Who Pays in Pay for Performance? Evidence from Hospital Pricing

39 Pages Posted: 30 May 2018

See all articles by Michael Darden

Michael Darden

Johns Hopkins University - Carey Business School

Ian McCarthy

Emory University - Department of Economics

Eric Barrette

Health Care Cost Institute: HCCI

Date Written: February 2018

Abstract

The Hospital Readmission Reduction Program (HRRP) and the Hospital Value Based Purchasing Program (HVBP), two components of the Affordable Care Act's cost containment measures, introduced potentially sizeable penalties to underperforming hospitals across a variety of metrics. To the extent that penalized hospitals subsequently changed their processes of care, such changes may translate into higher payments from commercial insurance patients. In this paper, we estimate the effects of these pay-for-performance programs on private hospital payments using data on commercial insurance payments from a large, multi-payer database. We find that nearly 70% of the costs of the HRRP and HVBP penalties are borne by private insurance patients in the form of higher private insurance payments to hospitals. Specifically, we show that HRRP and HVBP led to increases in private payments of 1.4%, or approximately $183,700 per hospital based on an average relative penalty of $271,000. We find very limited evidence that these effects are driven by quality improvements, changes in treatment intensity, or changes in service mix.

Suggested Citation

Darden, Michael and McCarthy, Ian and Barrette, Eric, Who Pays in Pay for Performance? Evidence from Hospital Pricing (February 2018). NBER Working Paper No. w24304, Available at SSRN: https://ssrn.com/abstract=3187090

Michael Darden (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Ian McCarthy

Emory University - Department of Economics ( email )

201 Dowman Drive
Atlanta, GA 30322
United States

Eric Barrette

Health Care Cost Institute: HCCI ( email )

1100 G Street NW
Suite 600
Washington, DC 20005
United States

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