Medicare penalties begin taking toll

More than three dozen hospitals across the U.S. will be penalized more than 3% on most of their CMS reimbursements in 2015, the first year in which the agency's three Medicare quality and safety incentive programs will be in effect.

According to a Modern Healthcare analysis of CMS data on penalties for fiscal 2015, when readmission, hospital-acquired condition and value-based purchasing rates are combined, two hospitals will have much of their Medicare payments docked over 4%. This includes a 4.44% reduction for the 180-bed Palisades Medical Center in North Bergen, N.J., and a 4.21% reduction for the 455-bed Pennsylvania Hospital in Philadelphia, one of the oldest hospitals in the U.S. (See list.)

Dr. Patrick Brennan, chief medical officer and senior vice president at the University of Pennsylvania Health System, said Pennsylvania Hospital is addressing specific problems and expects to see improvements next year. The readmission penalty increased from 0.35% in 2014 to 3% in 2015 because of additional measures for hip and knee surgery being added by the CMS for fiscal 2015, he said.

Readmission practice patterns for those procedures have been re-evaluated. The hospital also is addressing coding concerns that led to poor performance on patient-safety indicators.

Palisades officials, representing the most penalized hospital in the nation, did not provide comment. But noticeable on the hospital's home page is a link to a Joint Commission public notice that offers patients information on how to complain to the national accrediting body.

The combined penalties or rewards were derived by combining the percentages for the three quality programs included in the Patient Protection and Affordable Care Act. In 2015, hospitals can be penalized for excessive 30-day readmissions up to 3% of revenue from base operating diagnostic-related group payments by the CMS. The value-based purchasing program rewards or penalizes hospitals up to 1.5% of Medicare revenue based on a suite of quality indicators.

New this year is a 1% penalty on all Medicare revenue if a hospital falls into the bottom quartile in performance on hospital acquired conditions, or HACs, such as urinary catheter infections.

The escalating penalties are drawing fire from advocates for teaching hospitals and critical-access hospitals, which are disproportionately represented among the worst-performing hospitals. The CMS programs need to be refined to ensure they are not creating additional hardships, said Dr. Atul Grover, the chief public policy officer for the American Association of Medical Colleges, which represents the nation's academic medical community.

AAMC members take on more complex cases and are more likely to report bad outcomes. “You may not be comparing the same types of patients and the same types of procedures across institutions,” Grover said. “We need to refine the measures so they are not creating adverse comparisons.”

Academic medical centers were among the more heavily penalized hospitals in the nation, according to the Modern Healthcare analysis. The University of Colorado Hospital in Aurora will be docked 2.18% on much of its Medicare reimbursements; St. Peter's University Hospital in New Brunswick, N.J., faces a combined 2.50% penalty; and Thomas Jefferson University Hospital in Philadelphia had a 3.01% reduction.

Overall, 42 hospitals will face a combined penalty of 3% or higher on much of their Medicare revenue for fiscal 2015.

Despite perceived flaws with CMS quality and safety incentive programs, hundreds of facilities are getting it right. They improved their performance from year to year and face low penalty rates. Nearly 800 of the nation's hospitals face either no penalties or will be earning rewards based on their performance in the value-based purchasing program.

Bucks County Specialty Hospital in Bensalem, Pa., for example, will see a fiscal 2015 reimbursement boost of 2.09% after earning the nation's highest reward in the value-based purchasing program. The acute-care hospital did not see a 30-day readmission fine in 2013, 2014 or 2015, increased its value-based purchasing reward significantly between 2013 and 2015 and has no HAC penalty this year.

Some hospital leaders warn that the combined cuts across all Medicare penalty programs may have a cascading effect on services and may actually lead to reduced quality. This will have a “significant impact on hospitals' bottom lines and can lead to some very tough choices,” said Beth Feldpush, senior vice president of policy and advocacy for America's Essential Hospitals.

The 250-member national association, which represents the nation's safety net hospitals and health systems, says the organization's members are operating at a 0.4% loss on average, and when additional cuts are added, services aiding the community that are not typically reimbursed such as free clinics, language translations and transitional housing may be the first on the chopping block.

Unless Congress reverses the programs—an unlikely event—higher penalties are expected in coming years. The combined financial impact is expected to be sizeable.

By 2017, the combined penalties for HAC 30-day readmissions and value-based purchasing will put as much as 5.5% of inpatient Medicare payments at risk.

Correction: In the Jan. 5 magazine version of this story, the number of members of America's Essential Hospitals was misstated; it should be 250 instead of 220. Also safety net hospitals typically operate at a loss of negative 0.4% margin; not 4% as stated in the original version.

Follow Sabriya Rice on Twitter: @sabriyarice