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Health Serv Res. 1990 June; 25(2): 327–347.
PMCID: PMC1065631

Effect of the structure of hospital payment on length of stay.


In response to rapidly rising costs, payers for health care services have made a number of changes in the way they reimburse hospitals for care. In this article we study the effect of different payment methods on the length of stay of Medicaid patients. We examine supply response by type of patient (medical, surgical, and psychiatric) and hospital ownership. We find that per case payment systems and negotiated contracts lead to significant decreases in the length of stay for all groups. Prospective per diem with limits in most cases leads to decreases in the length of stay. In general, we find that the supply response is stronger for psychiatric patients than for medical and surgical patients, and that publicly owned hospitals are more responsive to payment system incentives than are nonpublic hospitals.

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Selected References

These references are in PubMed. This may not be the complete list of references from this article.
  • Ellis RP, McGuire TG. Provider behavior under prospective reimbursement. Cost sharing and supply. J Health Econ. 1986 Jun;5(2):129–151. [PubMed]
  • Feder J, Hadley J, Zuckerman S. How did Medicare's prospective payment system affect hospitals? N Engl J Med. 1987 Oct 1;317(14):867–873. [PubMed]
  • Freiman MP, Ellis RP, McGuire TG. Provider response to Medicare's PPS: reductions in length of stay for psychiatric patients treated in scatter beds. Inquiry. 1989 Summer;26(2):192–201. [PubMed]
  • Gornick M. Trends and regional variations in hospital use under Medicare. Health Care Financ Rev. 1982 Mar;3(3):41–73. [PubMed]
  • Guterman S, Dobson A. Impact of the Medicare prospective payment system for hospitals. Health Care Financ Rev. 1986 Spring;7(3):97–114. [PubMed]
  • Jencks SF, Dobson A. Refining case-mix adjustment. The research evidence. N Engl J Med. 1987 Sep 10;317(11):679–686. [PubMed]
  • Rosko MD, Broyles RW. The impact of the New Jersey all-payer DRG system. Inquiry. 1986 Spring;23(1):67–75. [PubMed]
  • Salkever DS, Steinwachs DM, Rupp A. Hospital cost and efficiency under per service and per case payment in Maryland: a tale of the carrot and the stick. Inquiry. 1986 Spring;23(1):56–66. [PubMed]
  • Worthington NL, Piro PA. The effects of hospital rate-setting programs on volumes of hospital services: a preliminary analysis. Health Care Financ Rev. 1982 Dec;4(2):47–66. [PubMed]

Articles from Health Services Research are provided here courtesy of Health Research & Educational Trust