Working Paper: NBER ID: w27948
Authors: Edward C. Norton; Emily J. Lawton; Jun Li
Abstract: One of the most important changes to the United States health care system over the last two decades is the emergence of pay-for-performance as a way to encourage hospitals and other providers to improve quality of care. Unlike fee-for-service, these value-based purchasing programs measure aspects of quality and financially reward hospitals that are outstanding or at least improving in their care. Prior research has shown that hospitals often improve more when the marginal financial incentives are larger. However, the exact relationship between marginal financial incentives and year-over-year improvement in measures remains unclear. In this study, we use national 20152018 data on approximately 2,700 hospitals to estimate how hospitals respond to pay-for-performance incentives in the Hospital Value-Based Purchasing (HVBP) Program. We show that this relationship is non-linear, has strong serial correlation, is somewhat similar for safety-net hospitals as non-safety-net hospitals, and is proportional to the size of the Medicare patient population.
Keywords: Pay-for-performance; Value-based purchasing; Hospital performance; Financial incentives; Safety-net hospitals
JEL Codes: I11; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial incentives (M52) | Hospital performance improvements (I19) |
| Positive financial incentives (J33) | Improved performance across survival measures and spending measures (I14) |
| Size of marginal incentive (D69) | Change in performance (D29) |
| Safety-net hospitals respond to incentives (H51) | Performance improvements (D29) |
| Marginal future reimbursement (J17) | Performance change (D29) |