Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/60225

TitleHospital competition under pay-for-performance: quality, mortality and readmissions
Author(s)Lisi, Domenico
Siciliani, Luigi
Straume, Odd Rune
KeywordsQuality
Pay-for-performance
Health outcomes
Performance indicators
Heterogeneous severity
Selection bias
Issue date2018
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
JournalNIPE Working Paper
Abstract(s)Health outcomes, such as mortality and readmission rates, are commonly used as indicators of hospital quality and as a basis to design pay-for-performance (P4P) incentive schemes. We propose a model of hospital behaviour under P4P where patients differ in severity and can choose hospital based on quality. We assume that risk-adjustment is not fully accounted for and that unobserved dimensions of severity remain. We show that the introduction of P4P which rewards lower mortality and/or readmission rates can weaken or strengthen hospitals´incentive to provide quality. Since patients with higher severity have a di¤erent probability of exercising patient choice when quality varies, this introduces a selection bias (patient composition effect) which in turn alters quality incentives. We also show that this composition e¤ect increases with the degree of competition. Critically, readmission rates su¤er from one additional source of selection bias through mortality rates since quality a¤ects the distribution of survived patients. This implies that the scope for counterproductive e¤ects of P4P is larger when financial rewards are linked to readmission rates rather than mortality rates. We also show that our results are robust in the presence of public reporting, and discuss welfare implications.
TypeWorking paper
URIhttp://hdl.handle.net/1822/60225
DOI10.1111/jems.12345
ISSN1058-6407
Publisher versionhttps://www.eeg.uminho.pt/pt/investigar/nipe/Paginas/publicacoes.aspx
Peer-Reviewedno
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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