Document Type

Working Paper


Spring 1-2018


Pay-for-Performance, Hospital Value Based Purchasing, Hospital Quality Scores, Ordinal Ranking, Indistinguishability, Reimbursement




Economics | Health Policy | Medicine and Health | Public Affairs, Public Policy and Public Administration


As part of the Patient Protection and Affordable Care Act, participating Medicare hospitals have part of their Medicare reimbursements withheld and then redistributed based on quality performance. The Hospital Value Based Purchasing reimbursement plan relies partly on ordinal rankings of hospitals to determine how money is distributed. We analyze the quality metric distributions used for payment and show that there is not enough information to reliably differentiate hospitals from one another near the payment cutoffs; and conclude that a large part of the payment formula is driven by sampling variability rather than true quality information. Alternative reimbursement plans are developed.



Additional Information

Working paper no. 192

The authors are grateful for comments from Chloe East, Richard Lindrooth, Edward Norton, and Andrew Ryan, as well as by seminar participants at ASHEcon, iHEA, the Colorado School of Public Health, the University of California Santa Barbara and the University of Colorado Boulder/Denver Applied Economics Workshop. We would like to thank George Jacobs and Madia Parker Smith for excellent research assistance.

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Creative Commons Attribution 3.0 License
This work is licensed under a Creative Commons Attribution 3.0 License.