The Impact of Hospital Pay-for-Performance on Hospital and Medicare Costs

Objective To evaluate the effects of Medicare's hospital pay‐for‐performance demonstration project on hospital revenues, costs, and margins and on Medicare costs. Data Sources/Study Setting All health care utilization for Medicare beneficiaries hospitalized for acute myocardial infarction (AMI; ICD‐9‐CM code 410.x1) in fiscal years 2002–2005 from Medicare claims, containing 420,211 admissions with AMI. Study Design We test for changes in hospital costs and revenues and Medicare payments among 260 hospitals participating in the Medicare hospital pay‐for‐performance demonstration project and a group of 780 propensity‐score‐matched comparison hospitals. Effects were estimated using a difference‐in‐difference model with hospital fixed effects, testing for changes in costs among pay‐for‐performance hospitals above and beyond changes in comparison hospitals. Principal Findings We found no significant effect of pay‐for‐performance on hospital financials (revenues, costs, and margins) or Medicare payments (index hospitalization and 1 year after admission) for AMI patients. Conclusions Pay‐for‐performance in the CMS hospital demonstration project had minimal impact on hospital financials and Medicare payments to providers. As P4P extends to all hospitals under the Affordable Care Act, these results provide some estimates of the impact of P4P and emphasize our need for a better understanding of the financial implications of P4P on providers and payers if we want to create sustainable and effective programs to improve health care value.