Pay-for-performance is here to stay. Hospitals better pay attention.

It used to be that hospitals billed Medicare for the services they provided, and Medicare — I know this is crazy! – simply paid the bills.

Those days are rapidly receding into history. Soon, a significant chunk of hospital revenue will be at risk, under a series of Medicare pay-for-performance programs. The idea behind P4P (as the cool kids call it) is simple. Third-party payers, like insurance companies or the Medicare program, will monitor the quality of care offered by health care providers like hospitals. High-quality providers will receive more money than low-quality ones, thereby giving providers an incentive to improve the quality of care they provide.

Medicare has created several P4P programs which, unless they are halted by the Trump administration, are slowly coming into effect. By 2017, as I will show in a bit, these programs could put a sixth of Medicare payment at risk.

What are these programs?

One is the Hospital Value-Based Purchasing Program, or (and you have to give Medicare folks kudos for their marketing prowess) VBP. Under VBP, Medicare monitors a bunch of quality measures, like the rate of hospital-acquired infections, the number of patients falling while in the hospital and even the risk-adjusted mortality of hospitalized patients. Medicare scores each hospital based on how well it performs compared to other hospitals, and compared to its previous performance. This score determines part of a reward or punishment at the end of the year. By 2017, 2 percent of Medicare hospital payments will be redistributed according to VBP results, with money transferred from low- to high-performing hospitals.

Medicare has created another acronymically-challenged program, HRRP, which stands for Hospital Readmissions Reduction Program. The program measures how often patients with diagnoses like heart attacks, congestive heart failure, and pneumonia are readmitted to hospitals after an initial stay. The program will financially penalize hospitals that have excessive readmission rates.

Finally, under its HAC program (not named after the sound made by someone with bronchitis), Medicare is tracking how well hospitals reduce the rate of hospital-acquired conditions, like catheter-related bacterial infections. Some of these measures overlap with the VBP measures, amounting to a double counting. That’s a problem I’ll talk about in a minute.

These programs are beginning to have a real impact on hospital finances. Here’s an illustration from Charles Kahn and colleagues from the Federation of American Hospitals:

watch-out-hospitals-300x176

Some people might think these programs should be abandoned, for being too flawed for prime time. For example, the programs hit a small percent of hospitals pretty hard. According to Kahn, “10 percent of hospitals accounted for nearly half of the HRRP penalties.” Moreover, the penalties have so far landed hard on teaching hospitals. Teaching hospitals are generally recognized for offering high-quality care, so there disproportionate penalties raise questions about the accuracy of Medicare’s measures. The penalties have also landed hard on hospitals caring for low-income populations. It’s not at all clear how much of the low-quality scores these hospitals have accumulated represent poor care versus poor statistical adjustment for the underlying health and social milieu of the patients admitted to these hospitals.

But it is too soon to abandon Medicare’s pay-for-performance programs. As Kahn points out: “hospital performance on the various programs’ metrics is improving.” In other words, P4P seems to be doing what it expected–it’s motivating hospitals to improve the quality of care they provide. Rather than abandon these programs, we should improve them. Medicare needs to revise these programs, to reduce unnecessary overlap between them, to simplify hospital reporting requirements and, most importantly, to better account for the underlying characteristics of hospital populations. I don’t expect or even want Medicare to go back to the old days, when it paid hospital bills without any effort to assess the quality of hospital services.

Pay-for-performance is here to stay. Hospitals better pay attention.

Peter Ubel is a physician and behavioral scientist who blogs at his self-titled site, Peter Ubel and can be reached on Twitter @PeterUbel. He is the author of Critical Decisions: How You and Your Doctor Can Make the Right Medical Choices Together. This article originally appeared in Forbes.

Image credit: Shutterstock.com

View 3 Comments >

Most Popular

Join 150,000+ subscribers

Get the best of KevinMD in your inbox

Sign me up! It's free. 
close-link
✓ Join 150,000+ subscribers 
✓ Get KevinMD's 5 most popular stories
Subscribe. It's free.