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Title: Voluntary Regulation: Evidence from Medicare Payment Reform
Abstract Government programs are often offered on an optional basis to market participants. We explore the economics of such voluntary regulation in the context of a Medicare payment reform, in which one medical provider receives a single, predetermined payment for a sequence of related healthcare services, instead of separate service-specific payments. This “bundled payment” program was originally implemented as a five-year randomized trial, with mandatory participation by hospitals assigned to the new payment model; however, after two years, participation was made voluntary for half of these hospitals. Using detailed claim-level data, we document that voluntary participation is more likely for hospitals that can increase revenue without changing behavior (“selection on levels”) and for hospitals that had large changes in behavior when participation was mandatory (“selection on slopes”). To assess outcomes under counterfactual regimes, we estimate a stylized model of responsiveness to and selection into the program. We find that the current voluntary regime generates inefficient transfers to hospitals, and that alternative (feasible) designs could reduce these inefficient transfers and raise welfare. Our analysis highlights key design elements to consider under voluntary regulation.  more » « less
Award ID(s):
1730466
PAR ID:
10356478
Author(s) / Creator(s):
; ; ;
Date Published:
Journal Name:
The Quarterly Journal of Economics
Volume:
137
Issue:
1
ISSN:
0033-5533
Page Range / eLocation ID:
565 to 618
Format(s):
Medium: X
Sponsoring Org:
National Science Foundation
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