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So Many Hospitals, So Little Information: How Hospital Value Based Purchasing is a Game of Chance

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Abstract
As part of the 2010 Patient Protection and Affordable Care Act, participating Medicare hospitals have part of their Medicare reimbursements withheld and then redistributed based on quality performance. The Hospital Value Based Purchasing payment reimbursement plan relies partly on ordinal rankings of hospitals to determine how money is distributed. We analyze the quality metric distributions used for payment and show that there is not enough information to reliably differentiate hospitals from one another near the payment cutoffs; and conclude that a large part of the payment formula is driven by sampling variability rather than true quality information. This results in point allocation under the payment formula that is random for a large proportion of the hospitals. An alternative payment plan is discussed.

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  • William C. Horrace, & Andrew I. Friedson & Allison F. Marier, 2016. "So Many Hospitals, So Little Information: How Hospital Value Based Purchasing is a Game of Chance," Center for Policy Research Working Papers 192, Center for Policy Research, Maxwell School, Syracuse University.
    • Handle: RePEc:max:cprwps:192
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    1. William C. Horrace & Christopher F. Parmeter, 2017. "Accounting for Multiplicity in Inference on Economics Journal Rankings," Southern Economic Journal, John Wiley & Sons, vol. 84(1), pages 337-347, July.
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    Cited by:

    1. William C. Horrace & Christopher F. Parmeter, 2017. "Accounting for Multiplicity in Inference on Economics Journal Rankings," Southern Economic Journal, John Wiley & Sons, vol. 84(1), pages 337-347, July.
    2. Edward C. Norton & Emily J. Lawton & Jun Li, 2020. "Moneyball in Medicare: Heterogeneous Treatment Effects," NBER Working Papers 27948, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Pay-for-Performance; Hospital Value Based Purchasing; Hospital Quality Scores; Ordinal Ranking; Indistinguishability;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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