Effects of Payment Reform in More Versus Less Competitive Markets

Neeraj Sood, Abby Alpert, Kayleigh Barnes and co-authors find that a payment reform targeting home health care costs saw greater reductions to both treatment intensity and costs in more competitive provider markets than in less competitive markets. Analyzing a 1997 payment reform targeting home health agencies, the authors evaluate treatment intensity and costs for patients discharged from a hospital for a stroke, hip fracture, or lower extremity joint replacement from 1996 to 2000. Following the reform, the most competitive quartile in the provider market saw reductions of $220 in costs and 2.5 home health days per stroke patient over the reductions achieved in the least competitive quartile. Because pre-reform costs and intensity were higher in more competitive markets-a result of competition on the basis of quality and amenities under a cost-based payment structure-the higher relative reductions led to a convergence across geographic areas as “high-cost” providers left more competitive provider markets. These findings suggest that payment reforms such as bundled payments can utilize competitive pressures to reduce health care costs and geographic variation of health care spending.

The full study is available at Journal of Health Economics

Citation: Sood, N., Alpert, A., Barnes, K., Huckfeldt, P., & Escarce, J. J. (2017). Effects of payment reform in more versus less competitive markets. Journal of health economics51, 66-83.