title: Using hospital-specific costs to improve the fairness of prospective reimbursement.
abstract: Payment rates in Medicare's Prospective Payment System (PPS) are based on averages of historical hospital costs. Compared to reimbursing each hospital's own costs, pricing at the average of costs implies a massive redistribution of payments among hospitals. Because not all sources of hospital costs are accounted for in the PPS, some of this redistribution is 'unfair'. Information in hospital-specific costs on unmeasured patient severity and input prices can be exploited to reduce payment inequities. However, fully hospital-specific rates are not optimal because costs also reflect treatment intensity and efficiency differences among hospitals.
authors: Center for Health Economics Research, Needham, MA 02194.
authors: G C
authors: GC
authors: Pope
mesh_terms: D003361:Cost Allocation / Q000379:methods*; D004469:Economics, Hospital / Q000706:statistics & numerical data*; D006278:Medicare / Q000191:economics*; D015233:Models, Statistical; D011445:Prospective Payment System / Q000191:economics*; D011907:Rate Setting and Review / Q000379:methods; D014481:United States