Does How Much and How You Pay Matter?

Evidence from the Inpatient Rehabilitation Care Prospective Payment System

Published In: Journal of Health Economics, v. 27, no. 4, July 2008, p. 1046-1059

Posted on RAND.org on December 31, 2007

by Neeraj Sood, Melinda Beeuwkes Buntin, Jose J. Escarce

The authors use the implementation of a new prospective payment system (PPS) for inpatient rehabilitation facilities (IRFs) to investigate the effect of changes in marginal and average reimbursement on costs. The results show that the IRF PPS led to a significant decline in costs and length of stay. Changes in marginal reimbursement associated with the move from a cost-based system to a PPS led to a 7-11% reduction in costs. The elasticity of costs with respect to average reimbursement ranged from 0.26 to 0.34. Finally, the IRF PPS had little or no impact on mortality or the rate of return to community residence.

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