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

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  • Dmitry Shapiro

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.

Suggested Citation

  • Dmitry Shapiro, 2019. "Theoretical Analysis of Heterogeneous Hospital Response to a Per Diem Prospective Payment System," Working Paper Series no104, Institute of Economic Research, Seoul National University.
    • Handle: RePEc:snu:ioerwp:no104
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    Keywords

    Health care ?nancing; Prospective payment system; per-diem rate; length of stay; readmission rate;
    All these keywords.

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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