So Many Hospitals, So Little Information: How Hospital Value-Based Purchasing Is a Game of Chance

Andrew I. Friedson, William C. Horrace, Allison F. Marier

Research output: Contribution to journalArticle


As part of the Patient Protection and Affordable Care Act, participating hospitals have part of their Medicare reimbursements withheld and then redistributed based on quality performance. The Hospital Value-Based Purchasing reimbursement plan relies partly on ordinal rankings of hospitals to determine how money is distributed. We analyze the quality metric score distributions that underlie payment redistribution and show that there is not enough information to reliably differentiate hospitals from one another near the program point cutoffs, and conclude that a large part of the payment formula is driven by sampling variability rather than true quality information. An alternative plan for rewarding hospitals is developed.

Original languageEnglish (US)
Pages (from-to)773-799
Number of pages27
JournalSouthern Economic Journal
Issue number2
StatePublished - Oct 1 2019



  • H51
  • I18

ASJC Scopus subject areas

  • Economics and Econometrics

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