How do hospitals respond to price changes?

Leemore S. Dafny*

*Corresponding author for this work

Research output: Contribution to journalReview articlepeer-review

216 Scopus citations


This paper examines hospital responses to changes in diagnosis-specific prices by exploiting a 1988 policy reform that generated large price changes for 43 percent of Medicare admissions. I find hospitals responded primarily by "upcoding" patients to diagnosis codes with the largest price increases. This response was particularly strong among for-profit hospitals. I find little evidence hospitals increased the volume of admissions differentially for diagnoses subject to the largest price increases, despite the financial incentive to do so. Neither did they increase intensity or quality of care in these diagnoses, suggesting hospitals do not compete for patients at the diagnosis level.

Original languageEnglish (US)
Pages (from-to)1525-1547
Number of pages23
JournalAmerican Economic Review
Issue number5
StatePublished - Dec 2005

ASJC Scopus subject areas

  • Economics and Econometrics


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