The Medicare Payment Advisory Commission last week for the first time endorsed linking Medicare payments to healthcare quality, giving new momentum to federal efforts to reward providers who deliver better care.
Reinforcing a position advocated for months by Centers for Medicare and Medicaid Services Administrator Tom Scully, MedPAC said Medicare should vary payment amounts based on quality, rather than on mathematical formulas alone.
Healthcare policy sources said MedPAC came late to the pay-for-performance game because the 17-member commission took time to carefully research the matter before presenting an official position.
In using demonstration projects to determine the possible effectiveness of quality-based reimbursement, the CMS should focus first on settings where reliable clinical data already are available, including the care received through Medicare+Choice plans and in inpatient rehabilitation facilities, MedPAC said.
Hospitals and physician offices, where a large number of Medicare beneficiaries receive care, also should participate in any exploration of alternative payment policies, MedPAC said.
"While Medicare already uses many tools for improving quality, the lack of financial incentives and the presence of disincentives to improve quality allow the quality gap to persist," said the MedPAC report, citing a 2001 Institute of Medicine study, Crossing the Quality Chasm, which recommended that Medicare tie payments to quality to reduce medical errors.
Last September, Modern Healthcare was the first to disclose that the CMS is working on a joint demonstration project with Premier, an alliance that represents roughly 1,600 hospitals, to test quality-based reimbursement using clinical and financial information submitted by more than 500 of Premier's member hospitals as a starting point (Sept. 16, 2002, p. 9).
The CMS was expected to launch its program once it secures approval from the Office of Management and Budget. In the meantime, some industry advocates are eager to see rewards for quality begin to take shape.
The Alliance of Community Health Plans, a Washington-based group that represents 11 organizations serving more than 12 million beneficiaries, is among them.
The IOM reports, the CMS effort and other factors have created the conditions to move quality-based reimbursement forward, said Jack Ebeler, the ACHP's president. To improve quality, Ebeler said, "you have to change the incentives ... we hope MedPAC will escalate the debate and talk a little more about direct payment incentives."
In its report, MedPAC also found that a substantial amount of variation in hospital financial performance stems from factors under management's control.
Federal payment policies account for roughly 25% of the variation in performance among hospitals, MedPAC found, with another 20% attributable to operational issues including length of stay, scope of services, case mix and other factors management can at least partially control. Some 50% of the variation, MedPAC said, comes from a combination of unknown factors. Sources indicated that Congress could use MedPAC's findings to determine that hospitals do not require significant payment increases under Medicare.
In 1999, Medicare margins ranged from -13% at the lowest performing 10% of hospitals to 28% at the highest performing 10%, according to MedPAC.
"There's more (MedPAC) can't explain than they can," said Don May, vice president of policy at the American Hospital Association. Measures such as length of stay and case mix, May said, may be under management control to a degree but other important factors-such as the hospital's location and the population it serves-play a significant role that managers cannot easily influence.
"Management has a limited role in a lot of the patient mix decisions," said Stuart Altman, chairman of the Council on Health Care Economics and Policy and professor of national health policy at Brandeis University in Waltham, Mass.
While hospitals have a good degree of control over their costs, Altman said, revenue is "heavily influenced by federal policy," and even more so for hospitals that depend on special assistance.