Effects of the Medicare Prospective Payment System on Hospital Cost Containment: An Early Appraisal

Frank Allen Sloan · Michael A. Morrisey · Joseph Valvona

75 citations0/0 files storedMilbank Quarterly

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Abstract

In 1983 federal efforts to contain hospital costs were coalesced under the Medicare prospective payment system (PPS)--a "self-interest" approach to administered prices. Diagnosis-related groups (DRGs) and the tougher peer review organizations (PROs) serve to define "products"; PPS sets the price on each. The effects of PPS go beyond Medicare; they have been system-wide. Differential impacts on hospital utilization, substitution of capital for labor, and quality are examined through a variety of data sources and descriptive as well as regression analyses. The greatest cost savings are attributed to a reduction in hospital admissions per capita.

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1994Policy Networks: Empirical Evidence and Theoretical Considerations.1988Medicare Prospective Payment and Posthospital Transfers to Subacute Care 1991Endogenous hospital regulation and its effects on hospital and non-hospital expenditures 2012Hospital Volume Responses to Medicare’s Outpatient Prospective Payment System: Evidence from Florida 2011Health Care Markets, Regulators, and Certifiers 1988Medicare Prospective Payment and the Use of Medical Technologies in Hospitals

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