New Medicare incentive rewards some hospitals whose quality doesn’t measure up

May 2, 2016
Contact: Laurel Thomas

ANN ARBOR—Changes to a federal program to add incentive payments to hospitals that controlled spending has resulted in some poor performers receiving bonuses through a plan originally designed to improve quality, University of Michigan researchers have found.

The Hospital Value-Based Purchasing Program, established in 2013, was amended last year to include a provision that in order to earn a share of the $1.4 billion in value-based incentive pay hospitals would need to measure up on spending practices before, during and after hospitalization, as well as on quality.

The U-M School of Public Health and Medical School analysis of nearly 2,700 U.S. hospitals found that of the facilities considered low-spending, 38 percent had received bonuses when only quality was measured in 2014, and that number jumped to 100 percent in 2015 after spending was added as a measure of performance. Under the new rules, 17 percent of low-quality hospitals got bonuses, none of which had been rewarded a year earlier.

“We think this could be a fairly easy fix. This is not by any means a flawed program. It just could be improved to make sure the bonuses go to hospitals that meet a threshold of both quality and spending,” said first author Anup Das, a medical student and doctoral candidate in the Department of Health Management and Policy at the U-M School of Public Health.

“Since quality and episode-based spending aren’t perfectly correlated, without those thresholds, hospitals can get bonuses without ideal spending or quality performance.”

In the article appearing in the May issue of Health Affairs, senior author Lena Chen said the program should be able to achieve both goals with some adjustments.

“Creating balanced incentives for providers to deliver both high quality and low cost care is difficult. CMS has other programs where a minimum quality threshold must be met before a provider is eligible to receive a financial reward,” said Chen, U-M assistant professor of internal medicine at the U-M Medical School and Veterans Affairs Ann Arbor Health System.

Das said the spending incentive makes sense for Centers for Medicare and Medicaid Services goals, which are to improve patient care before, during and after a hospital stay.

“The reason behind the longitudinal episode-based measure is CMS wanted hospitals to work with providers outside the hospital, so this new measure evaluates spending three days before a hospitalization through 30 days after discharge,” he said.

The program authorized through the Affordable Care Act allowed the centers to reward or penalize hospitals for their performance. In the first year, hospitals either gained or lost up to 1 percent of the amount of a Medicare payment, depending on various measures of quality. After spending was added to the mix, they gained or lost up to 1.5 percent of the reimbursement.

The researchers found that decreasing the weight of quality measures and adding the spending metric had some other consequences from year 1 to year 2 of the analysis.

  • Large hospitals, defined as 500 or more beds, were 7 percentage points more likely to receive penalties in 2015 in part because they outspent others by nearly $5,700 on average.
  • Teaching hospitals were 9 percentage points more likely to be penalized, also due in part to a similar higher-level spending.
  • Low-spending hospitals had a modestly better patient experience than higher spending facilities.
  • High-spending hospitals had higher rates of adherence to clinical processes for 7 out of 12 measures but their 30-day mortality rates were not much different than those of lower-spending hospitals.
  • Medium-spending hospitals had a much better chance at the bonuses after the spending measure was added, jumping from 45 percent in 2014 to 63 percent last year, whereas higher-spending hospitals had a lower likelihood of getting rewarded, going from 47 percent to 35 percent.
  • Those hospitals with low-quality that were rewarded received relatively smaller bonuses than hospitals of higher quality, with low-quality facilities getting an average of 0.18 percent more, and the lowest spending/highest quality hospitals receiving 1.40 to 1.77 percent.

Other authors: Edward Norton and Andrew Ryan of the U-M School of Public Health, David Miller of the U-M Medical School and John Birkmeyer of the Dartmouth-Hitchcock Health System. Norton, Ryan, Miller and Chen are affiliated with the U-M Institute for Healthcare Policy and Innovation.


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