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Effects of Episode-Based Payment on Health Care Spending and Utilization: Evidence from Perinatal Care in Arkansas

Caitlin Carroll, Michael Chernew, A. Mark Fendrick, Joe Thompson and Sherri Rose

No 23926, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study how physicians respond to financial incentives imposed by episode-based bundled payment (EBP), which encourages lower spending and improved quality for an entire episode of care. Specifically, we study the impact of the Arkansas Health Care Payment Improvement Initiative, a multi-payer program that requires providers in the state to enter into EBP arrangements for perinatal care. Because of its multi-payer nature and the requirement that providers participate, the program covers the vast majority of births in the state. Unlike fee-for-service reimbursement, EBP holds physicians responsible for all care within a discrete clinical episode, rewarding physicians not only for efficient use of their own services but also for efficient management of other health care inputs. In a difference-in-differences analysis of commercial claims, we find that perinatal spending decreased by 3.8% overall in Arkansas after the introduction of EBP, compared to surrounding states. We find that the decrease was driven by reduced spending on non-physician health care inputs, specifically the prices paid for inpatient facility care, and that our results are robust to a number of sensitivity and placebo tests. We additionally find that EBP was associated with a limited improvement in quality of care.

JEL-codes: I1 I11 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea
Date: 2017-10
Note: HC HE
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Published as Caitlin Carroll & Michael Chernew & A. Mark Fendrick & Joe Thompson & Sherri Rose, 2018. "Effects of episode-based payment on health care spending and utilization: Evidence from perinatal care in Arkansas," Journal of Health Economics, .

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