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How Health Reform will affect Hospital’s Business Strategy

January 19, 2012 in Health Reform, Hospitals, P4P | No comments

For many years, fee for service payment was the status quo. FFS model encourages hospitals to adopt the following strategies to maximize market share and profits:

  • Centered on short-term acute care
  • Focused on specialist alignment
  • Driven by a volume-based service-line strategy
  • Using expensive medical equipment purchases to encourage physician referrals
  • Attracting patients with new construction in support of market share growth
  • Short-term acute hospitals focus on profitable service lines such as oncology, cardiology, neurology, and orthopedics.

Specific examples of this growth are abundant.  In Indianapolis, all four of their hospital systems built coronary surgery centers at a combined cost of $210 million.  A community hospital 15 miles north of the city opened a smaller, open-heart surgery program.  In Cincinnati, nine hospitals performed open heart surgery. Eight Boston Hospitals Have da Vinci System, which may indicate that robotic surgery may be used for marketing purposes.

However,  health reform has started to change these trends.  Medicare is instituting more bundled payment (e.g., dialysis payments)  rather than pure fee-for-service.  Further, Medicare’s Shared Savings Program (MSSP)  aims to use Accountable Care Organizations (ACOs) to coordinate patient care improve quality and reduce the rate of growth in health care spending.

How will hospitals respond to the changing market landscape?  One way hospitals can improve their margins is to only treat healthier patients to improve their performance in the case where risk adjustment methods are imprecise.  Also, provider mergers may be a trend. Access larger populations will lessen risk providers must bear under new payment models.  Larger size also means that hospitals can negotiate better rates with suppliers.  Hospitals will likely sell redundant or non-core assets.

Hospitals will also adopt new technology to better manage care. For instance, Henry Ford Health System in Detroit uses an embedded specialized software called RadPort in its electronic physician order entry system that prompts physicians to enter specific information when ordering radiology tests.  The pilot, funded with a CMS grant, will see whether these prompts will reduce utilization levels.

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Medicare reducing reimbursement for low-quality docs

January 16, 2012 in Medicare, P4P, Physician Compensation | 4 comments

In 2015, Medicare will begin implementing a value-based purchasing (VPB) program for physicians.  Initially the program will target only certain physicians and groups of physicians, but by 2017 all physicians is participate in this program.

The VBP program will evaluate physicians along two broad dimensions: quality and cost.  In the final rule:

Section 1848(p) of the Act requires the Secretary to ‘‘establish a payment modifier that provides for differential payment to a physician or a group of physicians’’ under the physician fee schedule ‘‘based upon the quality of care furnished compared to cost *** during a performance period.’’ The provision requires that ‘‘such payment modifier be separate from the geographic adjustment factors’’ established for the physician fee schedule. In addition, section 1848(p)(4)(C) of the Act requires that the value modifier be implemented in a budget-neutral manner.

 

Quality

The current quality measures to be used include:

  1. The measures in the core set of the Physician Quality Reporting System (PQRS);
  2. All measures in the Group Practice Reporting Option (GPRO) of the Physician Quality Reporting System; and
  3. the core measures, alternate core, and 38 additional measures in the Electronic Health Records (EHR) Incentive Program measures.

Cost

The current measures of cost CMS is using are total per capita cost measures and per capita cost measures for beneficiaries with four chronic conditions (COPD; heart failure; coronary artery disease; and diabetes).

By January 2012, however, CMS will choose an episode grouper which can evaluate physicians based on episodes of care. Specifically:

Section 1848(n)(9)(A) of the Act requires us to develop by January 1, 2012, an episode grouper that combines separate, but clinically related items and services into an episode of care for an
individual, as appropriate.

Other Issues

One of the main problems of the physician VBP is attribution of patients to doctors. In managed care organizations, patients are assigned a primary care doctor or gatekeeper who are responsible for the patient’s overall care. In Medicare, the patient can see any willing provider; because the primary care doctor cannot restrict the patient’s choice of care, it is more difficult to hold them responsible for the care. Specifically, Medicare beneficiaries never have to choose a primary care doctor, so identifying the doctor to be ultimately responsible for each patient’s overall care is difficult.

Physicians require additional information to understand why the received the VBP scores they did. For this purpose, CMS will create Physician Feedback Reports, confidential reports providing more detailed information of the underlying factors which produce these scores.

For the VBP modifier in 2015, CMS will use 2013 as the initial performance period 2013. This means that payment adjustments in 2015 will be on care provided 2 years ago. Although evaluating physician performance, allowing for appeals and adjusting payments takes time; two years is a long lead time.

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Medicare Physician Payment Adjustments

November 21, 2011 in Healthcare IT, Medicare, P4P, Physician Compensation, Quality | No comments

The Medicare billing system is complex.  There an alphabet soup of acronyms, (e.g., RVUs, CPT, HCPCS, GPCI) and each of these affects payments in different ways.  In addition to the standard payment terms, Medicare is also creating additional payment incentives.  These payment incentives fall into three broad categories:

  • Quality reporting
  • e-Prescribing (eRx)
  • Electronic Health Records (EHR)

CMS’s Physician Quality Reporting System (PQRS) allows physicians to report the quality of care their patients receive. Physicians can report PQRS measures through claims, registries, or EHR systems.  To incentivize physician participation in the PQRS, CMS has adopted incentive payments.  In 2012-2014, Physicians who meet the PQRS participation requirements will receive a 0.5 percent payment bonus.  In 2015 through 2017, however, who do not submit a sufficient number of PQRS measures actually will receive a payment reduction.

In addition to the PQRS incentive, beginning 2012, Medicare eligible professionals who are not successful electronic prescribers under the eRx Incentive Program to a payment adjustment. This payment adjustment applies to all of the eligible professional’s Part B-covered professional services under the Medicare Physician Fee Schedule (MPFS). From 2012 through 2014, the payment adjustment will increase with each new reporting period. Accordingly, for 2012, eligible professionals receiving a payment adjustment will be paid 1.0% less than the Medicare Physician Fee Schedule (MPFS) amount for that service. In 2013 and 2014, the payment adjustment increases to 1.5% and 2.0% respectively.

A table summarizing these incentive payments is below.

Year PQRS eRx
Incentive Payment MOC Incentive Sucessful
2011 1.0% 0.5% 1% N/A
2012 0.5% 0.5% 1% -1%
2013 0.5% 0.5% 0.5% -0.5%
2014 0.5% 0.5% N/A -2%
2015 -1.5% N/A N/A N/A
2016 -2.0% N/A N/A N/A
2017 -2.0% N/A N/A N/A

CMS also offers physicians incentive payments to adopt EHR.  Incentive payments can be as high as $18,000 per year or $44,000 over a five year period.

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Medicare’s Agenda for Hospital Accountability

November 14, 2011 in Hospitals, Medicare, P4P | 1 comment

CSC provies a nice overview of some of Medicare’s hospital quality initiatives. These initiatives include a value-based purchasing (VBP) program, reduced reimbursement for excessive hospital readmissions, and reduced reimbursement for hospital-acquired conditions (HAC).  Each of these three broad quality initiatives is described in more detail after the jump.

It is important to note that these quality initiatives are not voluntary and affect hospital payments through adjustments to the base DRG rate. Broadly, measures fall into three categories: i) claims-based, chart-abstracted, and patient satisfaction (i.e., HCAHPS).  Many of these quality measures will be part of the Inpatient Quality Reporting (IQR) program and will included in the Hospital Compare website.

Also, Medicare is implementing these three programs on top of similar programs which include:

  • Non-payment for care to treat specific HACs (see here)
  • A Medicaid program which also will not pay for care to treat HACs (see here)
  • Mandated review by QIOs of hospital readmissions within 31 days to assess standards of care and potentially recommend denial of payment (see here)

 

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Medicare to Hospitals: The Patient is Always Right

November 10, 2011 in Health Reform, Hospitals, Medicaid/Medicare, Medicare, P4P, Quality | 4 comments

Starting in fiscal year 2014, Medicare will start rewarding hospitals with high quality care and penalizing hospitals with low quality care.  The rewards and penalties will be financial in nature. High-quality hospitals will receive a bonus and low-quality hospitals will receive a financial penalty.  There is a lot of existing documentation on this hospital value-based purchasing (HVBP) program such as:

One component of the HVBP is patient satisfaction.  Some policy experts believe that patient satisfaction is of the utmost importance.  If Medicare evaluates hospitals based on patient satisfaction, then hospitals will compete to improve how well patients are satisfied. A New York Times article already mentions some of the efforts hospitals are undertaking to improve patient satisfaction.  For example,

  • Improving the quality of food
  • Renovating units
  • Creating more single units (compared to shared units)
  • Having nurses visit rooms hourly
  • Creating scripts for doctor-patient and nurse-patient interactions
  • Quicker response time ["Jefferson Regional Medical Center in Pittsburgh expects all employees, from maintenance workers to doctors, to respond to a patient’s call light or find someone to offer assistance."]
  • Building more elevators.

Elevators!?!?!  It turns out that “NYU found that long waits at its elevators drove down its scores, so now it is building a new bank of elevators.”

Hospitals complain, however, that they may only have a limited ability to influence ratings.  This is certainly true in some cases. For instance, patient expectations of the standard of care they receive may vary regionally.  For example,

“…some of the nation’s most prestigious hospitals, including Cedars-Sinai Medical Center in Los Angeles and the University of Chicago Medical Center, get lower marks from patients on most areas of patient experiences, according to the government’s Hospital Compare Web site.

So do many of New York City’s elite institutions…Some hospitals, like NYU, get bad patient reviews even as they score average or superior in measures of clinical care from the government and accreditation groups.

‘People in New York have very high expectations about what it means to be taken care of,’ said Dr. Katherine Hochman, an NYU physician. ‘When they don’t get their food on time and have to spend eight hours in the emergency department, well, that’s just not their image of what a world-class institution is.’”

Further, many providers believe that indigent patients give physicians lower quality scores even though these patients receive the same care as do richer patients.  Hospitals with more Medicaid-eligible patients could receive lower patient satisfaction scores due to case mix alone rather than due to actual quality.

To account for these confounding factors, Medicare can institute a risk adjustment mechanism.  By including patient income (or Medicaid) status in their model, however, Medicare would implicitly be allowing hospitals to provide a lower standard of care to the poor. Alternatively, if the poor do in fact give lower satisfaction scores, than hospitals may have an incentive to avoid these patients.

Similarly, including regional indicators in the risk adjustment model can also be problematic.  If New Yorkers have higher standards than individuals from Iowa, then one may want to normalize performance regional.  If CMS adopts this specifications, hospitals in essence would only be compared against their local peers.  Areas which have consistently below average care–in terms of patient satisfaction–may not be punished if they are the ‘best of the worst’ in their area.

Although patient satisfaction is not always correlated with high quality medical care, paying hospitals more for care that meets their patients’ needs does seem to be a sensible solution.

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MassHealth P4P: Did it work?

August 2, 2011 in Hospitals, Medicaid, P4P, Quality | 1 comment

Massachusetts’ Medicaid program instituted a pay-for-performance program in 2008.  Did it work?  According to this paper, the answer is no.

MassHealth P4P Background

The MassHealth pay-for-perfrmance P4P program was implemented in 2008.  At first the program was implmented using a P4P structure for pneumonia and pay-for-reporting for surgical infection prevention (SIP) and transitioning to P4P for both conditions in 2009. The program measures and incentivizes hospital quality for a subset of MassHealth [Massachusetts Medicaid program] patients who are enrolled in plans that directly bill MassHealth.

The Measures

For pneumonia:

  • oxygenation assessment,
  • blood culture performed in emergency department before first antibiotic received in hospital,
  • adult smoking cessation advice and counseling, initial antibiotic received within 6 hours of arrival, and
  • appropriate antibiotic selection in immunocompetent patients.

For Surgical Infection Prevention (SIP):

  • prophylactic antibiotic within 1 hour of surgical incision,
  • appropriate antibioticselection for surgical prophylaxis, and
  • prophylactic antibiotic discontinuedwithin 24 hours after surgery end time.

Evaluating Hospital Performance

The MassHealth P4P followed the Hospital VBP Report to Congress. Hospital performance on individual measures is aggregated to create a composite score; this composite score then is used to indicate the share of the bonus paymen that each hospital receives. More information on the Hospital VBP Report to Congress can be found here.

Identification Strategy

“We do not observe the quality of care provided to Medicaid patients in Massachusetts and other states, and instead we observe the quality provided to patients from all payers. Our identification strategy assumes that the financial incentives of the MassHealth program, which are based on quality performance
for only a subset of MassHealth patients, are reflected in the quality of care received by all patients.”

The authors control for:

  • Observed and unobserved hospital characteristics which remain fixed over time (i.e., fixed effects)
  • A secular trend in quality for each hospital (i.e., using a hospital-specific time trend)
  • Hospital case mix measured by a “difficulty index” to identify cases where hospitals choose patients selectively after P4P was implemented
  • In one sensitivity analysis, the authors use propensity scoring, nearest neighbor, one-to-one matching without replacement to create a sample of non-Massachusetts hospitals similar to those in Massachusetts. Hospitals were matched based on ownership, nuber of beds, urban/rural status, share of Medicare patients, and share of Medicaid patients.
  • The authors also test if hospitals with more Medicaid patients are more likely to have a larger increase in quality.

Evaluating Hospital Performance

The authors find that the MassHealth P4P has little effect on quality. “Estimates from our preferred specification, including hospital fixed effects, trends, and the control for measure completeness, indicate small and nonsignificant program effects for pneumonia (−0.67 percentage points, p>.10) and SIP (−0.12 percentage points, p>.10). ” The result could be due to the fact that P4P has, in actuality, no effect on quality. On the other hand, by using hospital-specific time trends, there may be little variation in quality over time to capture quality improvements after the P4P implementation.

Source

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Risk Scores and provider size

June 16, 2011 in P4P | 1 comment

At a recent AcademyHealth presentation, Cheryl Damberg discussed her research to design a P4P program for implementation for Integrated Healthcare Association (IHA).  One thing I noticed about the presentation was that smaller provider groups had patients with lower risk scores (i.e., healthier patients).  Is it really the case that small providers treat much healthier patients?

My guess is the answer is not.  An alternative explanation would be that small providers do not have as much time or administrative staff to help them code the patient’s comorbidities in their claims (or even EMR).  If this is the case, it would make it appear that small provider’s patients are healthier when in fact the true differences may be due to differences in the quality of the data the providers report.

Any VBP system would need to take into account these differences when evaluating providers.  Setting a lower standard for small providers, however, would provide a disincentive for small providers to expand into the large provider category, even if this expansion could (potentially) create economies of scale and improve patient care.

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Alternative Quality Contract

March 14, 2011 in P4P, Physician Compensation, Supply of Medical Services | No comments

“In January 2009 Blue Cross Blue Shield of Massachusetts launched a new provider payment system called the Alternative Quality Contract that exemplifies the type of experimentation with novel payment models that the Affordable Care Act encourages. The Alternative Quality Contract is a modified global payment model in which annual payments to medical groups are linked to a per member per month budget.”

Today I will review a paper by Chernew et al. (2011) describing BCBS’s Massachusetts initiative.
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Medicaid P4P

March 7, 2011 in Medicaid, P4P | 1 comment

As part of health reform, Medicare is looking to institute value-based purchasing or pay-for-performance programs in a number of settings.   In fact, in my work for Acumen, I have worked on a number of these initiatives (e.g., P4P for physician efficiency profiling, implementing a VBP system in home health).  Medicare, however, isn’t the only public insurance program to implement P4P.  Today, I provide an overview of State Medicaid P4P programs.  Here are some highlights from a report by Kuhmerker and Hartmann (2007).

  • As of July 1, 2006, more than half of all state Medicaid programs were operating one or more pay-for-performance programs. Within the next five years, if all current plans to start new programs are realized, nearly 85 percent of states will be operating Medicaid pay-for-performance programs.
  • Medicaid is not a new entrant to the field of pay-for-performance: almost half of all existing programs are more than five years old. A similar percentage of programs began operations within the past two years. More than 70 percent of planned new programs are expected to start within the next two years.
  • Seventy percent of existing Medicaid pay-for-performance programs operate in managed care or primary care case management (PCCM) environments, focusing on health care for children, adolescents, and women. While planned programs are still focused on managed care and PCCM providers, they appear to be shifting their emphasis to environments in which quality and cost issues related to chronic disease management can be better targeted. Rewarding the provision of primary care continues to be a component in the vast majority of Medicaid pay-for performance programs.
  • Nine Medicaid programs are joining with other payers, employers, consumers, and providers in statewide and regional pay-for-performance and quality improvement efforts.
  • Health information technology (HIT) is a focus of numerous Medicaid pay-for-performance programs. Several Medicaid programs are “paying for participation,” rather than “performance,” in an effort to encourage providers to adopt electronic health records, electronic prescribing, and other technologies.
  • The vast majority of Medicaid directors reported that their priority in operating pay-for-performance programs is to improve quality of care rather than reduce costs.
  • HEDIS and HEDIS-like measures are most popular in Medicaid P4P.
  • In 2000, 55.8 percent of all Medicaid beneficiaries were enrolled in managed care; by December, 2004, this percentage had increased to 61.3 percent. Managed care is the primary P4P setting for Medicaid. Primary care case management (PCCM) is the second most prevalent provider type included in P4P programs.
  • Almost all states use attainment or attainment and improvement scores to assess provider performance.

Of particular interest to an economist, P4P bonus payments are paid through a variety of different mechanisms. Examples include:

  • a maximum pool is established. If the provider performance payments would result in bonuses greater than that amount, the bonuses are prorated. If provider
    performance payments would not use the complete pool, only the amount calculated is distributed;
  • a pool is established and all providers meeting the necessary standard receive a proportional share based on their relative performance. The entire pool is distributed;
  • a bonus amount is established per occurrence. Bonuses are paid out based on the number of occurrences and the dollar amount per occurrence;
  • a bonus equal to a specific percentage of a reimbursement rate is paid when a standard is met;
  • the bonus is an established share of a calculated amount saved as a result of the P4P program (for example, in shared savings situations). The share is usually included in a contract between the state and the provider or vendor;
  • a bonus is calculated, but can only be used to offset any penalties; and
  • in recognition of CMS guidelines in this area, states often include provisions that ensure that no plan can receive more than 105 percent of their capitation rate as a result of any redistribution of, or increase in, funds.

Other incentive schemes include penalties, differential reimbursement rates based on past performance levels, increased probability of receiving an auto-assigned Medicaid beneficiary for good performers, withholds, and grants.  These payments are most frequently made in six-month or three-month intervals. To accommodate billing lags, validation activities, and other calculation-related processes, the time period between the conclusion of the measurement interval and when the incentive is actually received ranges from one quarter to one year. Non-financial incentives include tools, initial bid ranking, and public recognition.

To implement the P4P program, 90% of programs rely on information from providers.  In some states, programs contract with vendors to collect data additional data.  Fifty percent of state Medicaid directors reported that internal Medicaid staff conduct validation of program-related information themselves by sampling the data.  Thirty percent of respondents said that their state hires consultants specifically for data validation purposes.

Does Medicaid P4P work? Most State Medicaid Directors don’t know. Fifty five percent have not conducted formal, either because the P4P program was new or due to limited financial resources.

Source:

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Health Reform’s Value-Based Purchasing Provisions

February 28, 2011 in Health Reform, P4P, Quality | No comments

The Affordable Care Act of 2010 includes a number of provisions to study and/or implement value-based purchasing (VBP) programs in the United States’ health care system.  These provisions target Medicare payment policies in particular.  Today I review a Robert Wood Johnson (RWJ) article which provides an overview of the ACA provisions related to VBP.

There are four Sections of the ACA which I will focus on: Section 3022, 3007, 3013, and 3021.  Let’s get to it.

  • Section 3022 calls for a Medicare Shared Savings Program, which would provide payments specifically for new accountable care organizations. The legislation specifically requires measurement and assessment of quality as reflected in clinical processes and outcomes, patient and caregiver experience with care, and utilization reflecting efficiency and effectiveness of care, such as hospital admissions for ambulatory care sensitive conditions.

The House also asked the Institute of Medicine (IOM) to study the value issue in two ways. First, the IOM would conduct a study that would explore whether Medicare‘s current geographic payment adjustments for the prices paid to physicians and hospitals, which are designed to reflect differences in input prices, are accurate and to propose specific improvements, if any.  At Acumen, I am currently working on designing an alternative approach to calculating geographic payment adjustments for hospitals.   Second, and broader in scope, the IOM would conduct a companion study on geographic variations in the volume and intensity of services and recommend how to incorporate “quality and value” metrics into Medicare payment systems.

Because much of the House health reform bill‘s language was lost when Congress decided to use the Senate bill as the basis for final legislation, permitting only a few House amendments to be brought as part of reconciliation bill amendments, the House compromise was not included in the Affordable Care Act. Subsequently, the secretary of the Department of Health and Human Services (HHS), Kathleen Sebelius, committed in writing to congressional members of the Quality Care Coalition (members representing lower-spending districts) that she would commission the IOM study as called for by the House. Recently, the IOM announced formation of the study panel, which has already begun  meeting.

The Affordable Care Act includes a Senate provision that would pay for individual physician services based on a “value index” assigned to physicians according to their quality and costs:

  • Section 3007 creates a new “value-based payment modifier,” which, starting in 2015, will be used to provide differential payments based on quality and cost of care. Since the payment adjustments are to be budget neutral, some physicians would receive bonuses and others penalties under this provision. Presumably, the IOM‘s study will be influential in determining how CMS might apply a value-based payment modifier.

I am also is also working on this project, evaluating whether episode grouping software can be used to evaluate physician cost efficiency levels.  Previous reports I have worked on are available here.  Further, the Act continues to advance the notion of bringing value into payments made to physicians, hospitals, and other providers through established payment mechanisms:

  • Section 3013 provides for the identification of gaps in quality measures and authorizes (but does not appropriate) funding intended to fill those gaps, relying on collaboration between CMS, the Agency for Healthcare Research and Quality (AHRQ) and the National Quality Forum, which will be primarily responsible for identifying the measure gaps. Priorities are to be given to the following areas: i)  health outcomes; ii)  functional status; iii) coordination of care; iv) meaningful use of health IT; v) safety; vi) patient experience; vii) efficiency; and viii) disparities.

The RWJ article continues, “While this work proceeds, the current pay-for-reporting and pay-forperformance programs—labeled as value-based purchasing—for physicians and hospitals will be extended and expanded. The most advanced is the program for hospitals; FY 2013 measures will include measures for five conditions and patient experience as measured by the Hospital Consumer Assessment of Healthcare Providers and Systems Survey (HCAHPS). FY 2014 will include measures of efficiency.”

  • Section 3021 creates a Center for Medicare and Medicaid Innovation within the Centers for Medicare and Medicaid Services to test payment and service delivery models that reduce costs while preserving or enhancing the quality of care provided under Medicare, Medicaid, and CHIP, and funds it at $10 billion every 10 years. The legislation specifically suggests pursuing models that transition providers away from fee-for-service and toward comprehensive pay

Source:

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