Effects of Episode-Based Payment on Health Care Spending and Utilization: Evidence from Perinatal Care in Arkansas

In this project, we study how physicians respond to episode-based bundled payment (EBP), a prominent payment reform that pays a case rate for an entire episode of care. Unlike FFS reimbursement, EBP holds physicians responsible for all care within a discrete clinical episode, rewarding physicians not only for efficient use of their own services but also for efficient management of other health care inputs. While EBP programs are expanding, existing research is largely limited to evidence from voluntary demonstration projects, mainly in the Medicare market. We study the impact of EBP under the Arkansas Payment Improvement Initiative (APII), a multi-payer program that requires providers in the state to enter into EBP arrangements for perinatal care. Because of its multi-payer nature and the requirement that providers participate, the program covers the vast majority of births in the state.

In a difference-in-differences analysis of commercial claims, we find that perinatal spending decreased by 3.8% overall in Arkansas after the introduction of EBP, compared to surrounding states. We find that the decrease was driven by reduced spending on non-physician health care inputs, specifically the prices paid for inpatient facility care. Reductions in the price of care could reflect referral patterns favoring low price facilities or lower negotiated rates at a given facility; we find preliminary evidence that a change in referral patterns is more likely. Our results are robust to a number of sensitivity tests, including alternate control groups, and we demonstrate that there was no effect among placebo conditions not subject to EBP. We additionally study quality of care under EBP by analyzing changes in screening rates for common perinatal conditions. Overall, we find that EBP was associated with a limited improvement in quality of care; out of six screening tests, we find increased utilization of only one under EBP.