Efficiency, costs, and quality: the New Jersey experience revisited

Abstract

Focusing on two prospective payment systems that operated concurrently in New Jersey, this study employs the hospital department as the unit of analysis and compares the effects of the all-payer DRG system with those of the SHARE program on hospitals. Relative to the SHARE program, which regulated the revenue derived from Blue Cross and Medicaid, the results indicate that the comprehensive approach to prospective payment induced hospitals to control not only the direct costs of multiple dimensions of patient care per case but also the direct cost per day of nursing care and per unit of ancillary care. The results also suggest that the DRG system reduced the length of stay, the daily use of radiological procedures, and the volume of these services per case. On the other hand, the DRG system was accompanied by an increase in the daily use of laboratory procedures and the volume of laboratory care per case.