Do public hospitals respond to changes in DRG price regulation? The case of birth deliveries in the Italian NHS

Abstract

We study how changes in Diagnosis-Related Group price regulation affect hospital behaviour in quasi-markets with exclusive provision by public hospitals. Exploiting a quasi-natural experiment, we use a difference-in-differences approach to test whether public hospitals respond to an exogenous change in Diagnosis-Related Group tariffs by increasing C-section rates and/or by upcoding. Controlling for a detailed set of mother characteristics, we find that price changes did not affect the probability of a C-section. We do however find evidence of upcoding: Conditional on the birth delivery method (either a C-section or a vaginal delivery), public hospitals experiencing the largest price change exhibit a higher probability of treating patients coded as complicated. This finding suggests that even public hospitals may be sensitive to market incentives.

Does higher Institutional Quality improve the Appropriateness of Healthcare Provision?

“…Crucially, the decision making in childbirth falls in the gray area of medicine, implying that it is possible for physicians to argue that a C-section is appropriate when it could be avoided (Chandra et al, 2011;Johnson and Rehavi, 2016). This makes the choice of childbirth delivery particularly exposed to the discretion of physicians and to supplier-induced demand (Gruber and Owings, 1996;Hopkins, 2000;Di Giacomo et al, 2017), and thus amenable to policy interventions designed by local institutions.…”

How do hospitals respond to cross price incentives inherent in diagnosis‐related groups systems? The importance of substitution in the market for sepsis conditions

“…The previous literature already identified two particular hospital strategies for how hospitals upcode patients into more profitable DRGs: Hospitals report high patient severities by manipulating the existence of complicating diagnoses (Dafny, 2005; Di Giacomo et al., 2017) or by manipulating birth weights (Jürges & Köberlein, 2015). The results of this study extend the previous literature and identify a previously unrevealed mechanism to upcode patients into more profitable DRGs: switching the primary diagnosis with a more remunerative secondary diagnosis.…”

“…The author demonstrates that hospitals respond to the changes in the incentive structure inherent in DRG systems and upcode patients into more profitable DRGs. Jürges and Köberlein (2015) and Di Giacomo, Piacenza, Siciliani, and Turati (2017) find a similar pattern where hospitals also report higher than justified patient severities. The literature remains unclear as to whether hospitals also alter treatment decisions in response to extra reimbursements.…”

A moneymaking scan: Dual reimbursement systems and supplier‐induced demand for diagnostic imaging

“…Second, price regulation in one hospital sector may be less effective in containing healthcare spending if clinical decisions are directly linked to revenue in complementary sectors, and thereby affect patients not initially targeted by the policy. Hospitals, who are the largest providers of diagnostic imaging, are also not immune to financial incentives, despite being majoritarily publicly owned, and predominantly treating patients with BHI (see e.g., Di Giacomo et al, 2017). Our study thus supports the implementation of dual systems that link incentives across care sectors, for example, bundled payments and risk sharing contracts with integrated care providers responsible for all expenditures in the population, for example, Accountable Care Organisations in the United States or Clinical Commissioning Groups in England.…”