IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Inter-DRG Resource Allocation in a Prospective Payment System: A Stochastic Kernel Approach

Listed author(s):
  • Anurag Sharma

This paper empirically investigates the distribution dynamics of resource allocation decisions across Diagnosis Related Groups (DRGs), in a continuing Prospective Payment System (PPS) . The theoretical literature suggests a PPS could lead to moral hazard effects, where hospitals have an incentive to change the intensity of services provided to a given set of patients, a selection effect whereby hospitals have an incentive to change the severity of patients they see, and thirdly hospitals could change their market share by specialization (practice style effect). The related econometric literature has mainly focussed on the impact of PPS on average Length of Stay (LOS) concluding that the average LOS has declined post PPS. There is little literature on distribution of this decline across DRGs, in a PPS. The present paper helps fill this gap. The paper models the evolution over time of the empirical distribution of LOS across DRGs. The empirical distributions are estimated using a non parametric “stochastic kernel approach” based on Markov Chain theory. The results suggest that relative prices of DRGs are one of the determinants in resource allocation across DRGs. In addition, a reduction in the high outlier episodes indicates existence of potential selection effect even in a continuing PPS.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
File Function: Main text
Download Restriction: no

Paper provided by HEDG, c/o Department of Economics, University of York in its series Health, Econometrics and Data Group (HEDG) Working Papers with number 07/21.

in new window

Date of creation: Oct 2007
Handle: RePEc:yor:hectdg:07/21
Contact details of provider: Postal:
HEDG/HERC, Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom

Phone: (0)1904 323776
Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:yor:hectdg:07/21. 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: (Jane Rawlings)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.