The impact of payment systems for inpatient care on medical service utilization

Health care experts have become concerned about the rising expenditures for health care and there has been little noticeable success in cost containment efforts. This dissertation examined the effects of the payment methods of three parties--the physician, the hospital, and the patient--on service utilization during a hospitalization. The primary objective is the direction and the intensity of the effect of each party's financial incentive on utilization. The secondary objective concerns the effect of organizational factors on the association between financial incentives and utilization. The study hypotheses are empirically tested using data from different payment systems.; Patient discharge abstract data with selected Diagnosis Related Groups (DRGs) were obtained from three sources--the 1983 and 1984 hospital discharge data base of two Australian hospitals, the 1984 California Hospital Discharge Data Base, and the 1984 Maryland Hospital Discharge Data Base. Length of hospital stay (LOS) was used as a measure for service utilization during a hospitalization. A multiple regression model was constructed for each DRG to examine main effects and interactions of the study factors on log-transformed LOS. Also, provider specific effects of the study factors were examined using multiple regression models.; The physician's financial incentives showed varying intensities of association across DRGs in explainable ways. However, the directions of the associations of the hospital and the patient appeared to be different from the expected in view of their financial interests. Type of hospital control had a significant effect on the associations of financial incentives in some DRGs. The effect of the physician-specific utilization behavior was substantial and consistent across DRGs.; The study findings were consistent with the expectation that physicians are the primary decision makers about utilization, as previous research has suggested. The findings suggest that the financial incentives of three parties, particularly the physician, should be coordinated in an effort to contain cost inflation even if the effort is aimed at costs for hospital care.