community residence.

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File URL: http://www.nber.org/papers/w12556.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12556.

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Date of creation: Oct 2006
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Publication status: published as Sood, Neeraj, Melinda Beeuwkes Buntin, and Jose J. Escarce. "Does How Much and How You Pay Matter? Evidence from the Inpatient Rehabilitation Facility Prospective Payment System." Journal of Health Economics 27, 4 (July 2008): 1046-1059.
Handle: RePEc:nbr:nberwo:12556
Note: HC HE
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Randall P. Ellis & Thomas G. McGuire, 1994. "Hospital Response to Prospective Payment: Moral Hazard, Selection, and Practice-Style Effects," Papers 0050, Boston University - Industry Studies Programme.
  2. David M. Cutler, 1993. "The Incidence of Adverse Medical Outcomes Under Prospective Payments," NBER Working Papers 4300, National Bureau of Economic Research, Inc.
  3. Hodgkin, Dominic & McGuire, Thomas G., 1994. "Payment levels and hospital response to prospective payment," Journal of Health Economics, Elsevier, vol. 13(1), pages 1-29, March.
  4. Frank, Richard G. & McGuire, Thomas G., 2000. "Economics and mental health," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 16, pages 893-954 Elsevier.
  5. Shen, Yu-Chu, 2003. "The effect of financial pressure on the quality of care in hospitals," Journal of Health Economics, Elsevier, vol. 22(2), pages 243-269, March.
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