Political economy of hospital financing

In this paper we tried to explain the recent reform in the law of financing German hospitals. We first described five basic types of hospital payment systems which were available as alternatives to the decision on the reform in the early 1980s. In the next step we identified five concerned interest groups whose actions certainly had a great influence on the legislative process. We proposed a simple theoretical model to examine how these groups of actors evaluated the different payment systems. After deriving a preference ranking for each actor, we confronted these rankings with the respective revealed preferences, which could be inferred from their official statements towards the reform. It could also be shown that quite often the actual statements deviated strongly from the theoretically expected preferences because all groups were engaged in a highly interactive lobbying game. In the last step we compared these preferences to the actual outcome of the legislation and found that all groups have at least partly realized their targets. So in contrast to the typical results of interest group theory, the differences in bargaining power do to appear to have led to a solution which unambiguously benefits some groups of actors at the expense of others. It has to be repeated that the empirical analysis was limited to statements from the interest groups in the pre-legislative stage of the whole process. From this point the most promising procedure would appear to be the step-by-step analysis of the statements of the groups during the legislative process as well. This would give the researcher a chance to evaluate whether or not the theoretical hypotheses can be confirmed, whether or not our simple theoretical model is an appropriate way to understand the behavior of the affected groups and what was finally responsible for the outcome of the legislation. Therefore this paper should be seen as a first attempt to apply the framework of public choice theory to the field of health care financing and to demonstrate that much more research is needed.