Home Coding Medicare’s new sticks and carrots

Medicare’s new sticks and carrots

February 2013

Published in the February 2013 issue of Today’s Hospitalist

IN DECEMBER, we closed out 2012 with a “Disappearing dollars?” column filled with financial doom and gloom. If you missed it, here’s the Twitter version: Health care inflation and baby boomers are bankrupting Medicare. Or maybe this: We fell off the health care cliff long ago and remain in free fall.

This month, we’re continuing that storyline with the government’s response. It’s a little doubtful whether these interventions will avert the crisis, but you can’t blame the Centers for Medicare and Medicaid Services (CMS) for trying. Even so, these various CMS programs have had an immediate impact on hospitals, and hospitalists would be wise to understand them.

Congress has been tweaking Medicare for a long time. Recent legislation created pay-for-performance (PFP) programs that will favorably affect Medicare’s budget and theoretically improve the quality of care. These programs involve various carrots and sticks that reward high-performing hospitals with money extracted from poor performers in the form of penalties.

The current cast of characters involves the value-based purchasing program (VBP), the readmissions reduction program, and the obtusely named hospital-acquired conditions and present on admission indicator reporting program. We’ll tackle each of them in turn.

The Patient Protection and Accountable Care Act of 2010 authorized the value-based purchasing program, which is the most complicated PFP effort. It involves a mash-up of 24 measures dealing with clinical quality, patient experience and mortality.

VBP began with a pay-for-reporting period. Now that hospitals have reported baseline data, the program has switched to a performance phase where a hospital’s reimbursement is determined by how well it stacks up to a “compare group” of other hospitals.

Some VBP math is pretty straightforward. Medicare reduced payments for discharges by 1% across the board on Oct. 1, 2012 (the beginning of the federal government’s 2013 fiscal year). Hospitals have the opportunity to earn that back or potentially exceed their old payment, by up to 1%, through good performance. On the flip side, poor performers are stuck with the reduced rate, an effective 1% penalty. The rewards and penalties over time are moving targets: 1.25% in 2014, 1.5% in 2015, 1.75% in 2016, and 2% in 2017 and thereafter. While these may seem like small numbers, there is little margin in Medicare payments. Health care organizations have millions of dollars at risk, which can either juice or drag down their bottom line.

The devil is always in the details, and some of the math is pretty opaque. Rewards and penalties are determined by a complicated scoring equation, but the basic components of each hospital’s score are clinical quality (45%), patient experience (30%) and mortality (25%). However, with 24 individual measures, varying weights and a fudge factor for improvement over baseline, it’s essentially a black box. You can peek inside the box on a post-hoc basis, but at that point it doesn’t really matter.

Although VBP was pitched as budget-neutral, it eventually saves Medicare money. By 2017, which isn’t all that far away, 84% of hospitals will receive a net reduction in payments. That means that only 16% of hospitals will be even or ahead, and those are pretty crummy odds.

Readmissions are part and parcel of hospital medicine. According to the CMS, between 20% and 25% of patients with MI, heart failure and pneumonia “the big 3 “are readmitted to the hospital within 30 days. Those are fairly depressing numbers and a huge part of the health care crisis.

The readmissions reduction program went live on Oct. 1, 2012. It imposes penalties of up to 1% for bouncebacks for any of the big 3. Penalty amounts will hit 3% by 2015, the same year that Medicare is authorized to add more clinical conditions such as COPD to the program.

Medicare recognizes that some bouncebacks are inevitable; these are, after all, bad diseases with unfavorable natural histories. As a result, penalties are assessed based on an “excess readmission ratio,” which involves a risk-adjusted prediction of how many readmissions your hospital should have. Penalties get meted out when actual readmissions exceed what’s expected.

Unfortunately, this program is all stick and no carrot. We are being offered no rewards for achieving fewer readmissions than predicted.

You break it, you fix it
Bad things happen in hospitals all the time, and sometimes it’s our fault. Medicare, understandably, doesn’t like paying for our mistakes.

The CMS rolled out its hospital-acquired conditions and present on admission indicator reporting program (HAC & POA, mercifully, for short) several years ago. As currently administered, Medicare will not pay for certain conditions acquired during the course of hospitalization. Claims for these cases are paid as if these conditions never occurred, and hospitals eat the difference.

Starting Oct. 1, 2014, HAC & POA gets much more punitive. Medicare will reduce payments by 1% for hospitals with higher rates of hospital-acquired conditions. This penalty is applied to all Medicare payments, not just those cases in which a hospital-acquired condition occurred.

Penalties will be assessed against those hospitals that fall into the bottom 25% for this metric. Similar to readmissions, there are no rewards for better outcomes.

Does it work?
Medicare has staked a huge position on PFP. But does it actually work?
If the outcome is cost, PFP definitely works. By 2017, hospitals will have up to 6% of their Medicare payments at risk, which puts a lid on cost growth.

If, on the other hand, the outcome is clinical quality, the early data aren’t encouraging.

A study published in October 2012 by the Journal of General Internal Medicine found no connection between performance on quality measures and hospital readmission rates. They looked at about 1 million patients treated in 2,700 U.S. hospitals and concluded, “it does not appear that efforts to reduce readmission rates are likely to benefit from further focus on collecting and publicly reporting data on these process measures.”

Try telling that to Congress.

John Kvasnicka, MD, is vice president and executive medical director, acute care hospitals for HealthEast Care System in St. Paul, Minn. David Frenz, MD, is a hospitalist for HealthEast Care System and is board certified in both family medicine and addiction medicine. (You can learn more about him and his work at www.davidfrenz.com.) Sue A. Lewis, RN, CPC, PCS, is a compliance consultant with HealthEast Care System.

What counts in value-based purchasing?

The new value-based purchasing (VBP) program put in place by the Centers for Medicare and Medicaid Services introduces a pretty complicated equation of payment rewards and penalties for hospitals, all based on how well hospitals perform on a series of measures. Here’s a look at the clinical quality, patient experience and mortality measures being factored into the VBP equation:

Clinical quality
Acute myocardial infarction:

  • Fibrinolytic therapy within 30 minutes of arrival
  • Primary PCI within 90 minutes of arrival

Heart failure:

  • Discharge instructions


  • Blood cultures in the emergency department prior to antibiotics
  • Initial antibiotic selection


  • Beta-blocker taken at home continued perioperatively
  • Blood glucose control for cardiac surgery patients
  • Prophylactic antibiotic within 1 hour of incision
  • Prophylactic antibiotic selection
  • Prophylactic antibiotic appropriately discontinued
  • Urinary catheter removed postop
  • Prophylaxis for venous thromboembolic disease ordered
  • Prophylaxis for venous thromboembolic disease received

Patient experience (based on HCAHPS data):

  • Overall rating of hospital
  • Communication with nurses
  • Communication with doctors
  • Hospital Cleanliness and quietness
  • Responsiveness of hospital staff
  • Pain management
  • Communication about medicines
  • Discharge information


  • Acute myocardial infarction
  • Heart failure
  • Pneumonia
    Source: CMS

What the CMS won’t pay for

Several years ago, the Centers for Medicare and Medicaid Services decided it would not pay the costs of treating certain hospital-acquired conditions. That policy is about to become more punitive in 2014 when the CMS will additionally assess financial penalties against those hospitals that have a high rate of hospital-acquired conditions. Here are the conditions that make that list:

  • Foreign object retained after surgery
  • Air embolism
  • Blood incompatibility
  • Stage III/IV pressure ulcer
  • Falls and trauma
  • Vascular catheter-associated infection
  • Catheter-associated urinary tract infection
  • Manifestations of poor glycemic control
  • Some surgical site infections
  • Blood clots after knee/hip replacement

Source: CMS.