Customer Ratings Will Affect Hospitals Bottom Line in 2013

Word-of-mouth has always been considered a most reliable source of information about the quality of traditional customer goods and services. So, it should be the same case for healthcare services, right?  Well, so thinks CMS.

With growing concerns on Medicare’s future, the federal government has turned to customer reviews to institute the Hospital Inpatient Value-Based Purchasing Program (Hospital VBP Program).  Section 3001(a) of the Affordable Care Act (ACA) added a new section 1886(o) to the Act, which requires the Secretary to establish a hospital value-based purchasing program under which incentive payments will be made in a fiscal year based upon a hospital meeting or exceeding the performance standards set for that specific fiscal year.  The incentives will be funded by a reduction to the fiscal year’s base operating diagnosis-related group (DRG) payments from hospitals.  The Centers for Medicare and Medicaid Services (CMS) have finalized the new reimbursement program under section 1886(o) of the Social Security Act and determined that for FY 2013 a 1.0 percent discharge will apply.  The reductions increase to 1.25 percent in FY 2014, 1.50 in FY 2015, 1.75 in FY 2016, and by 2.0 percent in FY 2017.  The Hospital VBP Program will apply to payments for discharges occurring on or after October 1, 2012, in accordance with section 1886(o).  To be rewarded, the Hospital must meet or exceed the performance standards established with respect to the measures.

The initial measures for FY 2013’s Hospital VBP Program will be categorized into two domains – the first domain consisting of 17 measures based on clinical process of care and the second domain is adopting the Patient Experience of Care Measure – the Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS).   The methodology for assessing the total performance will be to calculate a total performance score for each hospital by combining the greater of the hospital’s achievement or improvement points for each measure to determine a score for each domain, then multiply each domain score by a proposed weight (clinical process of care by 70 percent, patient experience of care by 30 percent), and finally adding together the weighted domain scores.

What does this calculation mean to the bottom line?  CMS has stated that it expects the VBP program to redistribute $850 million among hospitals in FY 2013.  Let’s call this distribution of money a bonus and, therefore, the bonus will be directly proportional to the hospital’s quality score.  This of course means some hospitals will earn back more than the amount withheld (winners), but some will earn back far less (losers).  However, one study, using 2009 data from the Hospital Compare database, has described the program’s potential impact on individual hospitals as minimal stating that 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.  Of course, these numbers will increase as the percentage withheld from each hospital increases year after year.

Is the “bonus” the true moral behind the Hospital VBP Program?  The bonus will not have a substantial impact on the bottom line, initially at least, but we need to keep in mind the other benefits from the program.  In developing this program, CMS viewed value-based purchasing as an important step toward revamping how care and services are paid for, moving increasingly toward rewarding better value, outcomes, and innovations instead of merely volume.  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.  These expenses, which negatively affect the bottom line, are avoidable if hospitals make the appropriate precautionary steps to increase the quality of care.  It’s obvious that the penalty, at the moment, will not make huge strides, but if CMS releases the patient’s experience of care to the public, hospitals will immediately feel the impact.  Everything is Reviewed – Why not the quality of your healthcare!!!