Impact of performance-based budgeting on quality outcomes in U.S. military health care facilities

Abstract

BackgroundPerformance-based budgeting (PBB) is a variation of pay for performance that has been used in government hospitals but could be applicable to any integrated system. It works by increasing or decreasing funding based on preestablished performance thresholds, which incentivizes organizations to improve performance. In late 2006, the U.S. Army implemented a PBB program that tied hospital-level funding decisions to performance on key cost and quality-related metrics.PurposeThe aim of this study was to estimate the impact of PBB on quality improvement in U.S. Army health care facilities.ApproachThis study used a retrospective difference-in-differences analysis of data from two Defense Health Agency data repositories. The merged data set encompassed administrative, demographic, and performance information about 428 military health care facilities. Facility-level performance data on quality indicators were compared between 187 Army PBB facilities and a comparison group of 241 non-PBB Navy and Air Force facilities before and after program implementation.ResultsThe Army’s PBB programs had a positive impact on quality performance. Relative to comparison facilities, facilities that participated in PBB programs increased performance for over half of the indicators under investigation. Furthermore, performance was either sustained or continued to improve over 5 years for five of the six performance indicators examined long term.ConclusionStudy findings indicate that PBB may be an effective policy mechanism for improving facility-level performance on quality indicators.Practice ImplicationsThis study adds to the extant literature on pay for performance by examining the specific case of PBB. It demonstrates that quality performance can be influenced internally through centralized budgeting processes. Though specific to military hospitals, the findings might have applicability to other public and private sector hospitals who wish to incentivize performance internally in their organizational subunits through centralized budgeting processes.

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“…The ndings reveal that the coe cients on rm-level control variables align with prior research. Consequently, my ndings lend support to the positive incentive effect of PBB, which is consistent with evidence from previous studies on its promotional impact (Kwon, 2018;Decker, 2020).…”