D6.10 Report with results of empirical analysis of impact of incentives on quality in Italy

This report, developed as part of the FLASH project under Work Package 6, delivers an empirical analysis of the relationship between the quality of hospital care and Diagnosis-Related Group (DRG) reimbursement tariffs in Italy. The research contributes to the broader discussion on how financial incentives in healthcare influence provider behavior. Italy’s National Health Service(NHS) provides a particularly rich environment for such analysis, as its regional governments enjoy large organizational autonomy, including in tariff setting.The main objective of the study is to assess whether and how variations in DRG tariffs affect the quality of care, with a particular focus on selected process and outcome indicators. This includes a detailed examination of the interplay between financial incentives and provider behavior, while also accounting for the role of market competition. A key achievement of this research lies in the creation of two unique datasets. The first includes DRG tariffs from all Italian regions across time and clinical areas, covering the period from the introduction of DRGs in 1995 to the present. This dataset stands out for its comprehensiveness, overcoming challenges related to non-digitized and fragmented information. The second dataset contains quality indicators from the National Clinical Outcome Programme (PNE), administered by AGENAS, covering all accredited public and private hospitals since 2012. Together, these datasets enable novel, robust analyses linking reimbursement policies to clinical quality measures.The report first analyzes the effects of public reporting and competition on healthcare quality, using the process indicator “percentage of femur fracture surgeries performed within two days” as a case study. Results show that publishing hospital performance data improved care quality. Importantly, the quality improvement associated with the release of information to thegeneral public was significantly greater in hospitals operating in more competitive environments, highlighting the role of market dynamics in amplifying the effects of transparency. To explore the relationship between DRG tariffs and quality, the study then shifts to analyzing indicators related to both femur fractures and deliveries. Two complementary empirical approaches are used: a fixed-effects panel model and a difference-in-differences design leveraging a national policy change that imposed a cap on DRG tariffs. Overall, our results suggest that higher DRG tariffs are associated with improvements in process indicators—such as prompt femur fracture surgeries and increased rates of vaginal deliveries after previous C-sections—but, not with improvements in outcome indicators like readmission rates. These findings suggest that financial incentives do influence provider behavior, primarily in ways that are measurable and administratively straightforward. However, such changes do not necessarily lead to better health outcomes. Furthermore, the positive effects of higher tariffs on quality indicators are stronger in more competitive settings, reaffirming the importance ofmarket context.Some relevant policy implications can be drawn from our analysis. First, the release of information regarding the comparative performance of hospitals can lead to significant behavioral responses by providers as measured by process indicators. Moreover, the competitive setting can affect those behavioral responses, meaning that it is among the factors that should be consideredin predicting the impact of quality related policies. Second, higher tariffs can lead to better performance as measured by process indicators, whereas we find generally no impact on outcome indicators. This suggests that it is crucial for policy-makers to select quality indicators that are closely associated with better outcomes, in order to avoid providing incentives that encourage providers to focus on activities with easily measurable consequences that have a weak or no association with patient outcomes.