Date of Award

Spring 2021

Document Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Economics

First Advisor

Berry, Steven

Abstract

Both public and private health care sectors in the United States have been experimenting with many innovative payment methods with the aim of improving quality of care while containing the cost growth. For example, large employers and insurers in the private sector innovated their insurance design to encourage patients to make better decisions regarding to treatments and health care providers. In the public sector, Medicare recently implemented reforms on payments to physicians, hospitals and other health care facilities that incorporated quality-based bonuses. It also implemented policies such as “site-neutral payment” policies for different kinds of facilities that provide similar services in order to reduce unnecessary spending. In this thesis, I evaluate the impacts of some of such payment reforms on patients' choice, quality of care, and healthcare spending. I also examine the relative importance of different components of health care policies, e.g., financial incentives versus quality and cost information provision. Finally, combining data with theory I predict the effects of a Medicare's “site-neutral payment” policy and propose the optimal reimbursement and insurance policies for the outpatient care services. Policy makers in the US are increasingly tying payments for health care providers to their quality measures, although there is mixed empirical evidence on the performance of the current program. In the first chapter, I evaluate the impact on hospital quality of Medicare's Hospital Value-Based Purchasing program, a large federal program which rewards hospital for quality of their service. I exploit the introduction of the incentive and the variations in incentives payment across hospitals to identify the program's effects on hospital quality. I find that, compared to non-participating hospitals, participating hospitals on average improve on more than half of the patient experience outcomes after the program started. However, the magnitude of the improvement is rather small. There is no significant improvement in mortality rates. I also find that there exists some convergence in quality of the participating hospitals. That is, hospitals that expect lower value-based incentive payment in the future improve quality more than hospitals that expect more payment in the future. In the second chapter, I examine the relative importance of financial incentive and quality and cost information in changing healthcare consumer's facility choices. I do so by exploiting the Reference Pricing (RP) program implemented by the California Public Employee's Retirement System, which increased cost-sharing at expensive health care providers and provided enrollees with a clear comparison of quality between high-cost and low-cost providers. I find that the program led to a 30.4% increase in the probability of a patient choosing low-cost ambulatory surgery centers (ASCs) when in need of a procedure covered by the RP. The program also led to a 22.6% increase in the probability of a patient choosing ASCs when in need of a procedure related to RP procedures but not directly impacted by the RP financially. The presence of the large spillover effect suggests the importance of the information the RP provided patients with. Furthermore, the demand estimation pre-RP and post-RP shows that patients with RP procedures are more sensitive to price and less sensitive to distance and their health risk after the RP. Their perception of HOPDs' quality drops significantly while that of ASCs' quality stays the same. I estimate that the financial incentive change in the RP program explains about 15% of the total demand change, while the change in patient's perception of facility quality explains about 70%. In the final chapter, I study how Medicare can achieve greater efficiency by jointly optimizing its reimbursement structure and insurance design for the outpatient services performed in hospital outpatient departments and ambulatory surgery centers. Using large datasets on Medicare claims and providers' financials, I find that current Medicare reimbursement rates are significantly above marginal costs for both HOPDs and ASCs, and that ASCs offer equal or higher net value than HOPDs for common outpatient procedure groups. I develop a theoretical model to characterize the optimal reimbursement rates and coinsurance rates. I demonstrate that reimbursement rates should be set at providers' marginal costs, and that coinsurance rates should be higher for HOPDs than for ASCs. Counterfactual analyses show that moving from current practice to the proposed optimal policy would reduce Medicare spending by 15% to 23%, while simultaneously increasing the social surplus by 3.1% to 6.4%. In contrast, if coinsurance rates are constrained to be the same across provider types, as in the current Medicare insurance policy, more limited welfare improvements are still possible by increasing reimbursements rates for HOPDs to incentivize greater sorting into ASCs. Under such scenarios, I estimate an increase in social surplus of 3.1% to 6.1% and Medicare savings of 9% to 15% instead. Lastly, I show that Medicare's recent policy change, which decreased HOPDs' reimbursement rates to ASCs' rates while keeping the coinsurance rates the same, resulted in social surplus reduction.

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