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Moneyball in Medicare

Author

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  • Edward C. Norton
  • Emily J. Lawton
  • Jun Li

Abstract

One of the most important changes to the US health-care system over the last two decades is the emergence of pay-for-performance to encourage hospitals and other providers to improve quality of care. Unlike fee-for-service reimbursement, 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. We use national 2015–18 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 nonlinear, has strong serial correlation, is generally similar for different types of hospitals (with the exception of hospitals in the most competitive markets responding more strongly), and usually has similar patterns of sign, magnitude, and significance for both measures of marginal incentives. The results are critical for improving public policy for pay-for-performance programs.

Suggested Citation

  • Edward C. Norton & Emily J. Lawton & Jun Li, 2023. "Moneyball in Medicare," American Journal of Health Economics, University of Chicago Press, vol. 9(1), pages 96-126.
    • Handle: RePEc:ucp:amjhec:doi:10.1086/721707
    DOI: 10.1086/721707
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    Cited by:

    1. Andrew I. Friedson & William C. Horrace & Allison F. Marier, 2019. "So Many Hospitals, So Little Information: How Hospital Value‐Based Purchasing Is a Game of Chance," Southern Economic Journal, John Wiley & Sons, vol. 86(2), pages 773-799, October.
    2. Emma McManus & Jack Elliott & Rachel Meacock & Paul Wilson & Judith Gellatly & Matt Sutton, 2021. "The effects of structure, process and outcome incentives on primary care referrals to a national prevention programme," Health Economics, John Wiley & Sons, Ltd., vol. 30(6), pages 1393-1416, June.
    3. Jun Li, 2022. "Value‐Based Payments in Health Care: Evidence from a Nationwide Randomized Experiment in the Home Health Sector," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 41(4), pages 1090-1117, September.
    4. Søren Rud Kristensen, 2017. "Financial Penalties for Performance in Health Care," Health Economics, John Wiley & Sons, Ltd., vol. 26(2), pages 143-148, February.
    5. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2024. "Competition, quality and integrated health care," Journal of Health Economics, Elsevier, vol. 95(C).
    6. Levy, Deborah & Hills, Raewyn & Perkins, Harvey C. & Mackay, Michael & Campbell, Malcolm & Johnston, Karen, 2021. "Local benevolent property development entrepreneurs in small town regeneration," Land Use Policy, Elsevier, vol. 108(C).
    7. Cheatham, Leah P. & Randolph, Karen A. & Boltz, Laura D., 2020. "Youth with disabilities transitioning from foster care: Examining prevalence and predicting positive outcomes," Children and Youth Services Review, Elsevier, vol. 110(C).
    8. Cornell, Portia Y. & Grabowski, David C. & Norton, Edward C. & Rahman, Momotazur, 2019. "Do report cards predict future quality? The case of skilled nursing facilities," Journal of Health Economics, Elsevier, vol. 66(C), pages 208-221.
    9. Joseph Doyle & John Graves & Jonathan Gruber, 2019. "Evaluating Measures of Hospital Quality: Evidence from Ambulance Referral Patterns," The Review of Economics and Statistics, MIT Press, vol. 101(5), pages 841-852, December.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • 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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