Hospital nonprice competition and medicare reimbursement policy

Pope, G. (1989). Hospital nonprice competition and medicare reimbursement policy. Journal of Health Economics, 8(2), 147-172. DOI: 10.1016/0167-6296(89)90001-5

This paper analyzes the role of interhospital nonprice competition in Medicare's Prospective Payment System. Competition can play an important role both by increasing quality and reducing managerial slack. The quality-enhancing aspect of competition can be amplified through reimbursement of a proportion of incurred cost. As competition intensifies, the optimal degree of cost sharing (subsidy) falls.