All the World’s A Stage for this (Pay for) Performance

Rick Newell , MD, MPH

Chief Transformation Officer

Published January 09, 2013

Be prepared: Medicare/Medicaid payment for hospital services is starting to change. The Hospital Inpatient Value-Based Purchasing Program (VBP), designed by the Centers for Medicare and Medicaid Services (CMS), has become effective for Fiscal 2013. “So what?” you may ask.

Up until now, 2% of a hospital’s DRG reimbursement has been paid for providing information to CMS about process of care (i.e., core measures) and patient satisfaction. This phase of the program has been called “pay for reporting”. The actual performance—for example, the performance on core measures—has not been part of the reimbursement formula.

This has changed. Starting on October 1, 2012, the performance of the hospital on these factors will determine the allocation of 1% of a hospital’s DRG reimbursement. The percentage of reimbursement through the VBP program will gradually increase each year and will reach 2% by 2017.

While the actual calculation of VBP incentive scores and payment is complex, there are basically three domains of measurement:

1. Clinical process as indicated by core measures

2. Patient satisfaction measured by HCAHPs

3. Outcomes, measured mainly by mortality rates.

In these three areas, hospitals may receive points for achievement against a national benchmark, for improvements in own-hospital scores, and for consistency of performance.

In the first year, approximately $850 million will be allocated for these incentives (equivalent of 1% of Medicare payments for included conditions). But, as you can well imagine, it is a very different goal to move from providing information to improving performance or attaining national benchmarks. It will take work and money for a hospital to obtain superior performance and subsequently increased incentives. Many hospitals will need to reorganize and invest in both infrastructure and high-performing staff to meet the requirements.

So the question for hospitals is: are the current incentives worth it? While $850 million is a significant sum, it may not be enough to motivate high-performing hospitals to improve, or troubled hospitals to change.

The key issue becomes how hospitals within the current fragmented healthcare system will be able to accomplish superior performance and/or improvement. Each hospital is slightly different and the dollars, processes, and people needed for particular hospitals to improve or maintain top performance will clearly vary.

Currently hospitals with a higher percentage of the Medicare to which VBP applies will have more of a higher incentive to invest in the necessary infrastructure. However in the future it is foreseeable that the VBP program will grow to include a more diverse set of performance measure and increasing monetary incentives. Clearly with more money to incentivize hospitals and more measures to span the varying issues faced by each hospital, the VBP program will only grow in importance.

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