Mandatory Value-Based Payment Programs and Hospital Administrative Costs

Area of Science:

• Health Services Research
• Healthcare Economics
• Health Policy Analysis

Background:

• Administrative costs represent a significant portion of US hospital expenditures, exceeding those in peer nations.
• Value-based payment programs aim to enhance healthcare quality and efficiency but may inadvertently increase administrative workload.

Purpose of the Study:

• To investigate the association between participation in mandatory Centers for Medicare & Medicaid Services (CMS) value-based payment programs and hospital administrative costs.
• To quantify the impact of specific programs like HVBP, HRRP, HACRP, and CJR on administrative expenses.

Main Methods:

• A synthetic difference-in-differences design was employed using Medicare cost report data from 2006-2020.
• The study compared administrative costs between hospitals participating in mandatory CMS programs and non-participating hospitals.
• Included were general acute care, critical access, and long-term acute care hospitals.

Main Results:

• Participation in mandatory value-based programs (HVBP, HRRP, HACRP) correlated with annual administrative cost increases ranging from $0.65 to $1.23 million per hospital.
• The Comprehensive Care for Joint Replacement (CJR) model participation was associated with an annual increase of $1.40 million in administrative costs per hospital.
• Nationally, these increases amounted to over $3 billion in additional annual administrative costs.

Conclusions:

• Participation in CMS mandatory value-based payment programs is associated with a significant rise in hospital administrative costs.
• Findings underscore the need for policymakers to consider administrative burden when developing payment reforms to prevent unintended consequences.
• Careful consideration of administrative complexity is crucial for the success of value-based healthcare initiatives.