By A.J.; Maynard, Alan; Posnett, John Culyer
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Extra resources for Competition in Health Care: Reforming the NHS
12 days (12 per cent) for all Medicare patients in 1984. Taking a sample of five DRGs in 501 hospitals in the United States, Morrisey et al. (1988) found evidence of significant reductions in length of stay in all diagnostic groups (except in DRG 89-91, pneumonia) after the introduction of PPS in 1983. In the Feder (1987) study, which identified a significant impact of PPS on cost per case, the most important determinant of changes in cost appeared to be changes in length of stay. Between 1982 and 1984 average length of stay declined for all patients and for all types of hospitals, but the reduction for Medicare patients in hospitals paid on a PPS basis was substantially greater.
An insurance carrier faces uncertainty about both the number of cases requiring treatment in a given period and the costs of treatment. The nature of the contractual relationship between payer and supplier determines the incidence of the financial consequences of these uncertainties. From the point of view of the payer, the 'ideal' contract will be one in which total expenditure is fixed in advance. A capitation contract, in which risk exposure for medical costs is shifted from the payer to the supplier, meets this requirement.
It is not an advantage of a central price schedule that it will control monopoly abuse. As has been seen above, one of the ways in which monopoly rents are captured by monopolists (especially non-profit making ones) is via cost-increases. If these become embodied (and enshrined) in average specialty costs or DRG costs, then the schedule has the effect of building abuse into the system by ensuring that (average) X-inefficiency is not penalised. Yet a principal rationale for the internal market lies in a perception that, on average, there is already X-inefficiency in the system.
Competition in Health Care: Reforming the NHS by A.J.; Maynard, Alan; Posnett, John Culyer