Mandatory Value-Based Payment Programs and Hospital Administrative Costs

Administrative costs account for nearly one-quarter of US hospital expenditures and are substantially higher than those in other high-income countries. Although mandatory value-based payment programs implemented by the Centers for Medicare & Medicaid Services (CMS) aim to improve quality and efficiency, they may be associated with increased administrative burden.

To evaluate the association between participation in CMS mandatory value-based payment programs and hospital administrative costs.

This cohort study used a synthetic difference-in-differences design to compare hospital administrative costs obtained from the Medicare cost report data from fiscal years 2006 to 2020. The sample included Medicare-certified general acute care hospitals, critical access hospitals, and long-term acute care hospitals. Administrative costs at hospitals participating in mandatory value-based payment programs, including the Hospital Value-Based Purchasing (HVBP) program, Hospital Readmissions Reduction Program (HRRP), and Hospital-Acquired Condition Reduction Program (HACRP), were compared with hospitals not participating in these programs. In addition, hospitals participating in the Comprehensive Care for Joint Replacement (CJR) model were compared with hospitals not participating in this model. Data were analyzed between July 5 and December 25, 2025.

Hospital participation in CMS mandatory value-based payment programs initiated under the Affordable Care Act (HVBP, HRRP, and HACRP) or the CJR model.

The primary outcome was hospital administrative costs, defined as the sum of administrative and general, nursing administration, and medical records costs reported in Medicare cost report data.

A total of 4332 hospitals were included in the sample. Of these hospitals, 2820 (65.1%) participated in the mandatory value-based payment programs (HVBP, HRRP, and HACRP). Nonparticipating hospitals included 42 general acute care hospitals in Maryland (0.9%), 1159 critical access hospitals (26.8%), and 311 long-term acute care hospitals (7.2%). In addition, 357 hospitals participated in the CJR model compared with 2029 that did not participate in the model. Participation in the 3 mandatory value-based programs was associated with annual increases in administrative costs of $1.23 (95% CI, $0.11-$2.36) million per hospital compared with general acute care hospitals in Maryland, $0.93 (95% CI, $0.27-$1.59) million compared with critical access hospitals, and $0.65 (95% CI, $0.01-$1.29) million compared with long-term acute care hospitals. Participation in the CJR model was associated with an annual increase in administrative costs of $1.40 (95% CI, $0.30-$2.49) million per hospital. Aggregated nationally, these increases corresponded to more than $3 billion in additional annual administrative costs.

In this cohort study, participation in mandatory value-based payment programs was associated with increased hospital administrative costs. These findings suggest that policymakers should consider administrative burden when designing and evaluating payment reforms to ensure that anticipated improvements in cost, quality, and access are not offset by increased complexity.