S-Space College of Social Sciences (사회과학대학) Institute of Economics Research (경제연구소) Seoul Journal of Economics Seoul Journal of Economics vol.34 no.1~4 (2021)
Theoretical Analysis of Hospitals Response to a Per Diem Prospective Payment System
- Dmitry Shapiro
- Issue Date
- Seoul Journal of Economics, Vol.34 No.2, pp. 171-202
- Health care financing; Prospective payment system; per-diem rate; length of stay; readmission rate
- 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.