The Short-Term Response of Hospitals to the Introduction of the DRG Based Prospective Payment System: Some Evidence from Italy

The aim of this paper is to analyse hospitals’ response to the Diagnosis Related Groups-based prospective payment system in its first year of implementation in Italy. It investigates the short-term variations of the average length of stay, the case flow, the occupancy rate, and the rate of readmission. Results show that hospitals have responded to the new prospective payment system by significantly reducing the average length of stay. This reduction, however, has not been matched by a greater number of inpatient hospital episodes, leading to a decreasing occupancy ratio pattern.