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DRGs: the link between investment in technologies and appropriateness

  • Rosella Levaggi

    ()

    (University of Brescia)

  • Michele Moretto

    ()

    (University of Padova)

  • Paolo Pertile

    ()

    (Department of Economics (University of Verona))

In this paper we investigate the relationship between the DRG system for hospital reimbursement and investment in technologies. We use a simple economic model where the reimbursement policy for treatments whose provision requires a sunk investment cost has an impact on both the decision whether to adopt the technology and many patients to treat with it. The optimal pricing policy involves a two-part tariff: a price equal to the marginal cost of the patient whose benefit of treatment equals the cost of provision, and a separate payment for the partial reimbursement of capital costs. Departures from this scheme, which are frequent in DRG tariff systems designed around the world, lead to a trade-off between the objective of making effective technologies available to patients and the need to ensure appropriateness in use.

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Paper provided by University of Verona, Department of Economics in its series Working Papers with number 31/2012.

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Length: 15
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:ver:wpaper:31/2012
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  1. Luigi Siciliani & Elín J. G. Hafsteinsdóttir, 2008. "DRG prospective payment system: refine or not refine?," Discussion Papers 08/29, Department of Economics, University of York.
  2. Liu, Ting & Ma, Ching-to Albert, 2013. "Health insurance, treatment plan, and delegation to altruistic physician," Journal of Economic Behavior & Organization, Elsevier, vol. 85(C), pages 79-96.
  3. Michele Moretto & Rosella Levaggi, 2004. "Investment in Hospital Care Technology under Different Purchasing Rules: A Real Option Approach," Working Papers 2004.75, Fondazione Eni Enrico Mattei.
  4. Kamil Dybczak & Bartosz Przywara, 2010. "The role of technology in health care expenditure in the EU," European Economy - Economic Papers 400, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  5. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2010. "Static and Dynamic Efficiency of Irreversible Health Care Investments under Alternative Payment Rules," Working Papers 2010.130, Fondazione Eni Enrico Mattei.
  6. Schreyögg, Jonas & Bäumler, Michael & Busse, Reinhard, 2009. "Balancing adoption and affordability of medical devices in Europe," Health Policy, Elsevier, vol. 92(2-3), pages 218-224, October.
  7. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May.
  8. 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.
  9. Bos, Dieter & De Fraja, Gianni, 2002. "Quality and outside capacity in the provision of health services," Journal of Public Economics, Elsevier, vol. 84(2), pages 199-218, May.
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