Hospital Discharge: Model, Estimates, and Policy Analyses

Abstract

One of the most important medical decisions is when to discharge a patient: it involves physicians and patients, entails information asymmetry, and occurs in dynamic contexts. Moreover, although the physician cares about the patient's interests, her preference regarding the trade-off between the patient's out-of-pocket expenses and health benefits may differ from the patient's. We develop and structurally estimate a model of discharge decisions that incorporates these features. The model allows us to distinguish between the impacts of a patient's financial incentive and a physician's altruistic and financial incentives on treatment and welfare outcomes. Also, it enables us to isolate the effect of preference inconsistency from the effects of the three incentives. We find that all three incentives raise healthcare expense, while preference inconsistency reduces it. Drawing from our structural estimates, we investigate policies aimed at managing overall expenses while enhancing patient and social welfare, without negatively impacting physician revenue.

Keywords: Discharge decisions, patient incentive, physician incentive, altruistic incentive, preference inconsistency

JEL Classification: H51, I11, I13, I18