The Incidence of Adverse Medical Outcomes Under Prospective Payments

42 Pages Posted: 16 Jul 2004 Last revised: 14 Apr 2008

See all articles by David M. Cutler

David M. Cutler

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); Harvard University - Harvard Kennedy School (HKS)

Date Written: March 1993

Abstract

This paper examines the effect of prospective payment for hospital care on adverse medical outcomes. In 1983, the federal government replaced its previous cost-based reimbursement method with a prospective payment system, where reimbursement depends only On the diagnosis of the patient. Hospitals thus lost the marginal reimbursement they formally received for providing additional treatments. In addition, the average price each received changed with fixed reimbursement. This paper related each of these changes to adverse outcomes, with two conclusions. First, there is a change in the timing of deaths associated with changes in average prices. In hospitals with price declines, a greater share of deaths occur in the hospital or shortly after discharge, but by one or two years post-discharge, this difference in mortality rates disappears. Second, there is a trend increase in readmission rates caused by the elimination of marginal reimbursement. This appears to be due to accounting changes on the part of hospitals, however, rather than true changes in morbidity.

Suggested Citation

Cutler, David M., The Incidence of Adverse Medical Outcomes Under Prospective Payments (March 1993). NBER Working Paper No. w4300. Available at SSRN: https://ssrn.com/abstract=227032

David M. Cutler (Contact Author)

Harvard University - Department of Economics ( email )

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Harvard University - Harvard Kennedy School (HKS) ( email )

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