HHS gives Congress plan to link
Medicare payments to performance
By George E. Brandon
News Editor/Writer
The U.S. Department of Health and Human Services (HHS) late last month gave Congress an outline of a future pay-for-performance plan that would push beyond current incentives for reporting quality-of-service measures and directly link hospitals' actual performance on quality measures to the payments they receive.
"For Medicare beneficiaries to get higher quality care, our payment system needs to encourage better care," HHS Secretary Mike Leavitt said in announcing the report to Congress. "Paying hospitals for the quality of care they provide takes us closer to that goal."
Congress, in the Deficit Reduction Act of 2005, authorized HHS to develop a plan for implementing "value-based purchasing" of hospital services to Medicare patients, beginning in Fiscal Year 2009 with services provided by subsection (d) hospitals paid under Medicare's Inpatient Prospective Payment System. The 2005 law mandated that the plan consider: (1) development and selection of measures of both quality and efficiency in inpatient settings, (2) reporting, collection and validation of quality data, (3) the structure, size and source of value-based payment adjustments and (4) disclosure of hospital performance information.
The report prepared by HHS' Centers for Medicare and Medicaid Services (CMS) proposes to build on the current Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program. Since FY 2005, CMS has provided full annual market basket updates (adjustments to account for inflation in hospital costs of providing services) only to hospitals that agree to publicly report their performance on a defined set of inpatient care performance measures.
To receive maximum annual payments under the current RHQDAPU plan, all hospitals have to do is report their performance under the quality measures defined by CMS. The plan submitted to Congress on Nov. 21 would go beyond requiring reporting and base a percentage of hospitals' annual reimbursements on their actual performance, as rated by a "Value-Based Performance Total Performance Score."
Quality measures used to calculate a hospital's Total Performance Score would include measures of clinical process of care, patient perspectives of care and clinical outcomes. Hospitals' annual performance on each measure would be scored on either their attainment compared with national benchmarks or their improvement over the previous year's performance, whichever measure would yield a higher score.
Under the plan, an incentive payments pool would be carved out of annual Medicare revenues, and a percentage of a hospital's base operating payment for each discharge (Diagnosis-Related Group or DRG payments) would be contingent on the facility's actual performance on a specific set of quality measures.
"Getting hospitals to report their quality measures was an important first step," noted acting CMS Administrator Kerry Weems. "Now, building on that experience, we are taking the next step of actually rewarding hospitals for the quality of care they provide Medicare beneficiaries."
A spokesman said the American Hospital Association has real concerns about the financial impact the proposed reforms could have on hospital revenues. Tom Nickels, AHA, senior vice president-federal relations, told a Washington health reporter that a 2% to 5% reduction in payments to hospitals would be significant. He said AHA would prefer a plan under which Congress allocated additional funds for Medicare payments, rather than carving out the performance incentives from existing funding levels.
AARP, which represents senior health care consumers, strongly supported "efforts to change Medicare's payment system from one that rewards quantity to one that rewards quality." Under the current system, "Medicare sometimes pays more to those who provide services that are inefficient or necessary only after preventable medical errors are made," said John Rother, AARP's director-public policy. He said tying Medicare payments to performance benchmarked to quality-of-care measures "may help control spiraling healthcare costs, avoid unnecessary procedures and decrease improper utilization."
In its report, CMS suggested that a range of 2% to 5% of annual hospital payments initially be considered to fund incentive payments to higher-performing hospitals, with adjustments to the payment formula as experience is gained under the new Value-based Purchasing plan. CMS proposed a three-year transition from the current pay-for-reporting plan to a new performance incentive payment plan. A three-year phase-in would give hospitals adequate notice of the set of measures, performance thresholds and benchmarks that will determine their incentive payments, and enable them to accrue baseline performance data on all the performance measures, the report noted.
During the first transition year, CMS suggested basing incentive payments 100% on "pay for reporting" for all the expanded set of Value-based Purchasing (VBP) measures. During the second year of the transition, it suggested splitting the incentive payments 50% based on reporting and 50% based on actual performance on the VBP performance measures. In the third and subsequent years, incentive payments would be based solely on a hospital's VBP Total Performance Score.
As with the current pay-for-reporting payment system, the new performance-based payment regime would include public reporting of quality-of-care performance data on the Hospital Compare Web site. Enhancements to the Hospital Care Web site would support reporting the performance data in a more user-friendly manner, HHS said.
CMS said it is committed to working with consensus organizations and healthcare stakeholders in developing and selecting the expanded set of quality measures needed for the new VBP payments system. It said all new measures would be tested before they actually are introduced into the new system and promised to submit new measures to the National Quality Forum for endorsement. The agency also said it would continue to collaborate with The Joint Commission to align specifications for measures that both CMS and the accrediting body use.
Example included in CMS report to Congress illustrating how the Value-based Purchasing (VBP) incentive payment system would work for a particular DRG (Diagnosis-Related Group).
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