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

Abstract

Voluntary participation is a central feature of reforms being tested across US healthcare. Allowing choice can enhance effects if participants sort on unobserved treatment gains. However, selection may also bias program evaluation, misleading policymakers. We study this trade-off in the case of a national reform to reduce spending on surgeries. We exploit variation due to idiosyncratic program rules to instrument for participation. We detect considerable treatment effect heterogeneity but no evidence for sorting on treatment gains. In contrast, there is substantial selection on untreated outcomes in an unexpected direction, leading the difference in differences estimator to \textit{understate} the causal effect.

Keywords: voluntary reform, hospital payments

JEL Classification: I10,I18