The Effect of PPS on Hospital Product and Productivity

The results suggest that Prospective Payment System (PPS) prompted a reduction in the proportion of Medicare patients that were discharged, for whom the hospital considered the episode of care to be completed. The results also show a reduction in the proportion of patients discharged dead. When controlling for patient type, the results support the findings, but the magnitude of the change that might be attributed to PPS is somewhat smaller. Proportional changes in the input measures for all patients were next considered. The results indicate that fewer diagnostic tests, fewer laboratory tests, and fewer x-rays were used in 1984. Laboratory tests showed the most dramatic decrease. LOS decreased, but the drug input remained fairly constant. A productivity index that reflects the change in the input measure while controlling for patient type was developed. The results provide strong evidence of a productivity increase in all products for Medicare patients. The drug input did not contribute to the productivity increase. The 50 most frequent DRGs for Medicare patients were examined separately for productivity changes by product. The results further support the findings of an increase in productivity.