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J Health Econ. 2014 May;35:162-78. doi: 10.1016/j.jhealeco.2014.03.003. Epub 2014 Mar 26.

Supplier-induced demand for newborn treatment: evidence from Japan.

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Department of Economics, Simon Fraser University, 8888 University Drive, WMC 4653, Burnaby, BC V5A 1S6, Canada. Electronic address:
Division of Health Policy and Informatics, Department of Health Policy, Tokyo Medical and Dental University, 1-5-45 Yushima, Bunkyo-ku, Tokyo 1138519, Japan. Electronic address:


We estimate the degree of supplier-induced demand for newborn treatment by exploiting changes in reimbursement arising from the introduction of the partial prospective payment system (PPS) in Japan. Under the partial PPS, neonatal intensive care unit (NICU) utilization became relatively more profitable than other procedures, since it was excluded from prospective payments. We find that hospitals have responded to PPS adoption by increasing NICU utilization and by more frequently manipulating infants' reported birth weights which in large part determine their maximum allowable stay in the NICU. This induced demand substantially increases the reimbursements received by hospitals.


Birth weight manipulation; Hospital gaming; Neonatal intensive care unit; Prospective payment system; Supplier-induced demand

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