fah hospital policy blog

Perspectives on health policy affecting America’s hospitals and the patients we serve.

FAH President & CEO Chip Kahn Authors New Quality Study Featured in Health Affairs

August 03, 2015 | FAH Hospital Policy Blog Team

Category: Medicare, Quality

Today, Health Affairs published a new report authored by FAH President and CEO Chip Kahn. The study titled, Assessing Medicare’s Hospital Pay-for-Performance Programs and Whether They Are Achieving Their Goals, examines the impact of three key Medicare pay-for-performance programs: Value-based Purchasing (VBP), the Hospital-Acquired Conditions (HAC) Reduction Program and the Hospital Readmissions Reduction Program. The study provides analysis about the state of these programs to date, asking critical questions about whether these programs are achieving their intended purpose and whether the current structure is appropriate and sustainable in their current form.

As the report explains:

“A growing share of Medicare hospital payments (6 percent by 2017) are dependent upon how hospitals perform under the Hospital Readmissions Reduction Program, the Value-Based Purchasing Program, and the Hospital-Acquired Condition Reduction Program. In 2015 four of five hospitals subject to these programs will be penalized under one or more of them, and more than one in three major teaching hospitals will be penalized under all three. Interactions among these programs should be considered going forward, including overlap among measures and differences in scoring performance.”

Quality patient care and appropriate payment for the care provided are essential elements of a well-functioning and sustainable health care system. The article studies the history and evolution of the three newest hospital payment programs and documents the strengths and challenges of each. The study shows that following implementation hospitals sustain penalties under one or more programs in any one year and sometimes suffer penalties under all three programs. Because the programs operate independently, many hospitals experience a stacking of separate penalties based on performance on the same measure applied either directly or indirectly under each program. The study raises important questions about the fairness and appropriateness of this measure redundancy.

A chart from the report shows the potential impact of combined penalties for the programs, which can account for as much as 6% of a hospital’s base payment:

HA graphic

Some key takeaways from the report:

  • Hospital Value-Based Purchasing Program
    • The HVBP Program redistributed about $126 million in hospital payments for FY 2015.
    • 45% of the more than 3,000 hospitals included in this analysis were penalized.
  • Hospital Readmissions Reduction Program
    • In FY 2015, nearly 75% of the hospitals in the study were penalized under this program.
    • The aggregated losses totaled $424 million.
  • Hospital-Acquired Condition Reduction Program
    • Teaching hospitals are shown to be disproportionately penalized under the HAC Reduction Program, with 56.5% of teaching hospitals penalized.
    • Estimated penalties for this program are $357 million – and teaching hospitals represent 48% of that amount.

Quality measurement, which began in earnest in the early part of this century, has evolved over the years. The metrics became more sophisticated. Hospitals made progress improving patient care as evidenced by the 10 percent drop in hospital readmission rates. Hospitals improved on the initial core set of measures to the point where the majority of the hospitals in the country were at or above the 99th percentile, and CMS retired the measures from the payment program.

However, there is still work to be done. Hospitals continue to focus on reducing patient harm and preventing healthcare acquired infections. Hospitals are committed to providing efficient, effective and safe patient care. However, as hospitals and patients and payers gain more experience with the payment programs studied in the article, it is clear the programs need to evolve as quality measurement has evolved.

The report calls for a formal evaluation of the three pay-for-performance programs looking first at whether the measures are appropriately risk adjusted, particularly for sociodemographic factors. It challenges researchers to look at disproportionate effects on certain categories of hospitals such as teaching and large hospitals. Secondly, the report suggests the overlap of measures in more than one program should be considered as well as the important role of incentivizing improvement. Finally, the report suggests creative thinking about whether all three programs are needed or could similar results be achieved with modification or merger of programs.

Kahn concludes the report: “With the quality payment pieces now in place, it is time to consider a more rational approach to better aligning payment policy with quality outcomes, given the experience to date and the questions raised when examining how these programs interact in combination.”

The Federation is pleased to have this study published in Health Affairs. We are hopeful this report will be the start of a larger conversation about hospital quality and Medicare pay-for-performance programs so that we can bring about real, effective change to our health care system.