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So Many Hospitals, So Little Information: How Hospital Value‐Based Purchasing Is a Game of Chance

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  • Andrew I. Friedson
  • William C. Horrace
  • Allison F. Marier

Abstract

As part of the Patient Protection and Affordable Care Act, participating hospitals have part of their Medicare reimbursements withheld and then redistributed based on quality performance. The Hospital Value‐Based Purchasing reimbursement plan relies partly on ordinal rankings of hospitals to determine how money is distributed. We analyze the quality metric score distributions that underlie payment redistribution and show that there is not enough information to reliably differentiate hospitals from one another near the program point cutoffs, and conclude that a large part of the payment formula is driven by sampling variability rather than true quality information. An alternative plan for rewarding hospitals is developed.

Suggested Citation

  • 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.
    • Handle: RePEc:wly:soecon:v:86:y:2019:i:2:p:773-799
    DOI: 10.1002/soej.12375
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    1. William C. Horrace & Christopher F. Parmeter, 2017. "Accounting for Multiplicity in Inference on Economics Journal Rankings," Southern Economic Journal, John Wiley & Sons, vol. 84(1), pages 337-347, July.
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    Cited by:

    1. William C. Horrace & Christopher F. Parmeter, 2017. "Accounting for Multiplicity in Inference on Economics Journal Rankings," Southern Economic Journal, John Wiley & Sons, vol. 84(1), pages 337-347, July.
    2. Edward C. Norton & Emily J. Lawton & Jun Li, 2020. "Moneyball in Medicare: Heterogeneous Treatment Effects," NBER Working Papers 27948, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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