Medicare Incentives, Payment Reform, and Quality in the Home Health Care Sector

Abstract

Federal policymakers have implemented two types of health care reforms in recent years to address poor quality of US health care. The first type uses incentives targeting health care providers; the second focuses on information transparency targeting consumers. Reforming home health care is particularly important. The quality of care delivered to the 3.4 million Medicare home health patients each year is highly variable. These patients have complex health needs, are aged, and have severely limited independence. Moreover, home health is the fastest growing health care sector in the US. Therefore, understanding the efficacy of mainstay reforms is paramount to guide policymakers toward the optimal policy for this population. In Chapter one, I examine the effects of the Home Health Value-Based Purchasing program on home health quality. In this provider-directed incentive program, Medicare randomly selected a nationally representative group of agencies to compete on quality for financial rewards. The goal of the program was to achieve better home health care quality. Home health agencies in treatment states were rewarded or penalized based on their performance on agency-reported and non-agency-reported quality measures. The program improved agency-reported measures by approximately one percentage point, and performance gains follow a dose-response relationship with respect to incentive size. However, the performance gains in agency-reported measures did not reflect true quality improvement. I find that agencies manipulated their coding of patients and inflated their performance. Coding manipulation explained the entirety of the program’s impact on agency-reported measures. In Chapter two, I study the Home Health Star Ratings program, which publicizes information to facilitate consumer decision-making. Like other quality disclosure programs, this program was designed to rectify insufficient competition on quality in the market. The assumption is that when patients lack information on quality when choosing providers, providers face little incentive to improve and compete on quality. Thus, the first-order goal of the program was to shift patients toward higher-rated home health agencies. I use a regression discontinuity design to determine whether agencies that received one more half-star obtained more new patients in the quarter following each star rating release. To further determine whether the star ratings had an effect on patients’ choice of agencies, I used a difference-in-differences design to determine whether becoming one of the highest star-rated options in a ZIP code led to more patient volume. I find no evidence that receiving a higher star rating under the program meaningfully increased patient demand for higher-rated agencies. In the final chapter, I evaluate whether the Home Health Star Ratings program contain meaningful information on quality for patients. I test whether receiving treatment from an agency with the highest number of stars in a patient’s residential area result in better health outcomes. I use an instrumental variable approach to address the endogeneity of agency choice. Specifically, I exploit variation over time in the differential distance between the patient’s residential ZIP code and the nearest top-rated agency and the closest lower-rated agency. I measure health as the number of days a patient spends alive and without use of additional health care in the 180 days following the end of home health care. I find that overall, patients treated by the top agency in their market spent 2.6 percent more days alive without use of health care, suggesting that the home health star ratings contain valid and meaningful information.