An Evidence-Based Incentive System for Medicare’s End-Stage Renal Disease Program
Management Science 58:6:1092-1105 (2012)
33 Pages Posted: 27 Nov 2020
Date Written: 2012
Recent legislations directed Medicare to revamp its decades-old system for reimbursing dialysis treatments, with focus on the risk adjustment of payments and on the transition toward a pay-for-compliance system. To design an optimal payment system that incorporates these features, we develop an empirical method to estimate the structural parameters of the principal-agent model underlying Medicare's dialysis payment system. We use the model and parameter estimates to answer the following questions: Can a pay-for-compliance system based only on the intermediate performance measures currently identified by Medicare achieve first-best? How should patient outcomes be risk adjusted, and what welfare gains can be achieved by doing so? Our main findings are as follows: 1) the current set of intermediate measures identified by Medicare are not comprehensive enough for use alone in a pay-for-compliance system; 2) paying for risk-adjusted downstream outcomes instead of raw downstream outcomes can lengthen the hospital-free life of admitted patients by two weeks per patient per year without increasing Medicare expenditures.
Keywords: Healthcare pay-for-performance, dialysis, evidence-based mechanism design, structural estimation
JEL Classification: C01, I13, I18
Suggested Citation: Suggested Citation