Abstract

This paper examines the behaviour of mental health care providers in response to marginal payment incentives induced by a discontinuous per diem reimbursement schedule with varying tariff rates over the length of stay. The analyses use administrative data on 12,627 cases treated in 82 psychiatric hospitals and wards in Germany. We investigate whether substantial reductions in marginal reimbursement per inpatient day led to strategic discharge behaviour once a certain length of stay threshold is exceeded. The data do not show gaps and bunches at the duration of treatment when marginal reimbursement decreases. Using logistic regression models, we find that providers did not react to discontinuities in marginal reimbursement by significantly reducing inpatient length of stay around the threshold. These findings are robust in terms of different model specifications and subsamples. The results indicate that if regulators aim to set incentives to decrease LOS, this might not be achieved by cuts in reimbursement over LOS.

Highlights

  • In response to soaring health care expenditures, prospective payment systems (PPS) in inpatient care have been implemented in almost every advanced health care system worldwide

  • We aim to control for unobserved hospital effects that influence discharge behaviour and are not captured in the hospital characteristic controls employed in the basic regression model

  • We investigate whether cuts in marginal reimbursement over length of stay (LOS) have an impact on the discharge behaviour of mental health-care hospitals in Germany

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Summary

Introduction

In response to soaring health care expenditures, prospective payment systems (PPS) in inpatient care have been implemented in almost every advanced health care system worldwide. An advantage of such systems is that they set incentives to prohibit over-provision and to minimize costs of care, as additional treatment would increase hospital costs without generating additional profit [2]. Ellis and McGuire [5] model this decision process based on the assumption that physicians serve as agents who are interested in hospital profits and patient benefit at the same time. They show that if physicians undervalue patient benefit relative to hospital profit, PPS may result in under provision of services, e.g. reductions in inpatient length of stay (LOS).

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