Hospital Response to the Implementation of Prospective Payment

Abstract

This research examined the competing effects of regulatory intensity (Prospective Payment System) and inertial pressure on US hospitals' cost of medical materials, shifting of services from inpatient to outpatient settings, size of the administrative component, and use of new technology. Among the expected findings, regulatory intensity was associated with reduced medical material costs, less new technology and a greater administrative component. Inertial pressures were associated with higher medical material costs, more new technology and less shifting of services from inpatient to outpatient settings. It was concluded that US hospitals respond to regulatory pressures within the context of strong inertial forces. The stronger the inertial forces, the less dramatic a hospital's response to regulatory pressures is likely to be.