Collaborative production and resource allocation: the consequences of prospective payment for hospital care

Area of Science:

• Health Economics
• Healthcare Management
• Medical Policy

Background:

• The Balanced Budget Act of 1997 mandated a shift towards prospective payment systems (PPS) for Medicare.
• This policy change aimed to control escalating healthcare costs by altering hospital reimbursement structures.

Purpose of the Study:

• To model the impact of Medicare's prospective payment system (PPS) on the intensity of hospital and physician care.
• To analyze how PPS influenced hospital length of stay and inpatient care intensity.
• To examine physician responses to these changes and their implications for physician office time.

Main Methods:

• Development of a theoretical model to explain the relationship between payment systems and care intensity.
• Empirical analysis using data from 1983-1987, encompassing the introduction of PPS.
• Examination of hospital and physician care intensity metrics per inpatient.

Main Results:

• Prospective payment created incentives for hospitals to reduce average length of stay.
• To maintain patient recovery levels, hospitals increased the intensity of inpatient care.
• Physicians adapted by increasing their own intensity of care for inpatients.
• Both hospital and physician care intensity per inpatient significantly increased between 1983 and 1987.

Conclusions:

• The shift to prospective payment under Medicare led to a measurable increase in both hospital and physician care intensity.
• These findings highlight the complex interplay between reimbursement policies and healthcare delivery intensity.
• The study suggests potential implications for healthcare resource utilization and physician workload.