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Swiss DRGs: Patient Heterogeneity and Hospital Payments


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.


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Correspondence to Michel Mougeot.

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Open Access This article is distributed under the terms of the Creative Commons Attribution 2.0 International License ( ), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

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Mougeot, M., Naegelen, F. Swiss DRGs: Patient Heterogeneity and Hospital Payments. Swiss J Economics Statistics 144, 309–322 (2008).

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  • I1
  • L3
  • D8


  • hospital price regulation
  • outlier payment
  • piecewise mechanism