Incentivizing Hospital Quality Through Care Bundling

Policymakers increasingly implement pay-for-performance schemes to incentivize quality of care. A key design issue when incentivizing several process measures of quality relates to whether the payment should be linked to the performance on each measure or whether the payment should be conditional on all of the process measures of quality being provided, which we refer to as "care bundling". After developing a theoretical framework of provider incentives under care bundling, we employ a difference-in-difference analysis to evaluate the Best Practice Tariff for fragility hip fracture, introduced in England in 2010, which rewards providers based on a care bundle of nine process measures that need to be jointly achieved. The design of the processes was evidence-based and the size of the bonus was significant, up to 20% of the baseline tariff. The results suggest that the policy was successful in increasing the proportion of patients for whom all of the criteria are met by 52.5 percentage points in the first 5 years after its introduction. Temporal ordering of processes might matter under care bundling, but we do not find evidence that English providers exerted less effort to meet process measures if they already failed to meet an earlier one. Overall, we find that a scheme based on care bundle, which is evidence based and uses a sizable bonus, can be effective in improving hospital performance.