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Theoretical Analysis of Hospitals Response to a Per Diem Prospective Payment System
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- Authors
- Issue Date
- 2021-05
- Citation
- Seoul Journal of Economics, Vol.34 No.2, pp. 171-202
- Keywords
- Health care financing ; Prospective payment system ; per-diem rate ; length of stay ; readmission rate
- Abstract
- Japan has one of the longest average length of stay in hospital (ALOS) among developed countries. To curb the high ALOS, the Ministry of Health, Labor and Welfare has launched a payment system reform where instead of the pre-reform fee-for-service system (FFS) a new per-diem prospective payment system (DPC/PDPS) has been gradually adopted. We develop a theoretical framework to model hospitals incentives under different payment systems and to study the impact of the reform on the ALOS. We show that hospitals with a longer (shorter) pre-reform ALOS shorten (lengthen) their post-reform ALOS. Furthermore, hospitals with longer prereform ALOS have stronger incentives to use planned readmission to decrease the post-reform length of stay associated with a single admission. The theoretical predictions of our model match empirical evidence from the literature.
- ISSN
- 1225-0279
- Language
- English
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