CMS Proposes Medicare Hospital Payment System Based On Quality Of Care

Main Category: Medicare / Medicaid / SCHIP
Article Date: 28 Nov 2007 - 6:00 PDT

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CMS on Monday proposed changes to the Medicare hospital reimbursement system that would reduce payments by a flat rate to create an incentive payment pool for rewarding hospitals that meet quality-of-care thresholds, the Wall Street Journal reports. Under the proposal, which was outlined in a 104-page report to Congress, payments to all facilities would be cut by a flat 2% to 5% to fund the incentive pool for distribution to hospitals that show the most improvement or meet quality-of-care standards (Francis, Wall Street Journal, 11/27).

The plan would create a "Value-Based Purchasing Program" that would base hospitals' "diagnosis-related group" payments, the money they receive for each discharge, on quality performance, according to CQ HealthBeat (Carey, CQ HealthBeat, 11/26). CMS said the proposal would be cost-neutral to the federal government, and it could save money if Congress does not require that the entire pool be distributed (Wall Street Journal, 11/27).

Quality improvements would be judged by a hospital's "total performance score," which would be based on patient outcomes, adhering to certain clinical practices, patient satisfaction and other areas (CQ HealthBeat, 11/26). Acting CMS Administrator Kerry Weems said that the proposed payment system would be established over three years and initially would apply to the treatment of conditions such as heart failure and pneumonia (Hartford Courant, 11/27). The proposal would require congressional approval (CQ HealthBeat, 11/26).

According to the Journal, the proposed changes have "the potential to squeeze hospitals already facing financial difficulties even as it offers monetary incentives to improve medical care." However, CMS would monitor the program if implemented, and Weems said the agency would make sure no "unintended or perverse consequences" come from it (Wall Street Journal, 11/27).

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Senate Finance Committee ranking member Chuck Grassley (R-Iowa) said that a value-based approach is the "kind of reform that every branch of our government ought to go after with full force," adding, "Now that the plan is set, Congress needs to get the job done and pass additional legislation to start implementing value-based purchasing." AARP Director of Public Policy John Rother said, "We are pleased that Medicare is now taking concrete steps to begin tying a portion of hospital payments to their actual performance, rewarding both those that provide high quality and those that demonstrate meaningful improvement" (CQ HealthBeat, 11/26).

Stacey Brown -- a spokesperson for Premier, which worked with CMS on an earlier pay-for-performance project -- said, "We want to make sure what we're doing here is rewarding hospitals for quality gains and not developing a cost-cutting program" (Wall Street Journal, 11/27). However, Jayne Hart Chambers, senior vice president for the Federation of American Hospitals, said, "The Federation really believes there needs to be a new pool of money for the incentive payments and that the funds not come out of the base DRG rate because you're injuring the hospitals that need the funds to do the improvement" (CQ HealthBeat, 11/26).

Reprinted with kind permission from http://www.kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, or sign up for email delivery at http://www.kaisernetwork.org/dailyreports/healthpolicy. The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation. © 2005 Advisory Board Company and Kaiser Family Foundation. All rights reserved.

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