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Impacts of Performance Pay for Hospitals: The Readmissions Reduction Program

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  • Atul Gupta

Abstract

US policy increasingly ties payments for providers to performance on quality measures, though little empirical evidence guides the design of such incentives. I deploy administrative data to study a large federal program that penalizes hospitals with high readmissions rates. Using policy-driven variation in the penalty incentive across hospitals for identification, I find that hospital responses to the penalty account for two-thirds of the observed decrease in readmissions over this period, as well as a decrease in heart attack mortality. Quality improvement accounts for about one-half of the decrease in readmissions; the remainder is explained by selective admission of returning patients.

Suggested Citation

  • Atul Gupta, 2021. "Impacts of Performance Pay for Hospitals: The Readmissions Reduction Program," American Economic Review, American Economic Association, vol. 111(4), pages 1241-1283, April.
    • Handle: RePEc:aea:aecrev:v:111:y:2021:i:4:p:1241-83
    DOI: 10.1257/aer.20171825
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    Citations

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    Cited by:

    1. Jonathan I. Dingel & Joshua D. Gottlieb & Maya Lozinski & Pauline Mourot, 2023. "Market Size and Trade in Medical Services," NBER Working Papers 31030, National Bureau of Economic Research, Inc.
    2. Michele Fioretti & Hongming Wang, 2023. "Performance Pay in Insurance Markets: Evidence from Medicare," The Review of Economics and Statistics, MIT Press, vol. 105(5), pages 1128-1144, September.
    3. repec:spo:wpmain:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    4. Engy Ziedan & Robert Kaestner, 2021. "Did the Hospital Readmissions Reduction Program Reduce Readmissions? An Assessment of Prior Evidence and New Estimates," Evaluation Review, , vol. 45(6), pages 359-411, December.
    5. Maggie Shi, 2023. "Monitoring for Waste: Evidence from Medicare Audits," NBER Working Papers 31559, National Bureau of Economic Research, Inc.
    6. repec:spo:wpecon:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    7. Bauhoff,Sebastian Peter Alexander & Kandpal,Eeshani, 2021. "Information, Loss Framing, and Spillovers in Pay-for-Performance Contracts," Policy Research Working Paper Series 9687, The World Bank.
    8. Erina Ytsma, 2022. "Effort and Selection Effects of Performance Pay in Knowledge Creation," CESifo Working Paper Series 10153, CESifo.
    9. Kunz, Johannes S. & Propper, Carol, 2023. "JUE Insight: Is hospital quality predictive of pandemic deaths? Evidence from US counties," Journal of Urban Economics, Elsevier, vol. 133(C).
    10. Atul Gupta & Ambar La Forgia & Adam Sacarny, 2024. "Turbocharging Profits? Contract Gaming and Revenue Allocation in Healthcare," NBER Working Papers 32564, National Bureau of Economic Research, Inc.
    11. Atul Gupta & Guy David & Lucy Kim, 2023. "The effect of performance pay incentives on market frictions: evidence from medicare," International Journal of Health Economics and Management, Springer, vol. 23(1), pages 27-57, March.
    12. Hummy Song & Elena Andreyeva & Guy David, 2022. "Time Is the Wisest Counselor of All: The Value of Provider–Patient Engagement Length in Home Healthcare," Management Science, INFORMS, vol. 68(1), pages 420-441, January.
    13. repec:hal:wpspec:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    14. Dillender, Marcus & Jinks, Lu & Lo Sasso, Anthony T., 2023. "When (and why) providers do not respond to changes in reimbursement rates," Journal of Public Economics, Elsevier, vol. 217(C).
    15. Alquezar-Yus, M.;, 2023. "Time Constraints and the Quality of Physician Care," Health, Econometrics and Data Group (HEDG) Working Papers 23/06, HEDG, c/o Department of Economics, University of York.
    16. Johannes S. Kunz & Carol Propper & Kevin E. Staub & Rainer Winkelmann, 2023. "Assessing the Quality of Public Services: For-profits, Chains, and Concentration in the Hospital Market," Papers 2023-01, Centre for Health Economics, Monash University.
    17. repec:hal:spmain:info:hdl:2441/2ioennpq5m90holakkatq7cmms is not listed on IDEAS
    18. Kortelainen, Mika & Laine, Liisa T. & Lavaste, Konsta & Saxell, Tanja & Siciliani, Luigi, 2023. "Improving Performance Through Allocation and Competition: Evidence from a Patient Choice Reform," Working Papers 156, VATT Institute for Economic Research.
    19. Fernanda Bravo & Retsef Levi & Georgia Perakis & Gonzalo Romero, 2023. "Care coordination for healthcare referrals under a shared‐savings program," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 189-206, January.
    20. Wang, Tianyu & Wen, Ke & Gao, Qiuming & Sun, Ruochen, 2023. "Small money, big change: The distributional impact of differentiated doctor's visit fee on healthcare utilization," Social Science & Medicine, Elsevier, vol. 339(C).

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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