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Open Access

Swiss DRGs: Patient Heterogeneity and Hospital Payments

Swiss Journal of Economics and Statistics2008144:BF03399256

Published: 11 January 2008


In this paper, we analyze the prospective method of paying hospitals when the within-DRG variance is high. To avoid patients dumping, an outlier payment system is implemented. In the APDRG Swiss System, it consists in a mixture of fully prospective payments for low costs patients and partially cost-based system for high cost patients. We show how the optimal policy depends on the degree to which hospitals take patients’ interest into account. A fixed-price policy is optimal when the hospital is sufficiently benevolent. When the hospital is weakly benevolent, a mixed policy solving a trade-off between rent extraction, efficiency and dumping deterrence must be preferred. Following Mougeot and Naegelen (2008), we show how the optimal combination of fixed price and partially cost-based payment depends on the degree of benevolence of the hospital, the social cost of public funds and the distribution of patients severity.


hospital price regulationoutlier paymentpiecewise mechanism