Incentivizing cost-effective reductions in hospital readmission rates

• Type of Material: Article
• Authors: James C. Cox, Georgia State University; Vjollca Sadiraj, Georgia State University; Kurt E. Schnier, University of California; John Sweeney, Emory University
• Language: English
• Date: 2016-11-01
• Publisher: Elsevier
• Publication Version: Author Accepted Manuscript (After Peer Review)
• Copyright Statement: © 2015 Elsevier B.V. All rights reserved.
• Final Published Version (URL): http://dx.doi.org/10.1016/j.jebo.2015.03.014
• Title of Journal or Parent Work: Journal of Economic Behavior and Organization
• ISSN: 0167-2681
• Volume: 131
• Issue: B
• Start Page: 24
• End Page: 35
• Grant/Funding Information: The research was supported by a grant from the National Institutes of Health, National Institute on Aging (grant number 1RC4AG039071-01).
• Keywords: FINANCIAL INCENTIVES; HEALTH-CARE; Pay-for-performance (P4P); PAY-FOR-PERFORMANCE; PAYMENT SYSTEMS; PHYSICIANS; MEDICAL-CARE; Business & Economics; Social Sciences; PERSONNEL DATA; REIMBURSEMENT; Experiment JEL Codes: C91, D81, I10; QUALITY IMPROVEMENT; BEHAVIOR; Economics; Healthcare
• Research Categories: Health Sciences, Medicine and Surgery; Economics, General

Abstract

The recent regulatory changes enacted by the Centers for Medicare and Medicaid Services (CMS) have identified hospital readmission rates as a critical healthcare quality metric. This research focuses on the utilization of pay-for-performance (P4P) mechanisms to cost effectively reduce hospital readmission rates and meet the regulatory standards set by CMS. Using the experimental economics laboratory we find that both of the P4P mechanisms researched, bonus and bundled payments, cost-effectively meet the performance criteria set forth by CMS. The bundled payment mechanism generates the largest reduction in patient length of stay (LOS) without altering the probability of readmission. Combined these results indicate that utilizing P4P mechanisms incentivizes cost effective reductions in hospital readmission rates.