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Impact of the Value-Based Purchasing Program on Hospital Operations Outcomes: An Econometric Analysis
Authors: Seung Jun Lee (Chung-Ang University), Sriram Venkataraman (University of South Carolina), Gregory R. Heim (Texas A&M University, United States of America), Aleda V. Roth (Clemson University), Jon Chilingerian (Brandeis University)
The Hospital Value-Based Purchasing (VBP) Program, one of several federal regulations mandated by the Patient Protection and Affordable Care Act, uses Medicare payment and financial incentives to encourage hospital administrators to improve performance in four domains: clinical processes; patient outcomes; patient experiences; and efficiency. Prior to the VBP Program’s introduction, some practitioners claimed it would have little impact, while others feared well-off hospitals would be rewarded at the expense of previously poor-performing hospitals. We examine VBP Program financial penalties to determine whether and how they change the operating outcomes of healthcare providers in hospitals. In order to estimate impacts of VBP Program penalties, we combine secondary data sets from the U.S. Centers for Medicare and Medicaid Services (CMS), Dartmouth Atlas, and Healthcare Information and Management Systems Society (HIMSS) Analytics. We find empirical evidence that hospitals with prior-year VBP penalties exhibit positive associations between the magnitude of penalty and certain care process improvements in the current year. The penalized hospitals also are likely to increase patient case mix metrics, ostensibly to increase revenue, and thereby, counteract the VBP Program penalty. As a side benefit, we conjecture these efforts also may enable future process improvement initiatives. Our theoretical contribution indicates contingencies in framing contextual differences in hospital operating activities when facing VBP Program pressure. Counter to VBP Program aims, we demonstrate that hospitals may operate in a manner that is not entirely consistent with the intended policy outcomes.