Pay-for-Performance in Health Care: Evidence from a Nationwide Randomized Experiment in the Home Health Sector

The use of value-based purchasing arrangements to address high spending growth and low quality of health care has increased rapidly in United States. Value-based purchasing arrangements use pecuniary rewards to incentivize quality and spending outcomes. Building on previous experience, the Centers for Medicare & Medicaid Services (CMS) implemented a family of programs with similar designs for hospitals, skilled nursing facilities, and home health care. These three Value-Based Purchasing programs reward providers for both improvement and attainment in quality performance. The Home Health Value-Based Purchasing Program (HHVBP) is the only program not yet been implemented nationally. Further, it is the only program designed by the Centers for Medicare & Medicaid Services to entail an experimental design. Randomization was conducted at the state level within nine regions. In the first year, 1,626 home health agencies from 9 states were assigned to the treatment group and 6,976 agencies from 41 states were assigned to the control group.

Despite the theoretical appeal of linking financial rewards with quality performance, whether pay-for-performance programs can improve health care has not been settled. It is also unclear whether the design of the Value-Based Purchasing programs has been appropriate. This study will examine the effect of the intervention on health care quality in the first performance year (i.e., from January through December 2016).

This study contributes to the literature for several reasons. First, it quantifies the effects of a prominent pay-for-performance arrangement in health care. While the program targets the home health sector, the findings will be relevant for other similar programs, which do not include random assignment.

Second, the study examines health care delivery for a vulnerable patient population. Ensuring the quality of care received by approximately 3.5 million home health patients each year has been a longstanding concern for health policy, particularly because home health quality varies substantially across agencies. For instance, hospital admission rates from some home health agencies are double those of other agencies with similar patient characteristics.

Third, this study directly examines the role of incentives on behavior. It tests whether agencies with greater incentives to improve under the program do so. Better understanding of how agencies are responding to incentives will help with program refinements and improve understanding of how financial rewards affect quality of health care.