Many of Medicare’s value-based purchasing (VBP) initiatives offer a continuum of rewards based on provider performance. Whereas all-or-nothing VBP initiatives only grant bonuses to providers who exceed a single threshold, the Medicare VBP programs–such as its hospital VBP program–reward hospitals based a value-based modifier that is proportional to its quality score.
One of the reasons to avoid the ‘all-or-nothing’ framework is that providers who are far from the threshold may give up; they may not invest significant efforts to improve quality since the change of reaching the threshold may be small.
A paper by Dowd, Feldmand and Nersesian (2012) finds that providers do in fact ‘give up’ in practice if the threshold is set too high. The paper examines a physician network’s efforts to improve their generic prescription rate (GPR). The authors find that:
“The GPR-maximizing target would induce an improvement in average GPR from 58.3% to 65.8% or 7.5 percentage points. When the target is set above 80%, practices with equilibrium GPR below 58.3% will ‘give up’ in the sense that they will not improve relative to their equilibrium value.”