Arifoğlu, Kenan; Ren, Hang; Tezcan, Tolga; (2023) Promoting Collaborative Care: Relative Performance-based Payment Models for Hospitals and Post-acute Care Providers. SSRN: Amsterdam, Netherlands.

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Abstract

Bundled payment models are widely used in healthcare reimbursement but they were primarily designed for conditions managed by a single provider in a centralized manner. Therefore, these models do not account for the complexities of conditions requiring post-acute care (PAC) after hospitalization, resulting in weak incentives for care coordination between hospitals and PAC providers, particularly in decentralized settings. Motivated by the Comprehensive Care for Joint Replacement (CJR) payment model introduced by CMS—which holds hospitals accountable for the cost and quality of the entire episode, including PAC—we examine the effectiveness of existing payment models in decentralized care. Our analysis shows that bundled payment models and the CJR framework, especially without gainsharing agreements, do not fully align provider incentives. To address these shortcomings, we propose a payment model that explicitly links hospital and PAC provider reimbursements. Using a game-theoretical framework, we show that this model results in socially optimal provider actions. Moreover, we establish that similar efficiency gains can be achieved within the CJR framework if hospitals and PAC providers adopt structured gainsharing agreements. Numerical simulations show that implementing this approach could reduce readmission costs by 12%, generating over $150 million in annual savings for Medicare joint replacement procedures alone.

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