Hospital response to prospective financing of in-patient days: the Belgian case.

Objectives: In Belgium, a prospective payment system (PPS) has been implemented for in-patient non-medical costs since 1995, aimed at improving efficiency in the management of in-patient stays. We analyze the hospital's response in terms of in-patient length of stay (LOS) and medical and surgical expenditures.

Methods: We use data for all Belgian in-patient discharges over the 1991-1998 period. In-patient stays are aggregated according to pathology, age, year and hospital. Estimates are obtained using panel data regressions with fixed effects.

Results: The in-patient length of stay is significantly reduced after the reform. However, the impact is low in magnitude. In addition, medical and surgical expenditures increase, probably reflecting a profit-compensation effect, as medical and surgical services are paid by fee-for-service. Finally, hospitals receiving higher percentages of underprivileged cases, for which the financing scheme is not risk-adjusted, experience a larger decrease in length of stay in the years following the reform. This last finding may be the sign of patient's indirect selection.

Conclusion: The reform towards more hospital financial responsibility did not allow achieve high reductions in resource use. The non-inclusion of medical services in the new financing and the imperfections of risk-adjustment may largely explain this finding.