Edward Norton
Professor of Public Health
School of Public Health
University of Michigan

Abstract

Medicare’s Hospital Value-Based Purchasing Program (HVBP) is the first national pay-for-performance program to combine measures of quality of care with a measure of episode spending. We estimated the implicit tradeoffs between mortality reduction and spending reduction. To earn points in HVBP, a hospital can either lower mortality or reduce spending, creating a tradeoff between the two measures. We analyzed the quality performance and earned points of 2,814 hospitals using publicly available data. We then quantified the tradeoffs between spending and mortality in terms of QALYs. If incentives in the program were balanced, then the tradeoff between spending and QALYs should be comparable to those of high-value health interventions, roughly $50,000 to $200,000 per QALY. Instead, the tradeoff in HVBP was about $1.2 million per QALY. HVBP overvalues improvements in quality of care relative to spending reductions. We propose two possible policy adjustments that could improve incentives for hospitals to deliver high-value care.