The Role of Quality Scores and Subsidies in Improving Patient Care

Improving patients’ quality of care is one of the government’s critical strategic healthcare goals. To achieve this goal, regulators often use two tools: investment subsidies and quality scores. These both act to alleviate the same fundamental market failure in delivering quality services, yet little is known about how these two policies interact. To what extent do these policies lead to duplicated efforts, complementary benefits, or distortionary overlaps is largely unknown.

This research explores the relationship between investment subsidies and quality scores in the context of Medicare Advantage (MA) quality regulation. The study aims to understand how these two tools interact, focusing on three key questions:

- who responds to which policy and why;
- what is the pass-through of quality subsidies to investments; and
- what is the optimal mix of subsidies and scores for the MA market.

The team will use data from the Medicare Current Beneficiary Survey and linked information about quality measured by the regulator for each plan to validate the impact of quality investment on population health. They intend to develop a dynamic competition model that will prescribe the optimal competitive responses of insurers to the market policy. As a side benefit to the main focus, the researchers expect to provide insights about the more than a dozen other healthcare quality-promoting initiatives currently managed by CMS.