Innovative payment mechanisms in Maryland Hospitals: An empirical analysis of readmissions under total patient revenue

Abstract Background The state of Maryland implemented innovative budgeting of outpatient and inpatient services in eight rural hospitals under the Total Patient Revenue (TPR) system in July, 2010. Methods This paper uses data on Maryland discharges from the 2009–2011 Healthcare Cost and Utilization Project (HCUP) State Inpatient Databases (SID). Individual inpatient discharges from eight treatment hospitals and three rural control hospitals ( n =374,353) are analyzed. To get robust estimates and control for trends in the state, we also compare treatment hospitals to all hospitals in Maryland that report readmissions ( n =1,997,164). Linear probability models using the difference-in-differences approach with hospital fixed effects are estimated to determine the effect of the innovative payment mechanisms on hospital readmissions, controlling for patient demographics and characteristics. Results Difference-in-differences estimates show that after implementation of TPR in the treatment hospitals, there were no statistically significant changes in the predicted probability of readmissions. Conclusions Early evidence from the TPR program shows that readmissions were not affected in the 18 months after implementation. Implications As the health care system innovates, it is important to evaluate the success of these innovations. One of the goals of TPR was to lower readmission rates, however these rates did not show consistent downward trends after implementation. Our results suggest that payment innovations that provide financial incentives to ensure patients receive care in the most appropriate setting while maintaining quality of care may not have immediate effects on commonly used measures of hospital performance, particularly for rural hospitals that may lack coordinated care delivery infrastructure.