• Germán M Izón and Chelsea A Pardini.
• Department of Economics, Eastern Washington University, 311 Patterson Hall, Cheney, WA, 99004-2429, USA. gmuchnikizon@ewu.edu.
• Appl Health Econ Health Policy. 2018 Feb 1; 16 (1): 79-90.

BackgroundThe Patient Protection and Affordable Care Act instituted pay-for-performance programs, including Hospital Value-Based Purchasing (HVBP), designed to encourage hospital quality and efficiency.Objective And MethodWhile these programs have been evaluated with respect to their implications for care quality and financial viability, this is the first study to assess the relationship between hospitals' cost inefficiency and their participation in the programs. We estimate a translog specification of a stochastic cost frontier with controls for participation in the HVBP program and clinical and outcome quality for California hospitals for 2012-2015.ResultsThe program-participation indicators' parameters imply that participants were more cost inefficient than their peers. Further, the estimated coefficients for summary process of care quality indexes for three health conditions (acute myocardial infarction, pneumonia, and heart failure) suggest that higher quality scores are associated with increased operating costs.ConclusionThe estimated coefficients for the outcome quality variables suggest that future determination of HVBP payment adjustments, which will depend solely on mortality rates as measures of clinical care quality, may not only be aligned with increasing healthcare quality but also reducing healthcare costs.

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