HOSPITAL BEHAVIOR UNDER MEDICARE INCENTIVES

Abstract

The 1983 amendments to Social Security changed the reporting mechanism through which hospitals are reimbursed for treating Medicare patients. The revised system changed the incentive structure for hospitals. This study which refines and extends Soderstrom (1990a) examines reporting behavior following institution of the new system. Under the reimbursement system, hospitals receive a fixed fee based upon the patient's diagnosis. Hospitals have several strategies to increase profit under this system. Two strategies are examined here: 1) changing admission policy and 2) changing reporting policy. Empirical results provide limited evidence that hospitals in poor financial condition and/or with hi..