Institutional Affiliation: Harvard University
|Voluntary Regulation: Evidence from Medicare Payment Reform|
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Government programs are often offered on an optional basis to market participants. We explore the economics of such voluntary regulation in the context of a Medicare payment reform, in which one medical provider receives a single, predetermined payment for a sequence of related healthcare services, instead of separate service-specific payments. This “bundled payment” program was originally implemented as a 5-year randomized trial, with mandatory participation by hospitals assigned to the new payment model, but after two years participation was unexpectedly made voluntary for half of these hospitals. Using detailed claim-level data, we document that voluntary participation is more likely for hospitals who can increase revenue without changing behavior (“selection on levels”) and for hospita...