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Who Pays in Pay for Performance? Evidence from Hospital Pricing

Michael Darden (), Ian McCarthy and Eric Barrette

No 24304, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The Hospital Readmission Reduction Program (HRRP) and the Hospital Value Based Purchasing Program (HVBP), two components of the Affordable Care Act's cost containment measures, introduced potentially sizeable penalties to underperforming hospitals across a variety of metrics. To the extent that penalized hospitals subsequently changed their processes of care, such changes may translate into higher payments from commercial insurance patients. In this paper, we estimate the effects of these pay-for-performance programs on private hospital payments using data on commercial insurance payments from a large, multi-payer database. We find that nearly 70% of the costs of the HRRP and HVBP penalties are borne by private insurance patients in the form of higher private insurance payments to hospitals. Specifically, we show that HRRP and HVBP led to increases in private payments of 1.4%, or approximately $183,700 per hospital based on an average relative penalty of $271,000. We find very limited evidence that these effects are driven by quality improvements, changes in treatment intensity, or changes in service mix.

JEL-codes: I11 I18 L2 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-hea and nep-ias
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