Prospective Payments and Hospital Efficiency
This paper examines the effects of the Prospective Payment System on the behavior of hospitals with respect to their capital allocations and the efficiency with which they produce in-patient care. A theoretical model adapted from Pope  yields the testable hypotheses that as a hospital's Medicare population increases the hospital will supply greater levels of capital and produce in-patient care using less technically efficient methods. A two stage test of these hypotheses is run on a sample of US non-federal hospitals. Results from patient demand functions and a stochastic profit frontier are consistent with the theoretical model.
Review of Industrial Organization
Digital Object Identifier (DOI)
Plante, Catherine. Prospective Payments and Hospital Efficiency with David Bradford. The Review of Industrial Organization Vol. 11, no. 6 December 1996 pp.791-809.