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Health Serv Res. 1990 December; 25(5): 785–808.
PMCID: PMC1065664

Hospital financial performance under the prospective payment system by type of admission: psychiatric versus medical/surgical.


We performed detailed simulations of DRG-based payments to general hospitals for treatment of nonexempt psychiatric and medical/surgical patients under Medicare's prospective payment system (PPS). We then compared these results to calculated costs for the same patients. Hospitals without specialized psychiatric units tend to fare better financially on their psychiatric than on their medical/surgical caseloads, although the levels of gain for these two types of patients are correlated. Hospitals with nonexempt psychiatric units generally have similar rates of gain on psychiatric and medical/surgical patients. Comparing psychiatric treatment in "scatter-bed" sites with that provided in nonexempt units, the higher rate of gain under PPS for treatment in scatter beds results largely from shorter lengths of stay. We discuss hospital behavior and the relationships between treatment of psychiatric illness under DRG-based payment and its treatment in exempt psychiatric units, which are excluded from DRG-based payment.

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Selected References

These references are in PubMed. This may not be the complete list of references from this article.
  • Freiman MP. Reimbursement decisions for hospital services: the case of psychiatric units under Medicare. Inquiry. 1989 Fall;26(3):399–405. [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]
  • Freiman MP, Goldman HH, Taube CA. Hospitalization for psychiatric illness under Medicare, 1985. Hosp Community Psychiatry. 1990 Jan;41(1):51–58. [PubMed]
  • Freiman MP, Sederer LI. Transfers of hospitalized psychiatric patients under Medicare's prospective payment system. Am J Psychiatry. 1990 Jan;147(1):100–105. [PubMed]
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  • Lave JR, Frank RG, Taube C, Goldman H, Rupp A. The early effects of Medicare's prospective payment system on psychiatry. Inquiry. 1988 Fall;25(3):354–363. [PubMed]
  • Luft HS, Robinson JC, Garnick DW, Maerki SC, McPhee SJ. The role of specialized clinical services in competition among hospitals. Inquiry. 1986 Spring;23(1):83–94. [PubMed]
  • Melnick GA, Zwanziger J. Hospital behavior under competition and cost-containment policies. The California experience, 1980 to 1985. JAMA. 1988 Nov 11;260(18):2669–2675. [PubMed]
  • Newhouse JP, Byrne DJ. Did Medicare's prospective payment system cause length of stay to fall? J Health Econ. 1988 Dec;7(4):413–416. [PubMed]
  • Robinson JC, Luft HS. Competition, regulation, and hospital costs, 1982 to 1986. JAMA. 1988 Nov 11;260(18):2676–2681. [PubMed]

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