Hospital Quality, Medical Charge Variation, and Patient Care Efficiency: Implications for Bundled Payment Reform Models

44 Pages Posted: 1 Dec 2016

See all articles by Seokjun Youn

Seokjun Youn

The University of Arizona - Department of Management Information Systems

Gregory R. Heim

Texas A&M University - Department of Information & Operations Management

Subodha Kumar

Temple University - Department of Marketing and Supply Chain Management

Chelliah Sriskandarajah

Texas A&M University

Date Written: November 24, 2016

Abstract

Patient-centric healthcare reform models pursue lower healthcare costs, improved care quality, and better patient population health outcomes. Many patient-centric reform models focus on standardizing treatment protocols and reducing care delivery variability. Yet the structure of reform models themselves may lead to unintended process variability, the implications of which researchers should analyze. Prior research has not determined whether the reform models can potentially drive better patient-centric outcomes. A distinct challenge in analyzing their potential impact concerns a lack of publicly available historical data on reform models. We circumvent this challenge by recasting available data into relevant metrics, and examining how variation in hospital medical charges relates to patient-centric reform model goals. To do so, we develop a hospital-condition level measure called weighted average coefficient of variation (WACV) to identify the degree of variation in hospital medical charges resulting from underlying care process variability. WACV contributes by capturing unwarranted process variation in medical care protocols after controlling for warranted variation due to patient distributions of illness severity. Using Medicare data from New York state, we find evidence that higher charge variation (WACV) levels are indeed associated with lower hospital technical efficiency. Secondly, we show that prior-period process quality (that measures how well a hospital adheres to evidence-based medical guidelines) has a significant negative association with WACV. In contrast, the prior-period outcome quality measures are not associated with WACV. For policy-makers, the results imply that managerial incentives and interventions based on process quality may be more effective for changing operational behaviors, compared to basing incentives and interventions solely on outcome quality. Further, the results imply that WACV should play a role in the design of healthcare reform models. We examine these implications for bundled payment programs, which fix the amount of reimbursement for hospitals within a predefined boundary of patient care episode. Empirical results suggest that the current bundled payment provider selection mechanism does not consider the degree of unwarranted variation in charges, which we claim to be the improvement opportunity for each participating provider. In doing so, our results contribute by demonstrating that existing bundled payment program policies may not achieve intended goals.

Keywords: Healthcare, Variation in Medical Charges, Outcome Quality, Process Quality, Bundled Payments

Suggested Citation

Youn, Seokjun and Heim, Gregory R. and Kumar, Subodha and Sriskandarajah, Chelliah, Hospital Quality, Medical Charge Variation, and Patient Care Efficiency: Implications for Bundled Payment Reform Models (November 24, 2016). Mays Business School Research Paper No. 2876358. Available at SSRN: https://ssrn.com/abstract=2876358 or http://dx.doi.org/10.2139/ssrn.2876358

Seokjun Youn

The University of Arizona - Department of Management Information Systems ( email )

1130 E Helen St., McClelland Hall 430CC
Tucson, AZ 85721
United States
9792553584 (Phone)
85721 (Fax)

HOME PAGE: http://https://eller.arizona.edu/people/seokjun-youn

Gregory R. Heim

Texas A&M University - Department of Information & Operations Management ( email )

320 Wehner Building
4217 TAMU
College Station, TX 77843-4217
United States
979-845-9218 (Phone)

HOME PAGE: http://mays.tamu.edu/info/

Subodha Kumar

Temple University - Department of Marketing and Supply Chain Management ( email )

Philadelphia, PA 19122
United States

Chelliah Sriskandarajah (Contact Author)

Texas A&M University ( email )

Langford Building A
798 Ross St.
77843-3137

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