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Price and income effects of hospital reimbursements

Matthias Bäuml, Tilman Dette and Michael Pollmann

Journal of Health Economics, 2022, vol. 81, issue C

Abstract: Health insurance systems in many countries reimburse hospitals through fixed prices based on the diagnosis-related groups (DRGs) of patients. We quantify the effects of price and income changes for the full spectrum of hospital services as average and heterogeneous elasticities of quantities (number of admissions) and quality-related outcomes. For our empirical analysis, we use data on over 160 million hospital admissions, constituting the universe of hospital admissions in Germany between 2005 and 2016. Our identification strategy is based on instruments exploiting a two-year lag in regulatory price setting. The strategy lends itself to a placebo test demonstrating that our instruments do not have substantive anticipatory direct effects. We find that the compensated own-price elasticity of quantity is positive (0.2), while the income elasticity is negative (−0.15). On net, increasing all prices increases costs due to a behavioral response of larger quantities in addition to the mechanical increase.

Keywords: Hospital; Diagnosis-related groups; Price elasticity; Income elasticity (search for similar items in EconPapers)
JEL-codes: H21 H51 I11 I18 L51 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jhealeco.2021.102576

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Journal of Health Economics is currently edited by J. P. Newhouse, A. J. Culyer, R. Frank, K. Claxton and T. McGuire

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