Hospitals Medicare P4P

Medicare’s Agenda for Hospital Accountability

CSC provies a nice overview of some of Medicare’s hospital quality initiatives. These initiatives include a value-based purchasing (VBP) program, reduced reimbursement for excessive hospital readmissions, and reduced reimbursement for hospital-acquired conditions (HAC).  Each of these three broad quality initiatives is described in more detail after the jump.

It is important to note that these quality initiatives are not voluntary and affect hospital payments through adjustments to the base DRG rate. Broadly, measures fall into three categories: i) claims-based, chart-abstracted, and patient satisfaction (i.e., HCAHPS).  Many of these quality measures will be part of the Inpatient Quality Reporting (IQR) program and will included in the Hospital Compare website.

Also, Medicare is implementing these three programs on top of similar programs which include:

  • Non-payment for care to treat specific HACs (see here)
  • A Medicaid program which also will not pay for care to treat HACs (see here)
  • Mandated review by QIOs of hospital readmissions within 31 days to assess standards of care and potentially recommend denial of payment (see here)


Value-Based Purchasing (VBP) Program

Beginning in October 2012 (FY 2013 rates), Medicare will begin reducing base operating DRG payments to all subsection (d) hospitals in annual increments. The first year (FY 2012) the rate will fall by 1 percent, decreasing further each year until FY 2017, when the total reduction will be 2 percent. Hospitals may be able to recoup some of the lost revenue by qualifying for incentive payments under the VBP Program. Under the program, hospitals will qualify for value-based incentive payments based either on performance on certain quality measures (if performance meets thresholds) or improvement during established baseline and performance periods. Because the formulae for scoring and calculating adjustments incorporate a sliding scale based on relative performance, many hospitals will end up with negligible adjustments for VBP (an overall net loss in DRG payment rates). CMS calculates the range in performance-based adjustments between the lowest and highest performing hospitals to be 0.0236-1.817 percent. Net adjustments in Year 1 are expected to be no greater than ±1 percent.

Excessive Hospital Readmissions Penalty

During the same year that VBP is launched, the hospital readmission reduction program will take effect. Beginning in October 2012 (FY 2013 rates), CMS will reduce reimbursement for hospitals with excess readmission rates by 1 percent. Hospitals will initially be evaluated based on the percentage of discharged Medicare patients with pneumonia, heart failure and acute myocardial infarction who are readmitted to a hospital for any cause within 30 days of discharge. Hospitals with an excess readmission ratio relative to that of other hospitals stand to lose 1 percent of base DRG payments, an adjustment amount that will increase further each year until it reaches 3 percent in 2014 (FY 2015 rates). Additional conditions are set to be added to the program in 2014 (FY 2015), including chronic obstructive pulmonary disease, coronary artery bypass graft, percutaneous transluminal coronary angioplasty and “other vascular conditions” as required by the ACA.

Hospital Acquired Condition Payment Limitation

Beginning in October 2014 (FY 2015 rates), CMS will penalize hospitals in the highest quartile of national, risk-adjusted Hospital Acquired Condition (HAC) rates (i.e., those with the worst performance). Hospitals face a 1 percent reduction in payment that would otherwise apply. This penalty comes on top of the existing policy of case-by-case non-payment for the treatment of HACs or conditions that were not present on admission. CMS currently recognizes 10 HACs for non-payment. (Fewer specifics have been released concerning this program, including the formulae to be used for calculating performance and adjustments. A proposed rule is expected shortly to provide more information.)


Jane Metzger, Caitlin Lorincz and Marta Arthur “The Hospital Agenda for Accountability” CSC.

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