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Do Hospitals Respond to Increasing Prices by Supplying Fewer Services?

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  • Salm, Martin

    (Tilburg University)

  • Wübker, Ansgar

    (RWI)

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.

Suggested Citation

  • Salm, Martin & Wübker, Ansgar, 2015. "Do Hospitals Respond to Increasing Prices by Supplying Fewer Services?," IZA Discussion Papers 9229, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9229
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    Cited by:

    1. Reif, Simon & Wichert, Sebastian & Wuppermann, Amelie, 2018. "Is it good to be too light? Birth weight thresholds in hospital reimbursement systems," Journal of Health Economics, Elsevier, vol. 59(C), pages 1-25.
    2. Wozny, Florian, 2020. "Hospital Resources: Persistent Reallocation under Price Changes," IZA Discussion Papers 13256, Institute of Labor Economics (IZA).
    3. Salm, Martin & Wübker, Ansgar, 2018. "Do higher hospital reimbursement prices improve quality of care?," Ruhr Economic Papers 779, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.

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    More about this item

    Keywords

    physician-induced demand; hospital care; prospective payment;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm

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