DRG prospective payment system: refine or not refine?

Luigi Siciliani and Elín J. G. Hafsteinsdóttir

Discussion Papers from Department of Economics, University of York

Abstract: We present a model of contracting between a purchaser of health services and a provider (a hospital). We assume that hospitals provide two alternative treatments for a given diagnosis: a less intensive one (for example a medical treatment) and a more intensive one (surgical treatment). We assume that prices are set equal to the average cost reported by the providers, as observed in many OECD countries (yardstick competition). The purchaser has two options: 1) to set one tariff based on the diagnosis only; 2) to differentiate the tariff between the surgical and the medical treatment (i.e.to refine the tariff). We show that when tariffs are refined, the provider has always an incentive to overprovide the surgical treatment. If the tariff is not refined, the hospital underprovides the surgical treatment (and overprovides the medical treatment) if the degree of altruism is sufficiently low compared the opportunity cost of public funds. Our main result is that price refinement might not be optimal.

Keywords: Hospitals; Refinement; Diagnosis-Related-Groups. (search for similar items in EconPapers)
JEL-codes: H42 I11 I18 L13 (search for similar items in EconPapers)
Date: 2008-10
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.york.ac.uk/media/economics/documents/discussionpapers/2008/0829.pdf Main text (application/pdf)

Related works:
Journal Article: DRG prospective payment systems: refine or not refine? (2010)
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:yor:yorken:08/29

Access Statistics for this paper

More papers in Discussion Papers from Department of Economics, University of York Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom. Contact information at EDIRC.
Bibliographic data for series maintained by Paul Hodgson ().