Theoretical Analysis of Heterogeneous Hospital Response to a Per Diem Prospective Payment System

Dmitry Shapiro ()

Working Paper Series from Institute of Economic Research, Seoul National University

Abstract: Motivated by the Japanese PPS reform, aimed at curbing high length of stay in Japanese hospitals, we develop a theoretical model to study how hospitals¡¯ ?nancial incentives differ between the two reimbursement systems: a pre-reform fee-for-service (F F S); and a post reform length-of-stay-dependent stepwise decreasing per diem rate (SDR). First, we show that hospitals with shorter (longer) average length of stay under F F S have longer (shorter) average length of stay under SDR. Second, we show that hospitals with longer stay under the F F S reimbursement system are more likely to use planned readmission in order to decrease the length of stay associated with a single admission. Finally, we show that profit-wise, it is hospitals with the shortest pre-reform length of stay who gain from a change to the SDR reimbursement rule. The theoretical predictions of our model closely match empirical evidence from the literature.

Keywords: Health care ?nancing; Prospective payment system; per-diem rate; length of stay; readmission rate (search for similar items in EconPapers)
JEL-codes: C23 D21 D22 I12 I18 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-ore
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