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Do Hospitals Respond to Increasing Prices by Supplying Fewer Services?

Martin Salm and Ansgar Wübker ()

No 9229, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: Medical providers often have a significant influence on treatment decisions which they can use in their own financial interest. Classical models of supplier-induced demand predict that medical providers will supply fewer services if they face increasing prices. We test this prediction based on a reform of hospital financing in Germany. Uniquely, this reform changed the overall level of reimbursement – with increasing prices for some hospitals and decreasing prices for others – without affecting the relative prices for different types of patients. Based on administrative data, we find that hospitals do indeed react to increasing prices by reducing service supply.

Keywords: physician-induced demand; hospital care; prospective payment (search for similar items in EconPapers)
JEL-codes: I11 L10 L21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-07
New Economics Papers: this item is included in nep-eur, nep-hea and nep-ind
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - revised version published as "Do hospitals react to lower prices by supplying more services?" in: Health Economics, 2020, 29, 209-220

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