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The impact of medical complications on optimal hospital payment

This paper studies the optimal payment policy offered by a regulator to a partially altruistic hospital when the latter privately observes the severity of illness of patients and chooses a hidden quality that influences the probability of medical complications occurring. We analyze how the level of altruism of the hospital affects the conditions under which the payment, for a given diagnosis?related group, should be refined according to the severity of illness and the occurrence of complications.
Journal of Public Economic Theory, 23, 1144-1173