Abstract
In 1983 the government passed legislation implementing a new method of paying hospitals for Medicare inpatient services, the Prospective Payment System (PPS). Under this system the changes in economic incentives to hospitals affected the market conditions under which hospitals operate. This article investigates the impact of PPS on the financial riskiness of hospitals. Using the capital asset pricing model (CAPM), this study analyzes the systematic risk of a portfolio of four publicly traded acute care hospitals in the pre-PPS and post-PPS periods, as well as four control portfolios. It covers a pre-PPS period from 1976 to the passage of the Tax Equity and Fiscal Responsibility Act (TEFRA) and a post-PPS period through 1988. The systematic risk for publicly traded acute care hospitals increased significantly in the post-PPS period. However, the control groups also showed significant changes in systematic risk.
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Asper, E.M., Hassan, M. The impact of PPS legislation on the systematic risk of hospitals. J Econ Finan 17, 121–135 (1993). https://doi.org/10.1007/BF02920035
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DOI: https://doi.org/10.1007/BF02920035