IDEAS home Printed from https://ideas.repec.org/a/wly/hlthec/v25y2016i1p56-70.html
   My bibliography  Save this article

Can Payers Use Prices to Improve Quality? Evidence from English Hospitals

Author

Listed:
  • Thomas Allen
  • Eleonora Fichera
  • Matt Sutton

Abstract

In most activity‐based financing systems, payers set prices reactively based on historical averages of hospital reported costs. If hospitals respond to prices, payers might set prices proactively to affect the volume of particular treatments or clinical practice. We evaluate the effects of a unique initiative in England in which the price offered to hospitals for discharging patients on the same day as a particular procedure was increased by 24%, while the price for inpatient treatment remained unchanged. Using national hospital records for 205 784 patients admitted for the incentivised procedure and 838 369 patients admitted for a range of non‐incentivised procedures between 1 December 2007 and 31 March 2011, we consider whether this price change had the intended effect and/or produced unintended effects. We find that the price change led to an almost six percentage point increase in the daycase rate and an 11 percentage point increase in the planned daycase rate. Patients benefited from a lower proportion of procedures reverted to open surgery during a planned laparoscopic procedure and from a reduction in long stays. There was no evidence that readmission and death rates were affected. The results suggest that payers can set prices proactively to incentivise hospitals to improve quality. Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Thomas Allen & Eleonora Fichera & Matt Sutton, 2016. "Can Payers Use Prices to Improve Quality? Evidence from English Hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 25(1), pages 56-70, January.
    • Handle: RePEc:wly:hlthec:v:25:y:2016:i:1:p:56-70
    DOI: 10.1002/hec.3121
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/hec.3121
    Download Restriction: no
    File URL: https://libkey.io/10.1002/hec.3121?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Vivian Y. Wu & Yu-Chu Shen, 2011. "The Long-term Impact of Medicare Payment Reductions on Patient Outcomes," NBER Working Papers 16859, National Bureau of Economic Research, Inc.
    2. Richard C. Lindrooth & Gloria J. Bazzoli & Jan Clement, 2007. "The Effect of Reimbursement on the Intensity of Hospital Services," Southern Economic Journal, John Wiley & Sons, vol. 73(3), pages 575-587, January.
    3. Leemore S. Dafny, 2005. "How Do Hospitals Respond to Price Changes?," American Economic Review, American Economic Association, vol. 95(5), pages 1525-1547, December.
    4. Timothy Besley & Maitreesh Ghatak, 2003. "Incentives, Choice, and Accountability in the Provision of Public Services," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(2), pages 235-249, Summer.
    5. Baker, George P, 1992. "Incentive Contracts and Performance Measurement," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 598-614, June.
    6. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," The Centre for Market and Public Organisation 03/071, The Centre for Market and Public Organisation, University of Bristol, UK.
    7. Simon Burgess & Marisa Ratto, 2003. "The Role of Incentives in the Public Sector: Issues and Evidence," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(2), pages 285-300, Summer.
    8. Paul Grout;Andrew Jenkins;Carol Propper, 2000. "Benchmarking and Incentives in the NHS," Monograph 000457, Office of Health Economics.
    9. Avinash Dixit, 2002. "# Incentives and Organizations in the Public Sector: An Interpretative Review," Journal of Human Resources, University of Wisconsin Press, vol. 37(4), pages 696-727.
    10. Street, Andrew & Maynard, Alan, 2007. "Activity based financing in England: the need for continual refinement of payment by results," Health Economics, Policy and Law, Cambridge University Press, vol. 2(4), pages 419-427, October.
    11. Maria Goddard & Russell Mannion & Peter Smith, 1998. "The NHS performance framework: taking account of economic behaviour," Working Papers 158chedp, Centre for Health Economics, University of York.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gaughan, James & Gutacker, Nils & Grašič, Katja & Kreif, Noemi & Siciliani, Luigi & Street, Andrew, 2019. "Paying for efficiency: Incentivising same-day discharges in the English NHS," Journal of Health Economics, Elsevier, vol. 68(C).
    2. Fichera, Eleonora & Banks, James & Siciliani, Luigi & Sutton, Matt, 2018. "Does patient health behaviour respond to doctor effort?," Journal of Economic Behavior & Organization, Elsevier, vol. 156(C), pages 225-251.
    3. Huitfeldt, Ingrid, 2021. "Hospital reimbursement and capacity constraints: Evidence from orthopedic surgeries," Health Policy, Elsevier, vol. 125(6), pages 732-738.
    4. Rossella Verzulli & Gianluca Fiorentini & Matteo Lippi Bruni & Cristina Ugolini, 2017. "Price Changes in Regulated Healthcare Markets: Do Public Hospitals Respond and How?," Health Economics, John Wiley & Sons, Ltd., vol. 26(11), pages 1429-1446, November.
    5. Jurgita Januleviciute & Jan Erik Askildsen & Oddvar Kaarboe & Luigi Siciliani & Matt Sutton, 2016. "How do Hospitals Respond to Price Changes? Evidence from Norway," Health Economics, John Wiley & Sons, Ltd., vol. 25(5), pages 620-636, May.
    6. Feng, Yan & Kristensen, Søren Rud & Lorgelly, Paula & Meacock, Rachel & Sanchez, Marina Rodes & Siciliani, Luigi & Sutton, Matt, 2019. "Pay for performance for specialised care in England: Strengths and weaknesses," Health Policy, Elsevier, vol. 123(11), pages 1036-1041.
    7. Kreutzberg, Anika & Eckhardt, Helene & Milstein, Ricarda & Busse, Reinhard, 2024. "International strategies, experiences, and payment models to incentivise day surgery," Health Policy, Elsevier, vol. 140(C).
    8. Valentelyte, Gintare & Keegan, Conor & Sorensen, Jan, 2023. "Hospital response to Activity-Based Funding and price incentives: Evidence from Ireland," Health Policy, Elsevier, vol. 137(C).
    9. Eleonora Fichera & James Banks & Luigi Siciliani & Matt Sutton, 2017. "Does Patient Health Behaviour respond to Doctor’s Effort?," Department of Economics Working Papers 62/17, University of Bath, Department of Economics.
    10. Piia Pekola & Ismo Linnosmaa & Hennamari Mikkola, 2017. "Assessing the effects of price regulation and freedom of choice on quality: evidence from the physiotherapy market," Health Economics Review, Springer, vol. 7(1), pages 1-16, December.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simon Burgess & Carol Propper & Marisa Ratto & Emma Tominey, 2017. "Incentives in the Public Sector: Evidence from a Government Agency," Economic Journal, Royal Economic Society, vol. 127(605), pages 117-141, October.
    2. Makris, Miltiadis, 2009. "Incentives for motivated agents under an administrative constraint," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 428-440, August.
    3. Besley, Timothy & Burchardi, Konrad B. & Bevan, Gwen, 2009. "Naming and shaming: the impacts of different regimes on hospital waiting times in England and Wales," LSE Research Online Documents on Economics 33775, London School of Economics and Political Science, LSE Library.
    4. Kuhn, Michael & Siciliani, Luigi, 2013. "Manipulation and auditing of public sector contracts," European Journal of Political Economy, Elsevier, vol. 32(C), pages 251-267.
    5. Carolyn J. Heinrich & Gerald Marschke, 2010. "Incentives and their dynamics in public sector performance management systems," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 29(1), pages 183-208.
    6. Propper, Carol & Sutton, Matt & Whitnall, Carolyn & Windmeijer, Frank, 2010. "Incentives and targets in hospital care: Evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 318-335, April.
    7. repec:dau:papers:123456789/12197 is not listed on IDEAS
    8. Paul H. Jensen & Robin E. Stonecash, 2005. "Incentives and the Efficiency of Public Sector‐outsourcing Contracts," Journal of Economic Surveys, Wiley Blackwell, vol. 19(5), pages 767-787, December.
    9. Pierre Koning & J. Vyrastekova & S. Onderstal, 2006. "Team incentives in public organisations; an experimental study," CPB Discussion Paper 60, CPB Netherlands Bureau for Economic Policy Analysis.
    10. McCausland, David & Pouliakas, Konstantinos & Theodossiou, Ioannis, 2005. "Some are Punished and Some are Rewarded: A Study of the Impact of Performance Pay on Job Satisfaction," MPRA Paper 14243, University Library of Munich, Germany.
    11. Mads Leth Felsager Jakobsen & Thomas Pallesen, 2017. "Performance Budgeting in Practice: the Case of Danish Hospital Management," Public Organization Review, Springer, vol. 17(2), pages 255-273, June.
    12. Dietrichson, Jens, 2013. "Coordination Incentives, Performance Measurement and Resource Allocation in Public Sector Organizations," Working Papers 2013:26, Lund University, Department of Economics.
    13. Antonio Sánchez Soliño, 2019. "Sustainability of Public Services: Is Outsourcing the Answer?," Sustainability, MDPI, vol. 11(24), pages 1-12, December.
    14. Paul H. Jensen & Robin E. Stonecash, 2004. "The Efficiency of Public Sector Outsourcing Contracts: A Literature Review," Melbourne Institute Working Paper Series wp2004n29, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    15. Andrew Dustan & Stanislao Maldonado & Juan Manuel Hernandez-Agramonte, 2018. "Motivating bureaucrats with non-monetary incentives when state capacity is weak: Evidence from large-scale field experiments in Peru," Working Papers 136, Peruvian Economic Association.
    16. Aleksandar Vasilev, 2013. "On the cost of rent-seeking by government bureaucrats in a Real-Business-Cycle framework," Working Papers 2013_20, Business School - Economics, University of Glasgow.
    17. Daniel Jones & Mirco Tonin & Michael Vlassopoulos, 2018. "Paying for what kind of Performance? Performance Pay and Multitasking in Mission-Oriented Jobs," CESifo Working Paper Series 7156, CESifo.
    18. Pierre Koning & C.J. Heinrich, 2009. "Cream-skimming, parking and other intended and unintended effects of performance-based contracting in social welfare services," CPB Discussion Paper 134, CPB Netherlands Bureau for Economic Policy Analysis.
    19. Buurman, Margaretha & Delfgaauw, Josse & Dur, Robert & Van den Bossche, Seth, 2012. "Public sector employees: Risk averse and altruistic?," Journal of Economic Behavior & Organization, Elsevier, vol. 83(3), pages 279-291.
    20. Konstantinos Pouliakas, 2010. "Pay Enough, Don't Pay Too Much or Don't Pay at All? The Impact of Bonus Intensity on Job Satisfaction," Kyklos, Wiley Blackwell, vol. 63(4), pages 597-626, November.
    21. Patrick Francois, 2004. "'Making a Difference': Labor Donations in the Production of Public Goods," The Centre for Market and Public Organisation 04/093, The Centre for Market and Public Organisation, University of Bristol, UK.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:hlthec:v:25:y:2016:i:1:p:56-70. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www3.interscience.wiley.com/cgi-bin/jhome/5749 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.