Medicare’s new Value Based Purchasing program: Enough to inspire hospital change?

October will mark the beginning of a new Medicare program that will withhold up to 1% of reimbursements due hospitals, and instead use the funds to reward hospitals based on their “patient experience” survey scores and adherence to certain clinical guidelines for providing care. The new Value-Based Purchasing program was passed as a part of the Healthcare Reform Act, and is designed with the intent in improving patient care. Kaiser Health news reported last week on what this may mean for hospitals. You can find the full article here.

Under the program, the 1 percent withheld, about $850 million in the first year, would be set aside into a ‘bonus pool’ and awarded to “hospitals that do better than average on a variety of measurements, or show the greatest improvement from the previous year.” The pool would increase to 2 percent of reimbursements in October of 2016.

The strategy shift, away from a model that “historically has paid hospitals and doctors based on the nature of services they provided to patients without taking into account how good a job they did”, is based on trial programs and studies that have been in the field for a number of years. The program also starts at the same time another provision of the Healthcare Reform Act which withholds reimbursements to hospitals with high readmission rates. NAHAM News reported on that program here.

Medicare hasn’t yet calculated how individual hospitals may be affected in the first year of the program, but a study published last week in the policy journal Health Affairs examined the program as if it had been in existence since 2009. According to the study, during that time “only 71 hospitals, or 2.4 percent of the total, would have earned bonuses of more than half a percent above the break-even point.”  The average bonus would have been just over $55,000. The study also estimated that “only 90 hospitals, or 2.4 percent, would have lost more than half a percent below what they would have received prior to the program.” The average loss would have been $125,000.

These modest numbers have some arguing that it may cost hospitals more to implement necessary changes than they would receive as a benefit from positive performance. Kaiser reports that a performance-based approach in the UK represents a much larger percentage of provider income.

Despite that, Nancy Foster, a vice president at the American Hospital Association, said the sizes of the bonuses are not as important as the signal the program sends "that these are important areas of quality and they’re worth the investment."

Medicare will be changing the measures in future years as well, for instance adding mortality rates for heart failure, heart attack and pneumonia patients in October 2013.