Unbiased Analysis of Today's Healthcare Issues

Did Hospital VBP work?

Written By: Jason Shafrin - Jul• 27•14

How can Medicare improve quality and reduce cost? One idea is to introduce value-based purchasing (VBP). For instance, Medicare’s hospital value-based purchasing (HVBP) system increases payment rates for hospitals that demonstrate high quality. A paper by Ryan et al. (2014) explains the program in more detail.

Under HVBP, acute care hospitals—those paid under Medicare’s Inpatient Prospective Payment System—received payment adjustments beginning in October of 2012 based on their performance on 12 clinical process and 8 patient experience measures from July 1, 2011 through March 31, 2012. HVBP is budget neutral, redistributing hospital payment “withholds” from “losing” to “winning” hospitals. These withholds are equal to 1 percent of hospital payments from diagnosis related groups (DRGs) in the initial implementation period. Incentive payments in HVBP are based on a unique approach that incorporates both quality attainment and quality improvement, incentivizing hospitals for incremental improvements and foregoing the all-or-nothing threshold design of other programs.

The authors use a difference-in-difference methodology by matching hospitals in the IPPS system with those who were not. Hospitals outside of IPPS include hospitals in Maryland and critical access hospitals (CAHs). This matching is likely imperfect as CAHs–by definition–are different than those in the IPPS system.

Based on this approach, did HVBP lead to improved health outcomes?  The answer is maybe.  On the side of ‘no’:

We found no evidence that improvement in clinical process or patient experience performance was greater for hospitals exposed to HVBP compared to a matched comparison group of hospitals that were not exposed to HVBP. We also found no evidence that the effect of HVBP varied based on hospitals’  initial clinical process or patient experience performance.

However, hospitals knew about HVBP years prior to actually receiving payments. Further, HVBP is based on long-standing quality metrics. In fact, in 2003 Section 501(b) of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) mandated the creation of an Hospital Inpatient Quality Reporting (Hospital IQR) program. Hospitals may have been anticipating these payments for many years. Thus, one should not be surprised by the following finding:

We did, however, find some evidence that hospitals that were ultimately exposed to HVBP had greater improvement on clinical process performance when we assumed that the effects of HVBP began 3 years prior to the start of financial incentives. Whether this improved performance was driven by the expectation of HVBP, or whether it resulted from other factors, is unclear.

The debate surround the efficacy of VBP is yet to be settled.

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