We measure the degree of supplier-induced demand in newborn treatment, by exploiting changes in reimbursement arising from the introduction in Japan of the partial prospective payment system (PPS). 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 respond to PPS adoption by increasing NICU utilization and more frequently manipulating infants' reported birth weights -- the latter of which is a measure that determines the infant's maximum allowable length of stay in NICU. This induced demand substantially increases hospitals' reimbursements.
Hitoshi Shigeoka received a B.A. (2001) and an MA (2003) in chemical engineering from University of Tokyo, and master of international affairs (2006) and PhD in economics (2012) from Columbia University. Hitoshi’s research interests include health, labor, public economics, and experimental economics. His current research involves estimating the demand elasticity of health care utilization, examining the degree of supplier-induced demand by physicians and hospitals, examining the effects of competition and peer-to-peer teaching on learning, and investigating how the long-term incentives of mothers affect the timing of births.