NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Who Pays in Pay for Performance? Evidence from Hospital Pricing

Michael Darden, Ian McCarthy, Eric Barrette

NBER Working Paper No. 24304
Issued in February 2018, Revised in August 2019
NBER Program(s):Health Care Program, Health Economics Program

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.

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Document Object Identifier (DOI): 10.3386/w24304

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