Association Between Medicare's Mandatory Hospital Value-Based Purchasing Program and Cost Inefficiency.

BACKGROUND: The Patient Protection and Affordable Care Act instituted pay-for-performance programs, including Hospital Value-Based Purchasing (HVBP), designed to encourage hospital quality and efficiency. OBJECTIVE AND METHOD: While these programs have been evaluated with respect to their implications for care quality and financial viability, this is the first study to assess the relationship between hospitals' cost inefficiency and their participation in the programs. We estimate a translog specification of a stochastic cost frontier with controls for participation in the HVBP program and clinical and outcome quality for California hospitals for 2012-2015. RESULTS: The program-participation indicators' parameters imply that participants were more cost inefficient than their peers. Further, the estimated coefficients for summary process of care quality indexes for three health conditions (acute myocardial infarction, pneumonia, and heart failure) suggest that higher quality scores are associated with increased operating costs. CONCLUSION: The estimated coefficients for the outcome quality variables suggest that future determination of HVBP payment adjustments, which will depend solely on mortality rates as measures of clinical care quality, may not only be aligned with increasing healthcare quality but also reducing healthcare costs.

Cost inefficiency under financial strain: a stochastic frontier analysis of hospitals in Washington State through the Great Recession.

The importance of increasing cost efficiency for community hospitals in the United States has been underscored by the Great Recession and the ever-changing health care reimbursement environment. Previous studies have shown mixed evidence with regards to the relationship between linking hospitals' reimbursement to quality of care and cost efficiency. Moreover, current evidence suggests that not only inherently financially disadvantaged hospitals (e.g., safety-net providers), but also more financially stable providers, experienced declines to their financial viability throughout the recession. However, little is known about how hospital cost efficiency fared throughout the Great Recession. This study contributes to the literature by using stochastic frontier analysis to analyze cost inefficiency of Washington State hospitals between 2005 and 2012, with controls for patient burden of illness, hospital process of care quality, and hospital outcome quality. The quality measures included in this study function as central measures for the determination of recently implemented pay-for-performance programs. The average estimated level of hospital cost inefficiency before the Great Recession (10.4 %) was lower than it was during the Great Recession (13.5 %) and in its aftermath (14.1 %). Further, the estimated coefficients for summary process of care quality indexes for three health conditions (acute myocardial infarction, pneumonia, and heart failure) suggest that higher quality scores are associated with increased cost inefficiency.