Modest Payment Redistribution Means That Hospital Quality Program Is Working, Not Failing

In this Health Affairs blog post, Blair Childs, Senior VP for Public Affairs at Premier, Inc., argues that CMS' Hospital Value Based Purchasing program is working as CMS intended, despite an article by Rachel Werner and R. Adams Dudley’s on Medicare’s hospital value-based purchasing (VBP) program in the September Health Affairs concluding that the program is likely to have only a small impact on hospital payments. While it is true that relatively little money is likely to be redistributed from bottom-performing hospitals to those at the top, this is no reason to conclude that the program is not working as intended. Quite the contrary, it’s performing exactly as intended so far.

This should come as no surprise. After all, the Centers for Medicare & Medicaid Services (CMS) has said all along it did not expect any hospital to attain or lose more than 1 percent of its net Medicare revenues when the program goes into effect on October 1, 2012.

But the limited dollars at risk for any individual hospital for both payment incentives and penalties is no reason to conclude that the program won’t achieve its desired goal. Hospital VBP was designed by lawmakers not as a penalty program but as a means to drive faster performance improvement by tying performance to payment.

The program measures hospitals on 12 processes of care, and their patients’ experience of care. CMS sets targets based on a very high performance level in a baseline period. If hospitals are able to catch up to those levels, then they will avoid a penalty. So, as more hospitals improve the care they provide to patients, less money will be generated by penalties to redistribute to high performers. In other words, if the amount of financial redistribution is small, the program is achieving its goal of driving higher performance on quality and outcomes.

This is exactly what is happening. Premier’s early estimates predicted a significantly greater redistribution than now appears likely. As the program has approached, more hospitals have been meeting the targets.

There are ample incentives to drive continuous improvement. Because the rest of the field is constantly innovating and improving, there will always be an upward pressure on hospitals. Moreover, new domains and measures will be added to the program each year, forcing hospitals to continuously improve across many conditions and facets of care.

Childs goes on to say that the Hospital VBP program with its "carrot and stick" approach is far preferable to CMS' Hospital Readmissions Reduction program, which is a payment penalty only, with no positive incentive or reward for performing well. As employers have known for years, VBP requires more than just penalties; successful VBP programs are those that can balance the interests of all involved to achieve desired outcomes, foremost of which is a healthier population.