Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/103150 
Year of Publication: 
2014
Series/Report no.: 
CESifo Working Paper No. 4977
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This study investigates hospitals' dynamic incentives to select patients when hospitals are remunerated according to a prospective payment system of the DRG type. Given that prices typically reflect past average costs, we use a discrete-time dynamic framework. Patients differ in severity within a DRG. Providers are to some extent altruistic. For low altruism, a downward spiral of prices is possible which induces hospitals to focus on low-severity cases. For high altruism, dynamic price adjustment depends on relation between patients' severity and benefit. In a steady state, DRG prices are unlikely to give optimal incentives to treat patients.
Subjects: 
hospitals
DRGs
selection
severity
JEL: 
I11
I18
L13
L44
Document Type: 
Working Paper
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