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Medicare Announces Rules For Quality Bonuses To Hospitals

Apr 29, 2011

Medicare took its broadest step yet in moving away from its traditional hospital payment method, finalizing a plan to alter reimbursements based on the quality of care hospitals provide and patients’ satisfaction during their stays.

The initiative is the beginning of a transition from paying hospitals on the basis of the amount of care they provide. Many health care researchers believe this fee-for-service system has encouraged unnecessary care, driving up costs and giving hospitals no incentive to economize.

Medicare’s new “value-based purchasing” program was mandated in last year’s health care law. It has sparked less discussion than has another experiment to change Medicare’s payment system through accountable care organizations, where a select group of doctors and hospitals get bonuses if they find ways to save money.

But this latest payment change affects twenty times more hospitals than would ACOs. More than 3,000 acute care hospitals will have their payments adjusted starting in October 2012.

Under the final rules announced Friday, Medicare will cut payments to hospitals 1 percent and set that money aside for a bonus pool. Hospitals that do better than average on a variety of measurements, or show the greatest improvement from the previous year, would earn bonus payments, totaling $850 million in the first year. The bonus pool would increase to 2 percent of Medicare payments in October 2016.

“In many ways, it’s a watershed moment for the health care system,” said Ashish Jha, a professor at the Harvard School of Public Health who has studied hospital quality. “It’s a modest amount of money and not something that’s going to radically change the way we pay for hospital care in America. But it’s a really important step toward paying for better care and not just for more care.”

Seventy percent of the bonuses initially will be based on how often hospitals follow guidelines on 12 clinical care measures. These include giving anti-clotting medication to heart attack patients within 30 minutes of arrival; providing antibiotics to surgery patients just before an operation; and taking steps to avoid blood clots in surgical patients.

The other 30 percent of the bonuses will be determined by how patients rate hospitals on their experiences. Medicare will use hospital-conducted surveys that ask patients about how nurses and doctors communicated, how clean their rooms and bathrooms were and how well their pain was controlled.

Hospital groups had unsuccessfully pushed federal officials to reduce the influence that patient views would have on their payments, arguing that the surveys didn’t always reflect reality and would penalize hospitals in some regions where patients are less forthcoming with praise.

Medicare has run voluntary programs where quality alters how much hospitals are paid, but this is the first time hospitals will be obliged to participate. CMS estimates 353 hospitals initially won’t be included in the new payment program because they don’t have enough cases to be measured accurately. For the rest, judgment begins soon, because CMS will look at their scores starting in July when it determines how much they’ve improved for the first year of the payment program.

Hospitals are worried that some cash-poor hospitals that don’t have as many resources to invest in quality improvements will lose money under this program, potentially exacerbating the rift between affluent and struggling institutions.

“The powerful thing about value-based purchasing is that it’s going to continually raise the bar,” said Blair Childs, an executive with Premier, an alliance of more than 2,500 hospitals. “The bad thing is that if you start behind and you’re penalized financially and there are costs associated with doing all the programs you need to do, you run the risk of being in a death spiral.”

But Dr. Donald Berwick, the administrator of the Centers for Medicare & Medicaid Services, said the government already provides financial assistance to help hospitals reduce infections and unnecessary readmissions. He said hospitals that serve lots of indigent and uninsured patients will benefit financially when they improve their quality, because they’ll find ways to care for patients more efficiently.

“For the hospitals that are most strapped for resources, improvements of quality are the most important,” Berwick told reporters as he announced the final rules. “We know examples – Parkland Hospital in Texas, Denver Health in Denver, Colo. and others— that serve mainly Medicaid populations and nonetheless have been able to achieve real breakthroughs in quality and should be rewarded for that performance.”

The measures CMS plans to use are already published for each hospital on Medicare’s Hospital Compare website. CMS plans to add more measures to its payment rules in future years, including ones that sample how patients actually fared, and not just what procedures doctors and nurses followed.

jrau@kff.org

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