Health Economics Workshop with Peter Zweifel, PhD (co-hosted by Wharton's Health Care Management Dept. and the Penn Economics Dept.)

Health Economics Workshop with Peter Zweifel, PhD (co-hosted by Wharton's Health Care Management Dept. and the Penn Economics Dept.)

"Buying efficiency: an optimal hospital payment system in the presence of double upcoding"

After a postdoc position with the University of Wisconsin-Madison in 1974-75, he received tenure with the University of Zurich in 1984. Publications include more than 100 articles in refereed journals (AER, EnJ, EurJHE, JHE, JRI, JRU, PubCh) as well as Health Economics (with F. Breyer und M. Kifmann) and Insurance Economics (with R. Eisen).


Abstract: With DRG payment, hospitals can game the system by ´upcoding´ true patients´ severity of illness. This paper takes into account that upcoding can be performed by both the chief physicians and hospital management, with the extent of distortion depending on the hospital´s decision-making process. Internal decision-making can be of the principal-agent type, with the management as the principal and the chief physician as the agent, but chief physicians may be able to engage in negotiations with management, resulting in a bargaining solution. In the first case, the distortion due to upcoding is shown to accumulate, whereas in the bargaining case, it is avoided at the level of the chief physician. In the presence of upcoding, it may therefore be appropriate for the sponsor to design a payment system that favors bargaining even if this requires extra funding.