Value-Based Purchasing for Hospital Services

The Center for Medicare and Medicaid Services (CMS) has identified six steps to move to Medicare value-based purchasing. The Medicare hospital reimbursement system is currently at step one, payment to hospitals for reporting quality measures. The next step is to vary payment based on the results for these quality measures. There are multiple ways that CMS can provide payment incentives either through upside incentive payments or downside payment reductions. Incentive payments, either upward or downward, can be based upon achieving a target performance level, for improvement year over year, for being in a particular percentile compared to others, e.g. the top 20 percent of a peer hospital group, or some combination of the above.

The CMS hospital demonstration project, conducted in conjunction with Premier, has shown that financial incentives for quality can result in significant improvements in quality measures as shown in the Premier Hospital Quality Incentive Program Fact Sheet.

The demonstration focuses on quality indicators for some of the most common hospital conditions: acute myocardial infarction, heart failure, coronary artery bypass graft, pneumonia, and hip and knee replacement. The demonstration utilizes performance measures based upon work done by Quality Improvement Organizations, the Joint Commission on Accreditation of Hospitals, the Agency for Healthcare Research and Quality, and others. Significant improvements in composite scores for participating hospitals as a group have been achieved for each condition. Phase II of the demonstration (years four through six) includes reimbursement incentives for attaining median performance, top performance, and improvement, and penalties for hospitals that do not score above a targeted decile.

The results of the CMS Premier Demonstration show that it is possible to make measurable significant improvements in hospital quality measures through reimbursement incentives. The next steps needed to move from payment for volume to payment for value including adding a cost measurement component. This will be discussed in blog entries over the coming weeks.