Financial incentives motivate hospitals to do better: study

CHICAGO, Sept. 18  - Incentives for hospitals to improve their quality and reduce costs do work, as hospitals that participate in such programs benefit not only from direct payment from patients' treatment but also the good scores they get from patients on the treatment they receive, a University of Michigan (UM) study shows.

The researchers used data from the Hospital Value-based Purchasing Program, a national program that rewards or penalizes hospitals based on their quality and episode-based costs. It also incentivizes integration between hospitals and post-acute care providers.

In their analysis, the researchers estimated the magnitude of the marginal future reimbursement for individual patients across each type of quality and performance measure. Then, they described how these incentives differ across hospitals, including integrated and safety-net hospitals.

"We found that hospitals improved their performance over time in the areas where they have the highest incentives to improve care, and that integrated hospitals responded more than non-integrated hospitals," said Edward Norton, professor of health management and policy at the UM School of Public Health.

"If a patient does really well, they're happy, they go home, they don't die, they're not readmitted, the hospital's measures improve and the hospital will make more money in the future. So the total reimbursement for that patient is higher."

The study also showed that there is a wide range when it comes to financial incentives.

"For a lot of patients, there are actually no financial incentives to do better," he said. "But for some patients and some measures, it can be up to tens of thousands of dollars, so some hospitals have a large financial incentive to do better.

"When hospitals have a larger financial incentive to improve, they're more likely to improve. And that's really important because the whole premise of this program is to have a financial reward for doing better."

The study has been published in the September issue of the Journal of Health Economics.