The effects of case-based pricing on length of stay for common surgical procedures

Finland's state subsidy reform of 1993 encouraged hospital districts to adopt case-based pricing of their services. The revenues of most hospitals have since depended on the volume and price of services produced. Information on the incentive effects of this method of funding is needed to further develop pricing systems in public hospitals. This study focuses on identifying the effects of case-based prices on length of stay (LOS) for lumbar discectomies and hip and knee replacements.

The effects of case-based pricing were estimated using count data models. Data from 1994-1998 on 17,767 lumbar disc patients and 19,039 hip and 15,174 knee replacement patients treated in public hospitals were used. Patient characteristics and hospital and hospital district characteristics, as well as accessibility of care and the time trend were taken into account in the modelling.

Use of case-based pricing shortened the LOS by 0.49 days for hip replacements and 0.55 days for knee replacements, but did not shorten LOS for lumbar discectomies.

The use of case-based prices would make possible about 400 extra knee and hip replacements yearly, resources (e.g. orthopaedists) permitting. The effects of hospital pricing reform on LOS in Finland compared with countries such as the USA and Sweden have been relatively modest. Overall, measures to reduce differences in clinical practice would probably have a greater impact on LOS or the number of cases treated than case-based pricing.