The Impact of Episode-Based Payment on Procedure Volume

Episode-based payment (EBP) is gaining traction among payers as an alternative to fee-for-service reimbursement. However, there is concern that EBP could influence the number of episodes. In this paper, we examine how procedure volume changed after the introduction of EBP in 2013 and 2014 under the Arkansas Health Care Payment Improvement Initiative. Using 2011-2016 commercial claims data, we estimate a difference-in-differences model to assess the impact of EBP on the probability of a beneficiary having an episode for four procedures that were reimbursed under EBP in Arkansas: total joint replacement, cholecystectomy, colonoscopy, and tonsillectomy. Commercially insured beneficiaries in Arkansas serve as our treatment group, while commercially insured beneficiaries in neighboring states serve as our comparison group. Overall, we find that the relationship between EBP and procedure volume varies across procedures. After EBP was implemented, the probability of undergoing colonoscopy increased significantly by 14.3% (point estimate, 0.0022; 95% CI, 0.0011 to 0.0032; p < 0.001; Arkansas pre-period mean, 0.015). The probability of undergoing total joint replacement increased by 10.4% (point estimate, 0.000095; 95% CI, -0.000026 to 0.00022; p = 0.12; Arkansas pre-period mean, 0.00091), though this effect is not significant. There is no clear impact on cholecystectomy or tonsillectomy volume. Our findings suggest that for some procedures, the potential for volume expansion is meaningful and large. For other procedures, however, volume may not respond significantly. Payers planning to implement EBP models should be aware of these possibilities.