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Article

The impact of Japanese hospital financing reform on hospital efficiency: a difference-in-difference approach

Japanese Economic Review. 2013. Vol. 64. No. 3. P. 337-362.

With Japanese hospital financing reform, a prospective payment system (PPS) has been established for inpatient care to replace the traditional fee-for-service remuneration of hospitals. This paper evaluates the effect of the reform on technical and cost efficiency of local public hospitals. Efficiency is estimated non-parametrically using two-stage data envelopment analysis with bias correction through bootstrap, and parametrically applying stochastic frontier analysis. The descriptive analysis shows that efficiency declines after the introduction of PPS. Difference-in-difference estimations reveal that PPS results in a limited efficiency gain, which might be related to inadequate incentives created by the two-part PPS tariff in Japan.