Effects of Competition under Prospective Payment on Hospital Costs among High and Low Cost Admissions: Evidence from California, 1983 - 1993
Competition and prospective payment systems have been widely used to attempt to control health care costs. Though much of the increase in medical costs over the past half-century has been concentrated among a few high-cost users of health care,prospective payment systems may provide incentives to selectively reduce expenditures on high-cost users relative to low-cost users and this pressure may be increased by competition. We use data on hospital charges and cost-to-charge ratios from California in 1983 and 1993 to examine the effects of competition on costs for high and low cost admissions before and after the establishment of the Medicare Prospective Payment System (PPS). Comparing persons above and below age 65 before and after the establishment of PPS, we find that competition is associated with increased costs before PPS in both age groups, but decreased costs afterwards, especially among those above age 65 with the highest costs. We conclude that the combination of competition and prospective payment systems may result in incentives to selectively reduce spending among the most expensive patients. This raises important issues relevant to the use Of competition and prospective payment to control costs and implies at minimum the need to carefully monitor outcomes for the sickest patients under prospective payment systems in competitive environments.
|Date of creation:||Jan 2001|
|Publication status:||published as Garber, Alan M. (ed.) Frontiers in Health Policy Research, Volume 5. Cambridge, MA: MIT Press, 2002.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Dranove, 1987. "Rate-Setting by Diagnosis Related Groups and Hospital Specialization," RAND Journal of Economics, The RAND Corporation, vol. 18(3), pages 417-427, Autumn.
- David M. Cutler & Ellen Meara, 1998.
"The Medical Costs of the Young and Old: A Forty-Year Perspective,"
NBER Chapters,in: Frontiers in the Economics of Aging, pages 215-246
National Bureau of Economic Research, Inc.
- David M. Cutler & Ellen Meara, 1997. "The Medical Costs of The Young and Old: A Forty Year Perspective," NBER Working Papers 6114, National Bureau of Economic Research, Inc.
- Marsha Gold & Lyle Nelson & Timothy Lake & Robert Hurley & Robert Berenson, "undated". "Behind the Curve: A Critical Assessment of How Little is Known about Arrangements between Managed Care Plans and Physicians," Mathematica Policy Research Reports 2efe3ee37e15474f8d3d6acf9, Mathematica Policy Research.
- Dranove, David & White, William D, 1994. "Recent Theory and Evidence on Competition in Hospital Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 3(1), pages 169-209, Spring.
- Cutler, David M, 1995. "The Incidence of Adverse Medical Outcomes under Prospective Payment," Econometrica, Econometric Society, vol. 63(1), pages 29-50, January.
- Cutler, D.M., 1992. "The Incidence of Adverse Medical Outcome Under Prospective Payment," Harvard Institute of Economic Research Working Papers 1603, Harvard - Institute of Economic Research.
- David M. Cutler, 1993. "The Incidence of Adverse Medical Outcomes Under Prospective Payments," NBER Working Papers 4300, National Bureau of Economic Research, Inc.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8069. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.