Hospital costs, government reimbursements, medicare, medicaid, reimbursement rates


We use a panel of hospitals from Washington state to examine the impact of government reimbursement on a provider’s costs. We find that providers change their relative patient mix when Medicare and Medicaid lower reimbursement rates. On a percentage change basis, the magnitudes of these changes are small; however, the overall economic impacts are quite large. Additionally, our findings indicate that a number of other factors significantly influence a provider’s costs, including patient demographics, initial illness severity and input market conditions facing the firm.

We thank two anonymous reviewers for their helpful comments. We also thank William Greene for valuable econometric advice when making revisions to this manuscript. Remaining errors are our own.

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