Choice of Treatment Intensities by a Nonprofit Hospital Under Prospective Pricing

William P Rogerson*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

42 Scopus citations


Under prospective pricing, payers for health care essentially use price regulation of hospitals as a way of indirectly regulating the provision of treatment intensity. This paper presents a theory of how a nonprofit hospital selects treatment intensities for its products given the payer's choice of prices and then determines how the payer should select prices in light of this theory. The main result is that, in equilibrium, the ratio of price to marginal cost will vary across products inversely with the elasticity of demand with respect to treatment intensity. This means that, generally, the hospital will earn positive (negative) accounting profit on products with low‐(high‐) intensity elasticities of demand.

Original languageEnglish (US)
Pages (from-to)7-51
Number of pages45
JournalJournal of Economics & Management Strategy
Issue number1
StatePublished - Jan 1 1994

ASJC Scopus subject areas

  • Business, Management and Accounting(all)
  • Economics and Econometrics
  • Strategy and Management
  • Management of Technology and Innovation

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