Medicare Implements Value-Based Purchasing

Medicare has introduced some useful and very helpful tools to improve our health care system. Hopefully this will provide an improved foundation to make even more improvements to our health care system.

aka Medicare Tries Some New Carrots and Sticks!

Effective October 1, 2012 Medicare is rolling out its new incentive program for hospitals where 1% of hospital payments are withheld by Medicare in a "pay for performance" or P4P program, with incentives paid out based upon performance against 20 quality metrics. Seventy percent of a hospital's score will be based on 12 specific measures based upon performance to guidelines and protocols. The remaining 30 percent of a hospital's value-based purchasing payment will be based on how it scored on random surveys of patients following discharge. These questions include ones asking how well their doctors and nurses communicated, whether rooms were clean and quiet and whether pain was dealt with promptly. Overall this is expected to redistribute nearly $1 billion among hospitals serving Medicare patients. These payments are funded by the 1% hospital withhold.

In addition, Medicare is also assessing a penalty to more than 2,200 hospitals with higher than average readmission rates. Hospitals with the highest rates for heart attack, heart failure and pneumonia patients will lose 1 percent of their regular reimbursements. This is expected to result in almost $300 million of savings. The penalty grows to 3% by October 2015.

This activity is a new step for Medicare. Before now its pay for performance programs were limited to those voluntarily participating in various programs. The new programs are mandatory for most acute care hospitals.

So what does this mean for the consumer? Is this a good things or a bad thing? Many are fearful that the government is starting to seriously meddle with their opportunity to get good health care. Some fear that hospitals are going to be pushing people out of the hospital too soon. Some are afraid that hospitals are going to be motivated more by the money than by what is right.

As a health care consultant who has practiced in this area for most of my 41+ year career, I am pleased to say I am more encouraged about this initiative than discouraged. This effort is a net positive to our quality of care. Here are some of my comments and reactions:

  • Quality of care can readily be measured and compared to evidence-based clinical guidelines: The P4P program implemented by the government includes both specific clinical measures and direct patient surveys. It's not just based upon the numbers, but includes both measurable performance criteria and actual patient experiences. Today our firm's studies show that a significant portion of inpatient care historically reimbursed by Medicare is potentially avoidable. Longer than needed hospital stays generally reduce the quality of care and create a significant opportunity to acquire hospital based infections (e.g., MRSA) or perhaps even incur an injury or accident while hospitalized. The bottom line — hospitals should not be a desired place to be unless you are getting needed care only available in a hospital. One physician once stated, "hospitalization is a bad outcome of ambulatory care".
  • Behavior follows reimbursement: As hospitals are motivated to perform better they will find a way to accomplish that. As with most businesses, when held accountable they will perform. In the past, performance wasn't a high priority and our results demonstrate that quite nicely. Hospitals for the most part have been paid on a fee-for-service basis, getting more for doing more.
  • Incentives have to be meaningful: I am concerned that the 1% withhold will not have an adequate impact on the performance change. One percent falls into the "rounding" category. Until more meaningful the performance change will not be adequate. Our studies suggest that as much as 35% - 45% of today's Medicare hospital days are potentially avoidable. Until we see the chance for major improvement we are still only impacting the edges of our opportunity.
  • Redo's are unacceptable: Readmission for particular conditions are evidence that the previous admission ended poorly. Sometimes patients are not appropriately treated or diagnosed and more work is required. Early discharge when care is not completed appropriately is a sign of bad quality. Early or prompt discharge when care is completed is a sign of good quality. Lengths of stay are generally too long or excessive on the average, not on every patient. However, you have to identify which patients can be discharged on a timely basis. Statistics show that as much as half of Medicare patients fall into a category known as the "uncomplicated" patient, a patient that can match ideal performance and medical criteria. The other half of the patients require additional care because of delayed recovery and other complications. The high quality institution will monitor and measure this and keep those needing longer stays and discharge those which no longer need care without delay. This incentive program is a good thing and those hospitals not appropriately discharging their patients need to be held accountable. Kudos to Medicare for this bold step.
  • "Early" might not be "too early": Many times individuals complain that someone was discharged too early. In reality the standard many patients and family members use to determine this is flawed. It might be earlier than what someone else experienced, but it doesn't necessarily mean it is too early. Timely is important. Health care resources are scarce and we should only use them when appropriate. An extra day here and an extra day there adds up to significant waste. The average net charge per day in my region is close to $4,500. Is it really worth $4,500 to stay in a setting that is really not much better than a not-so-fancy hotel? Evidence based clinical criteria helps everyone understand when a patient is appropriately progressing towards discharge. When built on the most efficient path, with monitoring for indications that complications are necessary which might require additional days, patients are more appropriately discharged. As a result, costs go down, patients experience higher quality, and re-admits are reduced.

Medicare has introduced some useful and very helpful tools to improve our health care system. The private sector is already using many of these tools and will model more after these programs. Hopefully this will provide an improved foundation to make even more improvements to our health care system.

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