Abstract
This paper examines the effects of the Prospective Payment System on the behavior of hospitals with respect to their capital allocations and the efficiency with which they produce in-patient care. A theoretical model adapted from Pope [1989] yields the testable hypotheses that as a hospital's Medicare population increases the hospital will supply greater levels of capital and produce in-patient care using less technically efficient methods. A two stage test of these hypotheses is run on a sample of US non-federal hospitals. Results from patient demand functions and a stochastic profit frontier are consistent with the theoretical model.
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David Bradford, W., Craycraft, C. Prospective payments and hospital efficiency. Rev Ind Organ 11, 791–809 (1996). https://doi.org/10.1007/BF00174407
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DOI: https://doi.org/10.1007/BF00174407