Strategic interaction among hospitals and nursing facilities: the efficiency effects of payment systems and vertical integration

Dwayne Banks, Elliott Parker and Jeanne Wendel

Health Economics, 2001, vol. 10, issue 2, 119-134

Abstract: Rising post‐acute care expenditures for Medicare transfer patients and increasing vertical integration between hospitals and nursing facilities raise questions about the links between payment system structure, the incentive for vertical integration and the impact on efficiency. In the United States, policy‐makers are responding to these concerns by initiating prospective payments to nursing facilities, and are exploring the bundling of payments to hospitals. This paper develops a static profit‐maximization model of the strategic interaction between the transferring hospital and a receiving nursing facility. This model suggests that the post‐1984 system of prospective payment for hospital care, coupled with nursing facility payments that reimburse for services performed, induces inefficient under‐provision of hospital services and encourages vertical integration. It further indicates that the extension of prospective payment to nursing facilities will not eliminate the incentive to vertically integrate, and will not result in efficient production unless such integration takes place. Bundling prospective payments for hospitals and nursing facilities will neither remove the incentive for vertical integration nor induce production efficiency without such vertical integration. However, bundled payment will induce efficient production, with or without vertical integration, if nursing facilities are reimbursed for services performed. Copyright © 2001 John Wiley & Sons, Ltd.

Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://doi.org/10.1002/hec.585

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:hlthec:v:10:y:2001:i:2:p:119-134

Access Statistics for this article

Health Economics is currently edited by Alan Maynard, John Hutton and Andrew Jones

More articles in Health Economics from John Wiley & Sons, Ltd.
Bibliographic data for series maintained by Wiley Content Delivery ().