Average-cost Pricing and Dynamic Selection Incentives in the Hospital Sector

Luigi Siciliani and Mathias Kifmann

No 10155, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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: 2014-09
New Economics Papers: this item is included in nep-com and nep-reg
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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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