Medicare’s PPS Made Costs Higher, Not Lower
The Prospective Payment System (PPS) was supposed to given hospitals economic incentives to reduce costs by providing the providers with a fixed fee based on diagnosis, irrespective of actual expenses. In fact, the hospitals apparently responded by treating more marginal cases – thereby increasing costs and putting patients at greater risk. A study of CABG (coronary artery bypass graft) surgery finds that:
The increased CABG use was not cost effective – the lower bound estimate of the cost per quality-adjusted life year was over one million dollars. The average cost payments of PPS provided incentives for hospitals to expand the use of technologies that have high fixed costs; an expansion that increased health care costs with possibly little health benefits.
Study here. This comes via Arnold Kling, Tyler Cowen and Reihan Salam.
This is an interesting study.
It’s the law of unintended consequences.
Your Post is a good source of information, i think you have to hold you pen on these kinds of serious issues!
From
Final expense
The result was bad for the left, but good for the country.
Medicare’s cost controls have never really worked for one reason:
the HCFA which runs Medicare, and Congress which runs the HCFA, have never had the willpower to set a global budget.
Medicare has been open-ended. No one has the courage to say that payments will stop at 180 billion a year in part A, or 150 billion a year in Part B.
Other nations have tougher bureaucracies. Canadian doctors sometimes take December off, because they have hit their annual reimbursement total.
In the 1990’s, German hospitals saw their reimbursements slashed dramatically if they exceeded the annual targets.
I do not know if this makes for worse medicine. I do know that it controls costs.