Does Competition Under Medicare Prospective Payment Selectively Reduce Expenditures on High-Cost Patients?

Posted: 18 Oct 2002

See all articles by David Meltzer

David Meltzer

University of Chicago - Departments of Medicine and Economics, and Harris School

Jeanette Chung

University of Chicago - Department of Sociology

Anirban Basu

University of Chicago - Department of Medicine

Abstract

Competition and prospective payment have been widely used to control health care costs but may together provide incentives to selectively reduce expenditures on high-cost relative to low-cost users. We use patient discharge and hospital financial data from California to examine the effects of competition on costs for high- and low-cost admissions in the 12 largest Diagnosis-Related Groups before and after the Medicare Prospective Payment System (PPS). We find that competition increased costs before PPS, but that this effect decreased afterward, especially in patients with the highest costs. We conclude that competition and PPS selectively reduced spending among the most expensive patients and that careful assessment of these patients' outcomes is important.

Suggested Citation

Meltzer, David Owen and Chung, Jeanette and Basu, Anirban, Does Competition Under Medicare Prospective Payment Selectively Reduce Expenditures on High-Cost Patients?. RAND Journal of Economics, Vol. 33, Autumn 2002. Available at SSRN: https://ssrn.com/abstract=324976

David Owen Meltzer (Contact Author)

University of Chicago - Departments of Medicine and Economics, and Harris School ( email )

5841 S. Maryland Ave.
B-220
Chicago, IL 60637
United States

Jeanette Chung

University of Chicago - Department of Sociology ( email )

1126 East 59th Street
Chicago, IL 60637

Anirban Basu

University of Chicago - Department of Medicine ( email )

5841 S. Maryland Ave
MC-2007
Chicago, IL 60637
United States
773 834 1796 (Phone)
773 834 2238 (Fax)

HOME PAGE: http://home.uchicago.edu/~abasu

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