Quality Improvement Spillovers: Evidence from the Hospital Readmissions Reduction Program

Quality knowledge spillovers can enhance the overall effectiveness of quality improvement initiatives. We study the presence and moderators of such spillovers in a multitask service setting, specifically in hospital inpatient care. Leveraging a national quality improvement regulation, the Hospital Readmissions Reduction Program (HRRP), which offers partial incentives for hospitals to reduce readmissions, we employ difference-in-differences econometric models on a nationwide database and find positive quality spillovers in the healthcare sector. Our findings indicate that the implementation of HRRP led to a significant decrease in 30-day readmissions among patients with clinical conditions or insurance types that were not targeted by the policy. Additionally, we find that task similarity played a positive role in promoting quality spillovers, while a hospital’s operational focus on target patients (i.e., the proportion of hospital volume targeted by the policy) did not moderate these spillovers. Notably, we observe that hospitals achieved these quality improvements without increasing the intensity of care provided, and that meaningful improvements in quality were associated with up to a 3% reduction in hospitalization costs. This paper contributes novel insights into how regulators and policymakers can design narrow public policies and regulations that achieve broader results by exploiting the beneficial quality improvement spillovers of partial incentives. This paper was accepted by Ranjani Krishnan, accounting. Funding: Support for this research was provided by the Alberta School of Business Faculty Seed Grant and the University of Wisconsin-Madison Office of the Vice Chancellor for Research and Graduate Education, with funding from the Wisconsin Alumni Research Foundation. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.01062 .