Effects of Episode-Based Payment on Health Care Spending and Utilization: Evidence from Perinatal Care in Arkansas

46 Pages Posted: 16 Oct 2017

See all articles by Caitlin Carroll

Caitlin Carroll

Harvard University

Michael Chernew

Harvard University - Department of Health Care Policy; National Bureau of Economic Research (NBER)

A. Mark Fendrick

University of Michigan at Ann Arbor - Department of Internal Medicine

Sherri Rose

Harvard University - Department of Health Care Policy

Date Written: October 2017

Abstract

We study how physicians respond to financial incentives imposed by episode-based bundled payment (EBP), which encourages lower spending and improved quality for an entire episode of care. Specifically, we study the impact of the Arkansas Health Care Payment Improvement Initiative, a multi-payer program that requires providers in the state to enter into EBP arrangements for perinatal care. Because of its multi-payer nature and the requirement that providers participate, the program covers the vast majority of births in the state. Unlike fee-for-service reimbursement, EBP holds physicians responsible for all care within a discrete clinical episode, rewarding physicians not only for efficient use of their own services but also for efficient management of other health care inputs. In a difference-in-differences analysis of commercial claims, we find that perinatal spending decreased by 3.8% overall in Arkansas after the introduction of EBP, compared to surrounding states. We find that the decrease was driven by reduced spending on non-physician health care inputs, specifically the prices paid for inpatient facility care, and that our results are robust to a number of sensitivity and placebo tests. We additionally find that EBP was associated with a limited improvement in quality of care.

Suggested Citation

Carroll, Caitlin and Chernew, Michael E. and Fendrick, A. Mark and Rose, Sherri, Effects of Episode-Based Payment on Health Care Spending and Utilization: Evidence from Perinatal Care in Arkansas (October 2017). NBER Working Paper No. w23926, Available at SSRN: https://ssrn.com/abstract=3053716

Caitlin Carroll (Contact Author)

Harvard University

1875 Cambridge Street
Cambridge, MA 02138
United States

Michael E. Chernew

Harvard University - Department of Health Care Policy ( email )

25 Shattuck Street
Boston, MA 02115
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

A. Mark Fendrick

University of Michigan at Ann Arbor - Department of Internal Medicine ( email )

3116 Taubman Center
Ann Arbor, MI 48109-0376
United States

Sherri Rose

Harvard University - Department of Health Care Policy ( email )

25 Shattuck Street
Boston, MA 02115
United States

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