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Member Research & Reports

Member Research & Reports

Michigan Dartmouth Research: New Medicare Incentive Rewards Some Hospitals Who’s Quality Doesn’t Measure Up

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.

Edward Norton Andrew Ryan
[Photo: Dr. Edward Norton (left) and Dr. Andrew Ryan]

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 Mr. 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 Dr. 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 Dr. Chen, U-M assistant professor of internal medicine at the U-M Medical School and Veterans Affairs Ann Arbor Health System.

Mr. 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.

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