A comparison of hospital responses to reimbursement policies for Medicaid psychiatric patients.

Hospital expenditures continue to increase at rates that are higher than that of GNP growth. Policymakers are experimenting with a number of reimbursement methods in an attempt to curtail the growth in hospital costs. This article empirically assesses the impact of various hospital reimbursement methods on the use of hospital services. We specified and estimated a model of hospital duration for Medicaid psychiatric patients. A new semiparametric approach to estimation was implemented for a large national sample of hospital discharges. The empirical findings show significant reductions in hospital duration are associated with per case prospective payment as compared with cost-based reimbursement.