Voluntary Regulation: Evidence from Medicare Payment Reform

Liran Einav, Amy Finkelstein, Yunan Ji and Neale Mahoney

No 27223, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Government programs are often offered on an optional basis to market participants. We explore the economics of such voluntary regulation in the context of a Medicare payment reform, in which one medical provider receives a single, predetermined payment for a sequence of related healthcare services, instead of separate service-specific payments. This “bundled payment” program was originally implemented as a 5-year randomized trial, with mandatory participation by hospitals assigned to the new payment model, but after two years participation was unexpectedly made voluntary for half of these hospitals. Using detailed claim-level data, we document that voluntary participation is more likely for hospitals who can increase revenue without changing behavior (“selection on levels”) and for hospitals that had large changes in behavior when participation was mandatory (“selection on slopes”). To assess outcomes under counterfactual regimes, we estimate a simple model of responsiveness to and selection into the program. We find that the current voluntary regime generates inefficient transfers to hospitals and reduces social welfare compared to the status quo, but that alternative (feasible) designs could substantially reduce these inefficient transfers. Our analysis highlights key design elements to consider under voluntary regulation.

JEL-codes: H51 I13 I18 (search for similar items in EconPapers)
Date: 2020-05
New Economics Papers: this item is included in nep-hea
Note: AG EH IO PE
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Citations: View citations in EconPapers (5)

Published as Liran Einav & Amy Finkelstein & Yunan Ji & Neale Mahoney, 2021. "Voluntary Regulation: Evidence from Medicare Payment Reform," The Quarterly Journal of Economics, vol 137(1), pages 565-618.

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