The effect of performance pay incentives on market frictions: evidence from medicare

Atul Gupta, Guy David and Lucy Kim
Additional contact information
Guy David: The Wharton School and NBER
Lucy Kim: Google

International Journal of Health Economics and Management, 2023, vol. 23, issue 1, No 2, 27-57

Abstract: Abstract Medicare has increased the use of performance pay incentives for hospitals, with the goal of increasing care coordination across providers, reducing market frictions, and ultimately to improve quality of care. This paper provides new empirical evidence by using novel operations and claims data from a large, independent home health care firm with the Hospital Readmissions Reduction Program (HRRP) penalty on hospitals providing identifying variation. We find that the penalty incentive to reduce re-hospitalizations passed through from hospitals to the firm for at least some types of patients, since it provided more care inputs for heart disease patients discharged from hospitals at greater penalty risk and that contributed more patients to the firm. This evidence suggests that HRRP helped increase coordination between hospitals and home health firms without formal integration. Greater home health effort does not appear to have led to lower patient readmissions.

Keywords: Performance pay; Home health care; Hospital readmissions reduction program (search for similar items in EconPapers)
JEL-codes: I11 I18 L2 L5 (search for similar items in EconPapers)
Date: 2023
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Working Paper: The Effect of Performance Pay Incentives on Market Frictions: Evidence from Medicare (2022)
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DOI: 10.1007/s10754-022-09339-4

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