Does prospective payment reduce inpatient length of stay?

Authors

  • Edward C. Norton,

    Corresponding author
    1. Department of Health Policy and Administration, School of Public Health, University of North Carolina at Chapel Hill, USA
    • Department of Health Policy and Administration, School of Public Health, University of North Carolina at Chapel Hill, CB # 7411, McGavran-Greenberg Hall, Chapel Hill, NC 27599-7411, USA
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  • Courtney Harold Van Houtven,

    1. Cecil G. Sheps Center for Health Services Research, University of North Carolina at Chapel Hill, USA
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  • Richard C. Lindrooth,

    1. Center for Health Industry Market Economics, Kellogg School of Management, Northwestern University, USA
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  • Sharon-Lise T. Normand,

    1. Department of Health Care Policy, Harvard Medical School, USA
    2. Department of Biostatistics, Harvard School of Public Health, USA
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  • Barbara Dickey

    1. Department of Psychiatry, The Cambridge Hospital, Harvard Medical School, USA
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Abstract

A change in payment mechanism for inpatient care from per diem to per episode creates two incentives – a marginal and an average price effect – to change length of stay. The decrease in marginal price per day to zero should reduce the length of stay, while an increase in average price per inpatient stay should increase the length of stay. This study uses data from a natural experiment to estimate both marginal and average price elasticities, and to test whether the length of stay falls after the introduction of prospective payment in a sample of 8509 severely mentally ill patients. We estimate that the marginal price elasticity is zero, but the average price elasticity is between 0.16 and 0.20. The results were generally robust for short- and long stayers, and for persons admitted early and late after the change in payment mechanism. The model controlled for hospital fixed effects and individual random effects. Copyright © 2002 John Wiley & Sons, Ltd.

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