An Early Look at the Effects of the Medicare Bundled Payments for Care Improvement: Evidence from Presence Health

A recent Medicare bundled payment pilot program gives a single health care provider a financial incentive to keep total payments to all providers during a multi-week episode of patient care under a certain value. We estimate the effect of the pilot for knee and hip replacements using data from 11 Presence Health hospitals. Unconditional on patient characteristics, the program caused a 12 percent decrease in spending. Controls for patient characteristics reduce the effect by half, which is consistent with selection of healthier patients. Direct estimates of the selection effect are typically not statistically significant. The rest of the spending decrease is driven by reduced utilization of inpatient rehabilitation and shifting patients from inpatient rehabilitation to skilled nursing facilities. Spending decreases are concentrated among relatively healthy patients while spending on patients with major complications or comorbidities increases.