Hospital Payroll Costs, Productivity, and Employment Under Prospective Reimbursement

This paper reports preliminary findings from the National Hospital Rate-Setting Study regarding the effects of State prospective reimbursement (PR) programs on measures of payroll costs and employment in hospitals. PR effects were estimated through reduced-form equations, using American Hospital Association Annual Survey data on over 2,700 hospitals from 1969 through 1978. These tests suggest that hospitals responded to PR by lowering payroll expenditures. PR also seems to have been associated with reductions in full-time equivalent staff per adjusted inpatient day. However, tests did not confirm the hypothesis that hospitals reduce payroll per full-time equivalent staff as a result of PR.