Do Market Incentives for Hospitals Affect Health and Service Utilization? Evidence from PPS-DRG Tariffs in Italian Regions

We exploit variation across Italian Regions in the implementation of region-specific tariffs within a Prospective Pay System (PPS) for hospitals based on Diagnosis Related Groups (DRG) to assess their impact on health and on the use of health care services. We consider survey data for the years 1993-2007 with information on both individuals’ perceived health and their utilization of health care services. Results suggest that the introduction of market incentives via a fixed-price payment system did not lead to worst health perceptions. Instead, it marked a moderate decrease in hospitalization coupled with a clearer decrease in the utilization of emergency services. We also find mild evidence of reduced satisfaction with health care services among hospitals patients. These effects were stronger for adoptions occurring when also the national government supported the market-based approach. Results are robust to a number of sensitivity checks.