Part two of a two-part series (access part one here):
The pay-for-reporting initiative has so far been successful. In fiscal 2008, 3,270 eligible hospitals met the requirements and received the 2% annual payment update tied to it, according to the CMS. A total of 201 eligible hospitals did not meet at least one of the requirements, receiving no payment update, nor did another 35 hospitals that chose not to participate.
Three areas for scoring
Under the plan, hospitals will be scored in three broad areas: clinical quality or process-of-care measures; outcome measures such as mortality rates; and patient-centered care measures. For the latter, the CMS proposed using the so-called HCAHPS, or Hospital Consumer Assessment of Healthcare Providers & Systems, survey—a collection of 27 items for measuring patients' perspectives on hospital care that was recently folded into hospital reporting requirements. Thomas Valuck, director of the CMS' Special Program Office for Value-Based Purchasing, said that the proposal sent to Congress includes a scoring model for HCAHPS that measures hospitals along eight dimensions, including pain management, doctor and nurse communication, and cleanliness and quiet.
"People need to recall the context of this and understand it is a way of transforming Medicare from a passive payer of claims to an active purchaser of higher quality, more efficient services," Valuck said. Along those same lines, Medicare will soon stop reimbursing for certain hospital-acquired conditions, but that has not been formally included in the value-based purchasing plan. Rather, they are two separate tracks that may merge at some point in the future, Valuck said.
Nine-hospital Alegent Health in Omaha, Neb., a top performer already in the Premier Hospital Quality Incentive Demonstration, which is now in its fourth year, has little concern that it won't measure up when value-based purchasing becomes universal for hospitals, said Scott Wooten, Alegent's senior vice president and chief financial officer. Nevertheless, it does feel the hospitals' pain "at break-even cash-flow positions in smaller communities or communities primarily serving the poor and uninsured," he added.
For Alegent, a 2% to 5% incentive payment would translate to between $2.5 million and $7 million a year, which represents as much as 7% of its operating budget and could have "a devastating impact," Wooten said. "We'll be just fine, but I think the issue will be that this has all the potential in the world … at the macro level to reward performance and create a competitive disadvantage for those who are not able to perform favorably to these processes and outcome measures."
Incentives and investments
The program as outlined would also add "new costs in people, processes and systems to improve these metrics," Wooten said. "From a policy perspective, we need to ensure that the incentives from higher outcomes and performance offset the investment over time. Otherwise, it has the potential to be an unfunded mandate."
Mark Kestner, Alegent's vice president and chief quality officer, said he is concerned that the top performers now are in some ways the hospitals with the resources and wherewithal "to tell their story better. How well you can tell that story—that's where the costs are."
Alegent Health invests roughly $27 million in quality initiatives and information technology each year, about $16.8 million of that in both people and system operating expenses, according to an Alegent spokeswoman. "That's where the huge investments are—in reporting the story. So many hospitals are delivering the care but they are unable to extract the story well and in that scenario, because they are behind in electronic medical-record implementation, they will be disadvantaged," Kestner said.
Costs for implementing quality improvements were necessary for the approximately 250 hospitals participating in the Premier demonstration project, but they were "not overwhelmingly large," said Blair Childs, a Premier spokesman. "We actually found the IT component was not a critical success factor," Childs said. "The most important thing was alignment in the hospital so that there was a clear focus on quality from the boardroom right down to the nurse where care is delivered. … It's really a management process improvement."
For 661-bed Hackensack (N.J.) University Medical Center, which has topped the list of performers in the Premier demonstration project, the CMS' shift in payment policy "is a nonevent," said Robert Glenning, the hospital's executive vice president and CFO. Medicare represents about 40% of Hackensack's volume, he said. The hospital earned about $30 million in net income on approximately $1.1 billion in revenue, a 3% margin. But money wasn't Hackensack's motivation for improving quality, he said.
Value-based purchasing "is not going to give us more money and it is not going to take money away. It doesn't change what we're doing," Glenning said. "The problem I'm seeing is that this is going to be seen as a budget-cutting initiative. There is no upside. Half will (win) and half won't."
Still up in the air is what Congress will do with the plan during an all-around suspenseful year for the hospital industry. The AHA's Nickels said that Congress would have to move on it before year-end—an unlikely prospect—in order for the program to be implemented in time for the fiscal 2009 deadline under the Deficit Reduction Act of 2005.
But Premier spokesman Childs said considering the first year of the program calls for a continuation of the pay-for-reporting plan already in place, Congress could possibly take more time. He noted that influential Sen. Chuck Grassley (R-Iowa), ranking member of the Senate Finance Committee, already urged in a written statement for Congress "to get the job done."
"If you look across the policy community, (everybody) has said that this makes a lot of sense," Childs said. "It's not only that pay-for-performance makes sense, it's that the current system is dysfunctional because it rewards volume of care, not outcomes."
This story initially appeared in this week's edition of Modern Healthcare magazine. It is the first of a three-part magazine series examining the connection between finance and patient care. The series will continue in upcoming issues, with the second part a report on hospitals forgoing payment for certain adverse patient events. The third part of the series will analyze the economics of patients with infections.
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