Value-Based Purchasing for Hospitals Starts Now - and for Anesthesiologists in 2015

October 1, 2012, as we noted in last week’s Alert, is the deadline for ambulatory surgical centers to begin reporting quality measures to CMS or face payment penalties.  October 1st is also a momentous date for hospitals, with the start of the Medicare Hospital Inpatient Value-Based Purchasing (VBP) Program.

Value-Based Purchasing for Hospitals

The VBP Program is scheduled to launch a week from now, as required by the Affordable Care Act. This program marks the beginning of an historic change in how Medicare pays health care providers and facilities—for the first time, hospitals across the country will be paid for inpatient acute care services based on care quality, not on the quantity of the services they provide.

In fiscal year 2013, which starts on October 1st, the VBP Program will pay out an estimated $850 million to more than 3,500 participating hospitals based on their overall performance on a set of twenty quality measures. The pool of $850 million will come from a one-percent withhold on Medicare payments for discharges occurring on and after October 1st.  The withhold will increase to two percent by 2017.

The Centers for Medicare & Medicaid Services (CMS) issued the final rule establishing the Hospital VBP Program on April 29, 2011.  The rule adopts twenty performance measures drawn from the measure set that hospitals have been reporting under the Hospital Inpatient Quality Reporting program.  Twelve of the measures relate to quality and safety processes, including the timely administration of antibiotic prophylaxis prior to surgery.  The other eight measures are from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey and include questions such as how well physicians and nurses communicated with patients, and how well pain was controlled.  The list of measures is appended to CMS’ Fact Sheet on the Hospital VBP rule.

Hospitals will be scored based on their performance on each measure relative to other hospitals and on how their performance on each measure has improved over time.  The higher of these scores on each measure will be used in determining incentive payments.  By rewarding the higher of achievement or improvement on measures, Hospital VBP gives hospitals the financial incentive to continually improve how they deliver care.  In the future, CMS plans to add additional outcomes measures that focus on improved patient outcomes and prevention of hospital-acquired conditions.  Measures that have reached very high compliance scores would likely be replaced, continuing to raise the quality bar. 

According to CMS, one in seven Medicare patients will experience some “adverse” event such as a preventable illness or injury while in the hospital. Medicare spent an estimated $4.4 billion in 2009 to care for patients who had been harmed in the hospital, and readmissions cost Medicare another $26 billion.  Will the Hospital VBP Program significantly affect the quality of inpatient care? The title of a study published in the September 2012 issue of Health Affairs answers the question in the negative:  “Medicare’s New Hospital Value-Based Purchasing Program Is Likely To Have Only A Small Impact on Hospital Payments.”

The study authors modeled the program’s potential impact on individual hospital payments using 2009 data from the Hospital Compare database.  After calculating more than 3,000 hospitals’ projected payment changes under the VBP program, they determined that about 51 percent of hospitals would have received higher payments and the remaining 49 percent would have received decreased payments.  Only eight hospitals would have a change of greater than 0.75 percent.  No hospital would have a change of more than one percent. The average change would be $55,381 for the hospitals with the largest percentage gain and $125,000 for hospitals with the largest percentage loss. 

The authors noted that the Premier Hospital pay-for-performance demonstration project produced only small improvements that were transitory, and questioned whether the VBP program was structured effectively and whether the bonus pool was large enough.  Proposed alternatives include changing the payment structure to a “fee-for-quality—or piece-rate—pay-for-performance system,” and directing payment toward areas of relatively poor performance.

Whatever the initial experience under the Hospital VBP Program turns out to be, it will probably not affect the initial implementation of the Value-Based Modifier (VBM) for physicians.

Value-Based Modifier for Anesthesiologists

In 2015, physicians may see positive (bonus) or negative (penalty) adjustments to their Medicare payments depending on their relative performance on certain cost and quality parameters during calendar year 2013 and thereafter.  CMS outlined a VBM program for physician payments in its proposed rule for the Medicare Fee Schedule published last July. During its first year, the VBM would only apply to physicians practicing in groups of 25 or more health professionals (e.g., anesthesiologists plus nurse anesthetists). Beginning in 2017, the VBM would apply to all physicians and not just to those practicing in larger groups.

Anesthesiologists and others who successfully participate in the Physician Quality reporting System (PQRS) in 2013 will have their VBM initially set at zero, which will prevent the modifier from lowering Medicare payments.  Physicians who fail to report quality measures under the PQRS would have their pay cut by one percent.  Larger physician groups that do participate in PQRS could elect to seek a VBM bonus under a quality-tiering approach (while risking a reduced payment). Physicians who meet certain quality minimums and contain patient costs could be eligible for payment increases of  two percent, but those with lower quality and higher costs per patient could see their pay reduced by one percent (despite successful participation in the PQRS).

The scheme is far from straightforward and it has been the target of much criticism not just from organized medicine, but also from the Medicare Payment Advisory Commission.  We hope and expect that the final fee schedule rule for 2013, to be published in November, will significantly improve upon the proposed version.