Does competition under medicare prospective payment selectively reduce expenditures on high-cost patients?

David Meltzer*, Jeanette Chung, Anirban Basu

*Corresponding author for this work

Research output: Contribution to journalArticle

34 Scopus citations

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 patients. 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.

Original languageEnglish (US)
Pages (from-to)447-468
Number of pages22
JournalRAND Journal of Economics
Volume33
Issue number3
DOIs
StatePublished - 2002

ASJC Scopus subject areas

  • Economics and Econometrics

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