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Do hospitals respond to increasing prices by supplying fewer services?

Martin Salm and Ansgar Wübker ()

No 567, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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)
Date: 2015
New Economics Papers: this item is included in nep-ger and nep-hea
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:567

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