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Modest Payment Redistribution Means That Hospital Quality Program Is Working, Not Failing



September 27th, 2012

Rachel Werner and R. Adams Dudley’s article on Medicare’s hospital value-based purchasing (VBP) program in the September Health Affairs concludes that the program is likely to have only a small impact on hospital payments.   While it is true that relatively little money is likely to be redistributed from bottom-performing hospitals to those at the top, this is no reason to conclude that the program is not working as intended. Quite the contrary, it’s performing exactly as intended so far.

This should come as no surprise. After all, the Centers for Medicare & Medicaid Services (CMS) has said all along it did not expect any hospital to attain or lose more than 1 percent of its net Medicare revenues when the program goes into effect this Oct. 1.

But the limited dollars at risk for any individual hospital for both payment incentives and penalties is no reason to conclude that the program won’t achieve its desired goal. VBP was designed by lawmakers not as a penalty program but as a means to drive faster performance improvement by tying performance to payment.

Small payment transfers reflect widespread quality improvement among hospitals. The program measures hospitals on 12 processes of care, and their patients’ experience of care. CMS sets targets based on a very high performance level in a baseline period. If hospitals are able to catch up to those levels, then they will avoid a penalty. So, as more hospitals improve the care they provide to patients, less money will be generated by penalties to redistribute to high performers. In other words, if the amount of financial redistribution is small, the program is achieving its goal of driving higher performance on quality and outcomes.

This is exactly what is happening. Premier’s early estimates predicted a significantly greater redistribution than now appears likely. As the program has approached, more hospitals have been meeting the targets.

There are ample incentives to drive continuous improvement. Because the rest of the field is constantly innovating and improving, there will always be an upward pressure on hospitals. Moreover, new domains and measures will be added to the program each year, forcing hospitals to continuously improve across many conditions and facets of care.

The value-based purchasing program versus the Hospital Readmissions Reduction Program. The value-based purchasing program’s structure– multiple measures of care and upside/downside financial risk — is far preferable to the “penalty-only” approach of the new Hospital Readmissions Reduction Program. That program uses three 30-day readmissions measures, with an imperfect risk adjustment mechanism — to hold hospitals responsible for the actions of patients and physicians for 30 days after leaving the hospital.

To this point, the Medicare Payment Advisory Commission (MedPAC) recently heard a staff recommendation that the “principles for refining” the readmissions program should have a “preference for lower readmission rates rather than higher penalties.” Integrating the readmissions program and its associated payment reductions into the value-based purchasing program would accomplish just that, while providing a more holistic and balanced view of the patient, their care and the ultimate outcome.

It’s imperative to keep the goal in sight – and it’s not exacting penalties. It’s helping more Americans get the care they need and deserve and giving hospitals a realistic opportunity to improve and succeed.

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1 Trackback for “Modest Payment Redistribution Means That Hospital Quality Program Is Working, Not Failing”

  1. Today’s NewsStand (September 28, 2012) | Iowa Hospital Association Blog
    September 28th, 2012 at 1:45 pm

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