For Hospitals, Medicare Giveth and Taketh

Part of the Affordable Care Act of 2010 (“Obamacare”) was greater accountability in hospital care, and Medicare payments were structured according to how well hospitals performed. After crunching the feds’ data for those standards last month, a mixed picture emerged.

As reported by KaiserHealthNews.org (KHN), most hospitals Medicare graded on overall quality are getting bonuses. But in many cases, the reward will be offset by penalties the feds have issued because the facilities failed to meet certain standards in specific areas reviewed by other programs.

This year, according to KHN, 55 in 100 graded hospitals (1,700 facilities) earned higher payments for providing comparatively good care. The criteria used to determine quality included patient satisfaction, lower death rates and cost to Medicare. The incentive program, known as value-based purchasing, penalized 1,360 hospitals for falling below its standards.

But because they failed to meet the standards of two other Medicare quality-control programs, less than half – 800 – of the 1,700 hospitals that earned bonuses will get extra funds, according to KHN’s analysis. Those programs punish hospitals when too many of their patients are readmitted for follow-up care too soon after discharge, and when too many patients develop infections (or experience other harms) during their stays.

We’ve described these oversight programs before, as well as problems in collecting and communicating all of the data relevant to patient safety.

The average bonus among large hospitals (400+ beds) for the incentive program will be nearly $213,000; the average penalty will be about $1.2 million, according to one consultant. The average bonus for hospitals with 200 beds will be about $32,000, and the average penalty will be about $131,000. Twenty-eight in 100 hospitals will break even or get extra money.

Another Medicare measure that drives hospital reimbursements is how well facilities switch to electronic medical records, which are deemed to be more efficient and to enhance coordination of care. Medicare has begun penalizing 200-some hospitals for lagging in this regard.

More than 6% of Medicare payments, said KHN, are contingent on performance.

The 3-year-old Hospital Value-Based Purchasing program is the only one that uses a carrot as well as a stick. And it’s the only one that recognizes hospital improvement even when a facility’s quality metrics aren’t up to snuff. In other words, it acknowledges that although raising your grade from D to C isn’t as laudable as going from D to B, at least it shows progress.

As explained by KHN, the value-based purchasing bonuses and penalties were based on 26 different measures, including:

  • how consistently hospitals followed a dozen recommended medical guidelines, such as administering antibiotics within an hour of patients’ surgery;
  • death rates among patients with congestive heart failure, heart attack and pneumonia patients;
  • bloodstream infections from catheters; and
  • serious surgical complications, such as blood clots.

The programs also included more subjective measures, such as patient ratings of their experiences while hospitalized.

A new factor this year is meant to boost efficiency in the delivery of care. The feds calculated what it cost to care for each hospital’s average patient three days before admission, during the patient’s stay and a month after. “Often,” KHN noted, “the biggest differences in medical costs between hospitals are due to what happens to patients after they leave. For instance, Medicare pays more to inpatient rehabilitation facilities than it does to skilled nursing homes, even though both treat similar kinds of patients.”

Medicare’s most recent analysis judged hospitals by how they performed in comparison with others in the second half of 2012 and all of 2013, and by how much they had improved from two years ago.

Nearly 500 more hospitals earned bonuses in the value-based purchasing program compared with last year. The biggest bonus goes to Black River Community Medical Center in Poplar Bluff, Mo., which gets a 2.09% increase. The largest penalty, 1.24% of its Medicare payments, is assessed against the Massachusetts Eye and Ear Infirmary, which is affiliated with Harvard Medical School. It said its loss is only about $60,000 because most of its patients aren’t hospitalized overnight, and the penalties apply only to inpatient stays. The infirmary said the feds’ measures are a poor match for its services, so Medicare’s program isn’t the best means to determine how well it performs.

It’s a fair point.

Nationally, the average bonus for hospitals subject to value-based purchasing was a .44% and the average penalty (not including the other penalty programs) was -.3%.

More than 1,600 hospitals were exempted from the incentives, KHN explained, either because their patient demographics are too exclusive (children, veterans), or because they are paid differently by Medicare, such as all hospitals in Maryland and “critical access hospitals” that are mostly in rural areas.

Maryland has the nation’s only all-payer hospital rate regulation system, thanks to a special waiver exempting the state from the Inpatient Prospective Payment System (IPPS) and Outpatient Prospective Payment System (OPPS). Under the waiver, all third parties pay the same rate. According to the Centers for Medicare & Medicaid Services (CMS), “The State of Maryland and CMS expect that the All-Payer Model will be successful in improving the quality of care and reducing program expenditures for Maryland residents, including Medicare, Medicaid, and CHIP beneficiaries.

Moreover, the Maryland system may serve as a model for other states interested in developing all-payer payment systems.

Hospitals that earn bonuses one year might not do as well the next. Of the 2,672 hospitals evaluated in all three years of the program, roughly 1 in 4 got bonuses all three years, and 1 in 4 lost money in all three years. The rest had a mix of bonuses and penalties, the KHN analysis found.

If you want to see how the hospitals in your state were rated by the Medicare value-based program, click on the KHN story link, where you’ll find a state-by-state comparison.

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