The Effects of Prospective Reimbursement Programs on Hospital Adoption and Service Sharing

A previous article in this journal (Coelen and Sullivan, 1981) reported new evidence that many State hospital prospective reimbursement (PR) programs have been successful in reducing hospital cost inflation. Limiting proliferation of redundant technologies and community services may be one method of reducing this cost inflation. Data compiled from a sample of over 2,500 hospitals in 15 rate-setting and other States between 1969 and 1978 were used to determine PR's effect on both service adoption and sharing. Evidence indicates a consistent, retarding effect on all services for New York, the country's oldest, most stringent program. Several other States, notably Minnesota, Maryland, New Jersey, Washington, and Wisconsin showed retarding effects on costly rapidly diffusing services such as open heart surgery, intensive care units (ICUs), and social work, as well as accelerating the phasing-out of redundant services, such as the premature nursery. We found no consistent, significant effects on service sharing.