Hospital Quality, Medical Charge Variation, and Patient Care Efficiency: Implications for Bundled Payment Reform Models

Abstract

Patient-centric healthcare reform models pursue lower healthcare costs, improved care quality, and better patient population health outcomes. Many patient-centric reform models focus on standardizing treatment protocols and reducing care delivery variability. Yet the structure of reform models themselves may lead to unintended process variability, the implications of which researchers should analyze. Prior research has not determined whether the reform models can potentially drive better patient-centric outcomes. A distinct challenge in analyzing their potential impact concerns a lack of publicly available historical data on reform models. We circumvent this challenge by recasting available data into relevant metrics, and examining how variation in hospital medical charges relates to patient-centric reform model goals. To do so, we develop a hospital-condition level measure called weighted average coefficient of variation (WACV) to identify the degree of variation in hospital medical charges resulting from underlying care process variability. WACV contributes by capturing unwarranted process variation in medical care protocols after controlling for warranted variation due to patient distributions of illness severity. Using Medicare data from New York state, we find evidence that higher charge variation (WACV) levels are indeed associated with lower hospital technical efficiency. Secondly, we show that prior-period process quality (that measures how well a hospital adheres to evidence-based medical guidelines) has a significant negative association with WACV. In contrast, the prior-period outcome quality measures are not associated with WACV. For policy-makers, the results imply that managerial incentives and interventions based on process quality may be more effective for changing operational behaviors, compared to basing incentives and interventions solely on outcome quality. Further, the results imply that WACV should play a role in the design of healthcare reform models. We examine these implications for bundled payment programs, which fix the amount of reimbursement for hospitals within a predefined boundary of patient care episode. Empirical results suggest that the current bundled payment provider selection mechanism does not consider the degree of unwarranted variation in charges, which we claim to be the improvement opportunity for each participating provider. In doing so, our results contribute by demonstrating that existing bundled payment program policies may not achieve intended goals.