Impact of the value‐based purchasing program on hospital operations outcomes: An econometric analysis

Abstract

Abstract The Hospital Value‐Based Purchasing (VBP) Program, one of several federal regulations mandated by the Patient Protection and Affordable Care Act, uses Medicare provider payment penalties and bonuses to encourage hospital administrators to improve performance in four domains: clinical processes, patient outcomes, patient experiences, and efficiency. Before VBP's launch, some practitioners claimed VBP would have little impact, while others feared well‐off hospitals would be unfairly rewarded at the expense of previously poor‐performing hospitals. We examine whether and how the VBP penalties affect aggregate operating outcomes of healthcare providers in hospitals. Using secondary data, we find empirical evidence that hospitals with prior‐year VBP penalties exhibit positive associations between the penalty magnitude and certain current‐year care process improvements. Over the prior year, penalized hospitals also tend to exhibit increased patient case mix metrics, which should enhance revenue as a spillover effect. In a post hoc analysis, we observe that bonus‐receiving hospitals are less apt to exhibit subsequent performance improvements for these same metrics. Our contributions result from theoretically framing differences in hospital operating activities when facing the VBP Program's penalties as well as empirically demonstrating consequences of the penalty's magnitude.