Selection and Causal Effects in Voluntary Programs: Bundled Payments in Medicare

68 Pages Posted: 1 Aug 2022 Last revised: 21 Sep 2022

See all articles by Atul Gupta

Atul Gupta

University of Pennsylvania - Health Care Management

Joseph Martinez

University of Pennsylvania - The Wharton School

Amol S. Navathe

University of Pennsylvania - The Wharton School

Date Written: July 11, 2022

Abstract

Regulators are testing many payment reforms to improve US healthcare productivity. The vast majority of these reforms allow market participants to opt in rather than mandating participation. Allowing choice can enhance outcomes if firms select contracts based on unobserved treatment gains. However, unobserved selection may bias program evaluation, misleading policymakers. We study this trade-off in the case of a prominent national reform introduced by Medicare to reduce spending on surgeries. Idiosyncratic program rules generated plausibly exogenous variation in potential financial gain across hospitals, which we exploit to instrument for participation. We estimate marginal treatment effects and find considerable treatment effect heterogeneity but no evidence to support sorting on treatment gains. In contrast, there is substantial selection on untreated outcomes, leading the difference in differences estimator to understate the causal effect on spending. Observable factors do not explain more than 30% of this bias, highlighting the challenge of evaluating voluntary programs.

Keywords: payment reform, hospital, marginal treatment effects

JEL Classification: I10,L51

Suggested Citation

Gupta, Atul and Martinez, Joseph and Navathe, Amol S., Selection and Causal Effects in Voluntary Programs: Bundled Payments in Medicare (July 11, 2022). Available at SSRN: https://ssrn.com/abstract=4160179 or http://dx.doi.org/10.2139/ssrn.4160179

Atul Gupta (Contact Author)

University of Pennsylvania - Health Care Management ( email )

204 Colonial Penn Center
3641 Locust Walk
Philadelphia, 19104-6218
United States

Joseph Martinez

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Amol S. Navathe

University of Pennsylvania - The Wharton School

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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