Abstract
Summary In this paper, we analyze the prospective method of paying hospitals when the within-DRG variance is high. To avoid patients dumping, an outlier payment system is implemented. In the APDRG Swiss System, it consists in a mixture of fully prospective payments for low costs patients and partially cost-based system for high cost patients. We show how the optimal policy depends on the degree to which hospitals take patients’ interest into account. A fixed-price policy is optimal when the hospital is sufficiently benevolent. When the hospital is weakly benevolent, a mixed policy solving a trade-off between rent extraction, efficiency and dumping deterrence must be preferred. Following Mougeot and Naegelen (2008), we show how the optimal combination of fixed price and partially cost-based payment depends on the degree of benevolence of the hospital, the social cost of public funds and the distribution of patients severity.
Highlights
As many European countries, Switzerland is currently implementing a prospective method of paying hospitals
In the following,8 we look for the optimal contract that a payer could design when the set of policy tools it can use is restricted to the APDRG Swiss System9 instruments, i.e
As the fixed price is equal to the mean value of the total cost C(e∗) + φ(e∗) under optimal effort, high cost patients are subsidized by low cost patients
Summary
As many European countries, Switzerland is currently implementing a prospective method of paying hospitals. It can increase the number of cases when the fixed price per DRG is above marginal costs and decrease the level of health care quality services when patient demand does not reflect quality.. It can increase the number of cases when the fixed price per DRG is above marginal costs and decrease the level of health care quality services when patient demand does not reflect quality.1 Another drawback of this policy is a consequence of patient heterogeneity. When hospitals can identify high-cost patients, outlier payments protect patients against discrimination in admission This issue has been considered by Ma (1994) when rent extraction does not matter and when the cost reduction effort affects only the distribution of the less severe cases.
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