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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, Sherri Rose

NBER Working Paper No. 23926
Issued in October 2017
NBER Program(s):The Health Care Program, The Health Economics Program

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.

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A non-technical summary of this paper is available in the 2018 number 1 issue of the NBER Bulletin on Aging and Health. You can sign up to receive the NBER Bulletin on Aging and Health by email.

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Document Object Identifier (DOI): 10.3386/w23926

Published: 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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