Measuring the State Dependence Effect in Hospital Payment Adjustment

Int J Environ Res Public Health. 2022 Oct 28;19(21):14110. doi: 10.3390/ijerph192114110.


Since FY 2013, as a part of the Affordable Care Act (ACA) program, the Hospital Value-Based Purchasing (HVBP) program has adjusted Medicare's payments to hospitals based on the total performance score of the hospital. First, the program reduces a portion of the hospital's Medicare payments in a specific fiscal year, and then, by the end of the same fiscal year, the amount of the payment reductions will be awarded to the hospitals based on the total performance score; thus, the hospitals that do not receive the reward will lose the portion of money reduced by Medicare. In this research, we apply the theory of state dependence and use the dynamic random effect probit model to estimate this effect. The results show that the hospital payment adjustment dynamics have a very significant state dependence effect (0.341); this means that hospitals that received a reward in the previous year are 34.1% more likely to receive a reward this year than the ones that received a penalty in the previous year. Meanwhile, we also find that the state dependence effect varies significantly across hospitals with different ownership (proprietary/government owned/voluntary nonprofit), and the results show that voluntary nonprofit hospitals exhibit the largest effect of state dependence (0.370), while government-owned hospitals exhibit the lowest effect of state dependence (0.293), and proprietary hospitals are in the middle. Among the factors that influence the likelihood that a hospital receives a reward, we find that teaching hospitals with a large number of beds (>400) are less likely be rewarded; in terms of ownership, we find that voluntary nonprofit hospitals are more likely be rewarded; in terms of demographic factors, hospitals where the average household income are higher within the region are more likely be rewarded.

Keywords: econometrics; health economics; hospital payment adjustment; public policy; state dependence effect.

Publication types

  • Research Support, Non-U.S. Gov't

MeSH terms

  • Hospitals, Teaching
  • Medicare
  • Patient Protection and Affordable Care Act
  • Prospective Payment System*
  • United States

Grants and funding

This work was supported in part by the Science and Technology Commission of Shanghai Foundation under Grant No. 19DZ1205804, the Jiaxing Public Welfare Research Project under Grant No. 2020AY10033, No. 2020AY30025 and No. 2021AY10079 and the General Scientific Research Fund of Zhejiang Provincial Education Department under Grant No. Y202147878.