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Quality and Money

July 11, 2011
by Mark Hagland
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A new CSC report looks at major Medicare hospital reimbursement changes on the horizon

On April 18, the federal Centers for Medicare & Medicaid Services (CMS) created a proposed rule for the Medicare Hospital Inpatient Prospective Payment System (IPPS) that encompasses a number of important changes.

Among other elements, the proposed rule will require, beginning in fiscal year 2014, that hospitals report performance data in order to avoid losing 2 percent of their annual market basket adjustment to Medicare IPPS rates. Meanwhile, the final rule for the value-based purchasing (VBP) program which will affect reimbursement for hospital discharges beginning in FY 2013, came out earlier this year. For the second program year (FY2014), a new domain for performance measurement is proposed to be added, around efficiency. In addition, the proposed IPPS rule lays out many basic aspects of the Hospital Readmissions Reduction Program, specifying what constitutes a readmission, and helping hospitals to begin calculating excess readmissions. The new proposed rule also provide further details for the Hospital Acquired Condition (HAC) program, effectively expanding that program’s scope, and potentially introducing financial penalties for hospital-acquired conditions, beginning in October 2014.

There are numerous levels of details involved in all these changes and potential changes, but the bottom line is clear: hospital reimbursement under Medicare (and, inevitably, under private health insurers as well, as they eventually copy some of Medicare’s payment innovations) will increasingly be tied to performance, on numerous levels and in numerous areas.

Given all the actual and anticipated changes involved, researchers at the Waltham, Mass.-based Global Institute for Emerging Healthcare Practices, a division of the Falls Church, Va.-based CSC, have been producing a series of white papers and reports assessing the implications of all these changes for providers. Most recently, Caitlin Lorincz, research analyst, and Jane Metzger, principal researcher, at the Global Institute, produced a report, “Update on Performance-Based Reimbursement: The CMS-Proposed Rule for the Medicare Hospital Inpatient Prospective Payment System for Acute-Care Hospitals,” which analyzes how the proposed changes will affect hospital leaders.

Metzger and Lorincz spoke recently with HCI Editor-in-Chief Mark Hagland regarding their report and its implications for healthcare and healthcare IT leaders (the quotes below are from Jane Metzger). Below are excerpts from that interview.

What would your “elevator speech” be around the research you provided in your most recent report, in this area?
The first point is that this really isn’t a surprise, but that our understanding [of the issues involved] is getting clearer. And part of what isn’t a surprise is that this series of programs puts more and more of the revenues that hospitals receive from Medicare at financial risk. And there are clearly going to be some losers, because every time they talk about how performance gets translated into money, there will be a high percentage of hospitals that will lose money. And in fact, we kind of knew this was coming, because it had to be revenue-neutral.

The second point is that it’s not really just a Medicare program. First of all, in terms of the measures, there are some claims-based measures that Medicare puts together; however, the bulk of the measures are what they call chart-abstracted, which means that the hospital has to do it—and in their sampling methodology, they want the sampling to be of all patients. So even Medicare is now looking at all patients. And the private payers are already moving forward; I was looking at a program in Minnesota the other day that looks an awful lot like value-based purchasing.

So regardless of what happens with the shared-savings program for accountable care organizations, this train is out of the station, and though I don’t like the term paradigm shift, this surely is one. And in our next white paper, we’ve built a little chart that looks at value-based purchasing as 1 percent of payment, and this other thing is 1 percent—but remember, a lot of hospitals in the U.S. are already operating in the red.

And even in the so-called good old days, they never had much of a margin. So even though the percentages look low, this is a big deal. And some hospitals have huge Medicare volumes, and that’s been a big part of their business. So this is way beyond experimentation; and it’s rolling out. And we’ve been expecting it. And what these white papers talk about is, each time they issue a proposed or final rule, you learn more.

Part of what makes these rules and proposed rules complicated is that CMS sort of lays out their thoughts over three years. And that’s kind of significant, because it gives you some advance warning of the measures that are coming. And they’ve adopted that practice for value-based purchasing, and for the readmissions reduction program, and for the hospital-acquired conditions program. So this really is determining the externally mandated quality improvement agenda for hospitals.

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