Hospital productivity and value in pay-for-performance healthcare programs

Pay-for-performance (P4P) reimbursement models were launched in 2013 to incentivise the value of healthcare delivered by including quality outcomes, such as mortality, readmission, and patient satisfaction, in hospital reimbursement in the U.S. Although a decade has passed, the efficacy of these P4P programs remains unclear. This research intends to evaluate their long-term performance implications along two critical dimensions – productivity and healthcare value. Drawing on a nationwide sample of U.S. hospitals collected from 2008 to 2019, we utilise data envelopment analysis to measure hospital performance and the Malmquist index to evaluate their longitudinal trends. Although average hospital productivity and value improved since the rollout of the P4P programs, we observe that a large proportion of laggard hospitals were unable to catch up with improvements to the performance frontier, raising concerns about disparities in the impact of future value-based programs. Our analyses also indicate that horizontal integration across hospitals is associated with greater productivity and value. While greater physician-hospital (vertical) integration is associated with higher hospital productivity, it does not have a positive impact on value. Our study provides new insights into the antecedents and performance consequences of implementing value-based healthcare initiatives and their implications for hospital managers and policymakers.