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Medicare's Prospective Payment System for Hospitals: New Evidence on Transitions Among Health Care Settings


  • Xufeng Qian

    () (Moody's)

  • Louise Russell

    () (Rutgers/Economics and Institute for Health)

  • Elmira Valiyeva

    () (University of Toronto)

  • Jane Miller

    () (Rutgers/Bloustein School and Institute for Health)


Previous studies of Medicare’s prospective payment system for hospitals (PPS), introduced in 1983, evaluated only its first few years, using data collected during the hospital stay to control for patients’ health. We examine transitions among health care settings over a full decade following implementation of PPS, using survival models and a national longitudinal survey with independent information on health. We find that the rate of discharge from hospitals to nursing homes continued to rise as PPS matured, hospital readmissions from the community dropped after the early years, and risk of nursing home admission from the community soon after hospital discharge tripled. Evaluations of new payment systems for one type of provider need to be comprehensive in order to capture the full effects on other providers.

Suggested Citation

  • Xufeng Qian & Louise Russell & Elmira Valiyeva & Jane Miller, 2007. "Medicare's Prospective Payment System for Hospitals: New Evidence on Transitions Among Health Care Settings," Departmental Working Papers 200707, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:200707

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    References listed on IDEAS

    1. Cutler, David M, 1995. "The Incidence of Adverse Medical Outcomes under Prospective Payment," Econometrica, Econometric Society, vol. 63(1), pages 29-50, January.
    2. Newhouse, Joseph P. & Byrne, Daniel J., 1988. "Did Medicare's Prospective Payment System cause length of stay to fall?," Journal of Health Economics, Elsevier, vol. 7(4), pages 413-416, December.
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    More about this item


    Medicare; prospective payment;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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