Hospital Cost and Efficiency Under Per Service and Per Case Payment in Maryland: A Tale of the Carrot and the Stick

David Salkever (), Donald M. Steinwachs and Agnes Rupp

No 1633, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The simultaneous operation of per case and per servicepayment systems in Maryland, and the varying levels of stringency used in setting per case rates allows comparison of effects of differing incentive structures on hospital costs. This paper presents such a comparison with 1977-1981 data. Cost per case and total cost regressions show evidence of lower costs only when per case payment limits are very stringent. Positive net revenue incentives appear insufficient to induce reductions in length of stay and in ancillary services use. Our results suggest these changes in medical practice patterns are more likely under the threat of financial losses.

Date: 1985-06
Note: EH
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Published as Salkever, David S., Donald M. Steinwachs, and Agnes Rupp."Hospital Cost and Efficiency Under Per Service and Per Case Payment in Maryland: A Tale ofthe Carrot and the Stick." Inquiry, Vol. 23, (Spring 1986), pp. 56-66.

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