Hospital behaviour under Medicare incentives

The US Social Security Act was amended in 1983, reforming the hospital reimbursement methods for the Medicare Prospective Payment System. Hospitals now receive a fixed payment according to a patient's diagnosis. This necessitates the need for hospitals to decrease costs and increase reimbursements. The study examines 2 methods, admission policy and reporting policy which could be used by hospitals to increase their profits. The results show that hospitals that monitor admissions well improve profits.