Staying alive
The Current and Projected Taxpayer Shares of US Health Costs
David Himmelstein & Steffie Woolhandler
American Journal of Public Health, March 2016, Pages 449-452
Objectives: We estimated taxpayers’ current and projected share of US health expenditures, including government payments for public employees’ health benefits as well as tax subsidies to private health spending.
Methods: We tabulated official Centers for Medicare and Medicaid Services figures on direct government spending for health programs and public employees’ health benefits for 2013, and projected figures through 2024. We calculated the value of tax subsidies for private spending from official federal budget documents and figures for state and local tax collections.
Results: Tax-funded health expenditures totaled $1.877 trillion in 2013 and are projected to increase to $3.642 trillion in 2024. Government’s share of overall health spending was 64.3% of national health expenditures in 2013 and will rise to 67.1% in 2024. Government health expenditures in the United States account for a larger share of gross domestic product (11.2% in 2013) than do total health expenditures in any other nation.
Conclusions: Contrary to public perceptions and official Centers for Medicare and Medicaid Services estimates, government funds most health care in the United States. Appreciation of government’s predominant role in health funding might encourage more appropriate and equitable targeting of health expenditures.
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Sanders Korenman & Dahlia Remler
NBER Working Paper, February 2016
Abstract:
We develop and implement what we believe is the first conceptually valid health-inclusive poverty measure (HIPM) — a measure that includes health care or insurance in the poverty needs threshold and health insurance benefits in family resources — and we discuss its limitations. Building on the Census Bureau’s Supplemental Poverty Measure, we construct a pilot HIPM for the under-65 population under ACA-like health reform in Massachusetts. This pilot is intended to demonstrate the practicality, face validity and value of a HIPM. Results suggest that public health insurance benefits and premium subsidies accounted for a substantial, one-third reduction in the poverty rate. Among low-income families who purchased individual insurance, premium subsidies reduced poverty by 9.4 percentage points.
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Beyond Job Lock: Impacts of Public Health Insurance on Occupational and Industrial Mobility
Adriana Kugler & Ammar Farooq
Georgetown University Working Paper, January 2016
Abstract:
In this paper, we examine the impacts of public health insurance on labor mobility and the quality of job matches. In particular, we test the insurance value of Medicaid. We examine whether greater Medicaid generosity encourages mobility towards riskier but better jobs in higher paid occupations and industries. To estimate these effects, we use Current Population Survey Data and exploit variation in Medicaid income and age thresholds across states and over time through the 1990s and 2000s. We find that moving from a state in the 10th to the 90th percentile in terms of Medicaid income threshold generosity increases occupational and industrial mobility by 7.6% and 7.8%, respectively. In addition, we find that increases in Medicaid generosity encourage workers to move towards riskier occupations and industries, with greater wage spreads and higher separation probabilities. At the same time, greater Medicaid generosity allows workers to move towards jobs in occupations and industries that are higher paid and have higher educational requirements.
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Rajan Anthony Sonik et al.
American Journal of Public Health, March 2016, Pages 443-448
Objectives: To investigate the impact of an increase in Supplemental Nutrition Assistance Program (SNAP) benefits on Medicaid costs and use in Massachusetts.
Methods: Using single and multigroup interrupted time series models, I examined the effect of an April 2009 increase in SNAP benefits on inpatient Medicaid cost and use patterns. I analyzed monthly Medicaid discharge data from 2006 to 2012 collected by the Massachusetts Center for Health Information and Analysis.
Results: Inpatient costs for the overall Massachusetts Medicaid population grew by 0.55 percentage points per month (P < .001) before the SNAP increase. After the increase, cost growth fell by 73% to 0.15 percentage points per month (–0.40; P = .003). Compared with the overall Medicaid population, cost growth for people with the selected chronic illnesses was significantly greater before the SNAP increase, as was the decline in growth afterward. Reduced hospital admissions after the SNAP increase drove the cost declines.
Conclusions: Medicaid cost growth fell in Massachusetts after SNAP benefits increased, especially for people with chronic illnesses with high sensitivity to food insecurity.
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Private versus Social Incentives for Pharmaceutical Innovation
Paula González, Inés Macho-Stadler & David Pérez-Castrillo
Journal of Health Economics, forthcoming
Abstract:
We provide a theoretical framework to contribute to the current debate regarding the tendency of pharmaceutical companies to direct their R&D toward marketing products that are “follow-on” drugs of already existing drugs, rather than toward the development of breakthrough drugs. We construct a model with a population of patients who can be treated with drugs that are horizontally and vertically differentiated. In addition to a pioneering drug, a new drug can be marketed as the result of an innovative process. We analyze physician prescription choices and the optimal pricing decision of an innovative firm. We also characterize the incentives of the innovative firm to conduct R&D activities, disentangling the quest for breakthrough drugs from the firm effort to develop follow-on drugs. Our results offer theoretical support for the conventional wisdom that pharmaceutical firms devote too many resources to conducting R&D activities that lead to incremental innovations.
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The Impact of Medicare Part D on Emergency Department Visits
Padmaja Ayyagari, Dan Shane & George Wehby
Health Economics, forthcoming
Abstract:
The Medicare Part D program introduced prescription drug coverage for seniors in 2006. We examine the impact of this program on the use of emergency department (ED) care. Using a difference-in-differences model, we find declines in the number of ED visits for non-emergency care but not for emergency care, suggesting that Part D may have led to better management of health and reduced unnecessary use of EDs.
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Marc Elliott et al.
Health Affairs, March 2016, Pages 456-463
Abstract:
Since 2006, Medicare beneficiaries have been able to obtain prescription drug coverage through standalone prescription drug plans or their Medicare Advantage (MA) health plan, options exercised in 2015 by 72 percent of beneficiaries. Using data from community-dwelling Medicare beneficiaries older than age sixty-four in 700 plans surveyed from 2007 to 2014, we compared beneficiaries’ assessments of Medicare prescription drug coverage when provided by standalone plans or integrated into an MA plan. Beneficiaries in standalone plans consistently reported less positive experiences with prescription drug plans (ease of getting medications, getting coverage information, and getting cost information) than their MA counterparts. Because MA plans are responsible for overall health care costs, they might have more integrated systems and greater incentives than standalone prescription drug plans to provide enrollees medications and information effectively, including, since 2010, quality bonus payments to these MA plans under provisions of the Affordable Care Act.
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Practice Style and Patient Health Outcomes: The Case of Heart Attacks
Janet Currie, Bentley MacLeod & Jessica Van Parys
Journal of Health Economics, May 2016, Pages 64–80
Abstract:
When a patient arrives at the Emergency Room with acute myocardial infarction (AMI), the provider on duty must quickly decide how aggressively the patient should be treated. Using Florida data on all such patients from 1992-2014, we decompose practice style into two components: The provider's probability of conducting invasive procedures on the average patient (which we characterize as aggressiveness), and the responsiveness of the choice of procedure to the patient's characteristics. We show that within hospitals and years, patients with more aggressive providers have consistently higher costs and better outcomes. Since all patients benefit from higher utilization of invasive procedures, targeting procedure use to the most appropriate patients benefits these patients at the expense of the less appropriate patients. We also find that the most aggressive and responsive physicians are young, male, and trained in top 20 schools.
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Fee-For-Service, While Much Maligned, Remains The Dominant Payment Method For Physician Visits
Samuel Zuvekas & Joel Cohen
Health Affairs, March 2016, Pages 411-414
Abstract:
Recent concerted efforts have sought to shift provider payment away from fee-for-service and toward risk-based alternatives. Despite these efforts, fee-for-service not only remains the dominant payment method but has continued to grow, with nearly 95 percent of all physician office visits in 2013 reimbursed in this fashion.
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Buying cures versus renting health: Financing health care with consumer loans
Vahid Montazerhodjat, David Weinstock & Andrew Lo
Science Translational Medicine, 24 February 2016
Abstract:
A crisis is building over the prices of new transformative therapies for cancer, hepatitis C virus infection, and rare diseases. The clinical imperative is to offer these therapies as broadly and rapidly as possible. We propose a practical way to increase drug affordability through health care loans (HCLs) — the equivalent of mortgages for large health care expenses. HCLs allow patients in both multipayer and single-payer markets to access a broader set of therapeutics, including expensive short-duration treatments that are curative. HCLs also link payment to clinical benefit and should help lower per-patient cost while incentivizing the development of transformative therapies rather than those that offer small incremental advances. Moreover, we propose the use of securitization — a well-known financial engineering method — to finance a large diversified pool of HCLs through both debt and equity. Numerical simulations suggest that securitization is viable for a wide range of economic environments and cost parameters, allowing a much broader patient population to access transformative therapies while also aligning the interests of patients, payers, and the pharmaceutical industry.
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Kentucky’s Medicaid Expansion Showing Early Promise On Coverage And Access To Care
Joseph Benitez, Liza Creel & J’Aime Jennings
Health Affairs, March 2016, Pages 528-534
Abstract:
Kentucky is one of only two southern states, at the time of this writing, to have expanded Medicaid under the Affordable Care Act. The expansion raised Medicaid eligibility levels as a means to make coverage more accessible and make health care more affordable for a population likely to face financial barriers in using medical care. This article examines the first-year impact of Kentucky’s Medicaid expansion on insurance coverage and access to care. Focusing on Kentucky’s low-income population, we observed large reductions in the low-income uninsurance rate from 35 percent at the end of 2013 to just below 11 percent by the end of 2014. Other findings revealed declines in unmet medical needs because of cost and declines in the number of people without a readily identifiable source of regular care among low-income groups. While our results are limited to Kentucky’s experience with Medicaid expansion, they may hold lessons for other states looking to address health care access issues among their historically vulnerable and low-income populations.
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Eric Helland et al.
NBER Working Paper, February 2016
Abstract:
When faced with financial uncertainty, rational agents have incentives to take steps ex ante to reduce the probability (self-protection) or size (self-insurance) of a loss. However, in the case of liability risk, especially physician responses to malpractice risk, most empirical analyses have focused exclusively on measuring self-protection. This paper studies whether physicians invest in self-insurance by exploring how they respond to policies that allow them to lower the financial cost of malpractice liability. Specifically, we test whether physicians exploit provisions of bankruptcy laws and adjust the value of their home purchases to protect assets from liability claims exceeding their malpractice policy limits. We find that in states with unlimited “homestead” exceptions — provisions of state law that protect home equity when individuals file for bankruptcy — physicians invest 13% more in the value of their homes compared to what they would have invested in the absence of an exemption, whereas no such effect is true for other professionals of similar family income, family size, demographics, and city of residence. Additionally, the response of physicians to unlimited homestead exemptions is larger in areas with higher liability risk, where physicians would have greater incentive to insure against financial risks. Our findings suggest that physicians take financially costly decisions to protect themselves from uninsured malpractice risk, implying more generally that individuals self-insure against liability risk when insurance markets are incomplete.
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Innovation in the Pharmaceutical Industry: New Estimates of R&D Costs
Joseph DiMasi, Henry Grabowski & Ronald Hansen
Journal of Health Economics, May 2016, Pages 20–33
Abstract:
The research and development costs of 106 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms. These data were used to estimate the average pre-tax cost of new drug and biologics development. The costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval. The estimated average out-of-pocket cost per approved new compound is $1,395 million (2013 dollars). Capitalizing out-of-pocket costs to the point of marketing approval at a real discount rate of 10.5% yields a total pre-approval cost estimate of $2,588 million (2013 dollars). When compared to the results of the previous study in this series, total capitalized costs were shown to have increased at an annual rate of 8.5% above general price inflation. Adding an estimate of post-approval R&D costs increases the cost estimate to $2,870 million (2013 dollars).
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Understanding Characteristics Of Likely Marketplace Enrollees And How They Choose Plans
Fredric Blavin, Michael Karpman & Stephen Zuckerman
Health Affairs, March 2016, Pages 535-539
Abstract:
In 2015, adults likely to have enrolled in the Affordable Care Act Marketplace were predominantly non-Hispanic whites and, on average, older and more aware of the availability of Marketplace subsidies than adults who remained uninsured. Enrollees were also significantly more likely than adults who remained uninsured to rely on some type of application assistance instead of exclusively looking for information through the Marketplace website.
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Adam Seth Litwin, Ariel Avgar & Edmund Becker
Industrial and Labor Relations Review, forthcoming
Abstract:
On any given day, about one in 25 hospital patients in the U.S. has a healthcare-associated infection (HAI) that the patient contracts as a direct result of his or her treatment. Fortunately, the spread of most HAIs can be halted through proper disinfection of surfaces and equipment. Consequently, cleaners — “environmental services” (EVS) in hospital parlance — must take on the important task of defending hospital patients (as well as employees and the broader community) from the spread of HAIs. Nevertheless, despite the importance of this task, hospitals frequently outsource this function, increasing the likelihood that these workers are under-rewarded, undertrained, and detached from the organization and the rest of the care team. As a result, the outsourcing of EVS workers could have the unintended consequence of increasing the incidence of HAIs. We demonstrate this relationship empirically, finding support for our theory by using a self-constructed dataset that marries infection data to structural, organizational, and workforce features of California’s general acute care hospitals. The study thus advances the literature on nonstandard work arrangements — outsourcing, in particular — while sounding a cautionary note to hospital administrators and healthcare policymakers.
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US Physician Practices Spend More Than $15.4 Billion Annually To Report Quality Measures
Lawrence Casalino et al.
Health Affairs, March 2016, Pages 401-406
Abstract:
Each year US physician practices in four common specialties spend, on average, 785 hours per physician and more than $15.4 billion dealing with the reporting of quality measures. While much is to be gained from quality measurement, the current system is unnecessarily costly, and greater effort is needed to standardize measures and make them easier to report.
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Catalina Amuedo-Dorantes & Mehmet Yaya
Southern Economic Journal, forthcoming
Abstract:
We examine the impact of the Affordable Care Act (ACA)'s extension of coverage to dependents on young adults’ access to care as captured by their likelihood of delaying needed medical care or forgoing prescription drugs. Using data from the 2002 through 2013 waves of the National Health Interview Survey, we find that the federal mandate has not only significantly lowered their likelihood of being uninsured, but also significantly reduced their likelihood of delaying needed medical care or forgoing prescription drugs by 13% and by 31%, respectively. Because these early impacts might still underestimate the long-run effect of greater health insurance coverage on health care utilization, the findings hint on the success of the ACA's expansion of dependent coverage to young adults in improving their access to health care.
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Hospital Readmissions Reduction Program: An Economic and Operational Analysis
Dennis Zhang et al.
Management Science, forthcoming
Abstract:
The Hospital Readmissions Reduction Program (HRRP), a part of the U.S. Patient Protection and Affordable Care Act, requires the Centers for Medicare and Medicaid Services to penalize hospitals with excess readmissions. We take an economic and operational (patient flow) perspective to analyze the effectiveness of this policy in encouraging hospitals to reduce readmissions. We develop a game-theoretic model that captures the competition among hospitals inherent in HRRP’s benchmarking mechanism. We show that this competition can be counterproductive: it increases the number of nonincentivized hospitals, which prefer paying penalties over reducing readmissions in any equilibrium. We calibrate our model with a data set of more than 3,000 hospitals in the United States and show that under the current policy, and for a large set of parameters, 4%–13% of the hospitals remain nonincentivized to reduce readmissions. We also validate our model against the actual performance of hospitals in the three years since the introduction of the policy. We draw several policy recommendations to improve this policy’s outcome. For example, localizing the benchmarking process — comparing hospitals against similar peers — improves the performance of the policy.
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Transparency and Negotiated Prices: The Value of Information in Hospital-Supplier Bargaining
Matthew Grennan & Ashley Swanson
NBER Working Paper, February 2016
Abstract:
We empirically examine the role of information in business-to-business bargaining between hospitals and suppliers of medical technologies. Using a new data set including all purchase orders issued by over sixteen percent of US hospitals 2009-14, and differences-in-differences identification strategies based on both timing of hospitals’ joining a benchmarking database and on new products entering the market, we find that access to information on purchasing by peer hospitals leads to reductions in prices. These reductions are concentrated among hospitals previously paying high prices relative to other hospitals and for products purchased in relatively large volumes, and we demonstrate that they are consistent with hospitals resolving asymmetric information problems between themselves and their suppliers. We estimate that the achieved savings due to information provision amount to 26 percent of the savings we would observe if all hospitals paying above average prices for a given product at a point in time were to instead pay the average price. These results have implications for understanding the economic effects of introducing more information into relatively opaque business-to-business markets, including the emerging role of intermediaries offering benchmarking data and policymakers’ calls for transparency in medical device pricing.
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Do Nursing Home Chain Size and Proprietary Status Affect Experiences With Care?
Kai You et al.
Medical Care, March 2016, Pages 229–234
Objectives: To study the relationship between nursing home chain characteristics (chain size and profit status) with patients’ family member reported ratings on experiences with care.
Data Sources and Study Design: Maryland nursing home care experience reports, the Online Survey, Certification, And Reporting (OSCAR) files, and Area Resource Files are used. Our sample consists of all nongovernmental nursing homes in Maryland from 2007 to 2010. Consumer ratings were reported for: overall care; recommendation of the facility; staff performance; care provided; food and meals; physical environment; and autonomy and personal rights. We identified chain characteristics from OSCAR, and estimated multivariate random effect linear models to test the effects of chain ownership on care experience ratings.
Results: Independent nonprofit nursing homes have the highest overall rating score of 8.9, followed by 8.6 for facilities in small nonprofit chains, and 8.5 for independent for-profit facilities. Facilities in small, medium, and large for-profit chains have even lower overall ratings of 8.2, 7.9, and 8.0, respectively. We find similar patterns of differences in terms of recommendation rate, and important areas such as staff communication and quality of care.
Conclusions: Evidence suggests that Maryland nursing homes affiliated with large-for-profit and medium-for-profit chains had lower ratings of family reported experience with care.
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Retail Clinic Visits for Low-Acuity Conditions Increase Utilization and Spending
Scott Ashwood et al.
Health Affairs, March 2016, Pages 449-455
Abstract:
Retail clinics have been viewed by policy makers and insurers as a mechanism to decrease health care spending, by substituting less expensive clinic visits for more expensive emergency department or physician office visits. However, retail clinics may actually increase spending if they drive new health care utilization. To assess whether retail clinic visits represent new utilization or a substitute for more expensive care, we used insurance claims data from Aetna for the period 2010–12 to track utilization and spending for eleven low-acuity conditions. We found that 58 percent of retail clinic visits for low-acuity conditions represented new utilization and that retail clinic use was associated with a modest increase in spending, of $14 per person per year. These findings do not support the idea that retail clinics decrease health care spending.
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Rachel Werner, Tamara Konetzka & Daniel Polsky
Health Services Research, forthcoming
Study Design: In December 2008, Medicare converted its nursing home report card to summary or star ratings. We test whether there was a change in consumer demand for nursing homes related to the nursing home's star rating after the information was released.
Principal Findings: The star rating system was associated with a significant change in consumer demand for low- and high-scoring facilities. After the star-based rating system was released, 1-star facilities typically lost 8 percent of their market share and 5-star facilities gained over 6 percent of their market share.
Conclusions: The nursing home star rating system significantly affected consumer demand for high- and low-rated nursing homes. These results support the use of summary measures in report cards.
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Ambulatory Surgery Centers and Prices in Hospital Outpatient Departments
Kathleen Carey
Medical Care Research and Review, forthcoming
Abstract:
Specialty providers claim to offer a new competitive benchmark for efficient delivery of health care. This article explores this view by examining evidence for price competition between ambulatory surgery centers (ASCs) and hospital outpatient departments (HOPDs). I studied the impact of ASC market presence on actual prices paid to HOPDs during 2007-2010 for four common surgical procedures that were performed in both provider types. For the procedures examined, HOPDs received payments from commercial insurers in the range of 3.25% to 5.15% lower for each additional ASC per 100,000 persons in a market. HOPDs may have less negotiating leverage with commercial insurers on price in markets with high ASC market penetration, resulting in relatively lower prices.
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Robert Newcomer et al.
Medical Care, March 2016, Pages 221–228
Background: Individuals who receive long-term services and supports (LTSS) are among the most costly participants in the Medicare and Medicaid programs.
Objectives: To compare health care expenditures among users of Medicaid home and community-based services (HCBS) versus those using extended nursing facility care.
Research Design: Retrospective cohort analysis of California dually eligible adult Medicaid and Medicare beneficiaries who initiated Medicaid LTSS, identified as HCBS or extended nursing facility care, in 2006 or 2007.
Subjects: Propensity score matching for demographic, health, and functional characteristics resulted in a subsample of 34,660 users who initiated Medicaid HCBS versus extended nursing facility use. Those with developmental disabilities or in managed care plans were excluded.
Measures: Average monthly adjusted acute, postacute, long-term, and total Medicare and Medicaid expenditures for the 12 months following initiation of either HCBS or extended nursing facility care.
Results: Those initiating extended nursing facility care had, on average, $2919 higher adjusted total health care expenditures per month compared with those who initiated HCBS. The difference was primarily attributable to spending on LTSS $2855. On average, the monthly LTSS expenditures were higher for Medicare $1501 and for Medicaid $1344 when LTSS was provided in a nursing facility rather than in the community.
Conclusions: The higher cost of delivering LTSS in a nursing facility rather than in the community was not offset by lower acute and postacute spending. Medicare and Medicaid contribute similar amounts to the LTSS cost difference and both could benefit financially by redirecting care from institutions to the community.
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Preventive Dental Care and Long-Term Dental Outcomes among ALL Kids Enrollees
Bisakha Sen et al.
Health Services Research, forthcoming
Objective: To investigate whether early or regular preventive dental visit (PDV) reduces restorative or emergency dental care and costs for low-income children.
Study Setting: Enrollees during 1998–2012 in the Alabama CHIP program, ALL Kids.
Study Design: Retrospective cohort study using claims data for children continuously enrolled in ALL Kids for at least 4 years. Analyses are conducted separately for children 0–4 years, 4–9 years, and >9 years. For 0–4 years, the intervention of interest is whether they have at least one PDV before age 3. For the other two age groups, interventions of interest are if they have regular PDVs during each of the first 3 years, and if they have claims for a sealant in the first 3 years. Outcomes—namely restorative and emergency dental service and costs—are measured in the fourth year. To account for selection into PDV, a high-dimensional propensity scores approach is utilized.
Principal Findings: Only sealants are associated with a reduced likelihood of using restorative and emergency services and costs.
Conclusions: Whether PDVs without sealants actually reduce restorative/emergency pediatric dental services is questionable. Further research into benefits of PDV is needed.
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An Evaluation of Performance Thresholds in Nursing Home Pay-for-Performance
Rachel Werner, Meghan Skira & Tamara Konetzka
Health Services Research, forthcoming
Objective: Performance thresholds are commonly used in pay-for-performance (P4P) incentives, where providers receive a bonus payment for achieving a prespecified target threshold but may produce discontinuous incentives, with providers just below the threshold having the strongest incentive to improve and providers either far below or above the threshold having little incentive. We investigate the effect of performance thresholds on provider response in the setting of nursing home P4P.
Study Setting and Design: Difference-in-differences design to test for changes in nursing home performance in three states that implemented threshold-based P4P (Colorado, Georgia, and Oklahoma) versus three comparator states (Arizona, Tennessee, and Arkansas) between 2006 and 2009.
Principal Findings: We find that those farthest below the threshold (i.e., the worst-performing nursing homes) had the largest improvements under threshold-based P4P while those farthest above the threshold worsened. This effect did not vary with the percentage of Medicaid residents in a nursing home.
Conclusions: Threshold-based P4P may provide perverse incentives for nursing homes above the performance threshold, but we do not find evidence to support concerns about the effects of performance thresholds on low-performing nursing homes.