Average-cost pricing and dynamic selection incentives in the hospital sector

Mathias Kifmann and Luigi Siciliani

No 8, hche Research Papers from University of Hamburg, Hamburg Center for Health Economics (hche)

Abstract: This study investigates hospitals' dynamic incentives to select patients when hospitals are remunerated according to a prospective payment system of the DRG type. Given that prices typically reflect past average costs, we use a discrete-time dynamic framework. Patients differ in severity within a DRG. Providers are to some extent altruistic. For low altruism, a downward spiral of prices is possible which induces hospitals to focus on low-severity cases. For high altruism, dynamic price adjustment depends on relation between patients' severity and benefit. In a steady state, DRG prices are unlikely to give optimal incentives to treat patients.

Keywords: hospitals; DRGs; selection; severity (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L44 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-com, nep-cta and nep-hea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Average‐Cost Pricing and Dynamic Selection Incentives in the Hospital Sector (2017)
Working Paper: Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector (2014)
Working Paper: Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:hcherp:201408

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