The Kaiser Health News article notes that:

“Patients treated at most or all hospitals in Las Vegas, Fort Lauderdale, Newark, Miami, Los Angeles and Orange County, Calif., tended to cost more than the national median, which is $17,988. Patients treated at most or all hospitals in Anchorage, Des Moines, Honolulu, Minneapolis and Portland, Ore., tended to cost Medicare less.”

The article also recaps the opinions of a number of industry and policy thought leaders.

Jennifer Faerberg, director of health care affairs at the Association of American Medical Colleges stated that differences in the MSPB measure across hospitals is primary due to how well hospitals  can control post-acute costs.  This is generally true. The MSPB measure controls for the type of admission (i.e., MS-DRG) of the index admission.  Thus, differences in the MSPB measure are due principally to differences in post-acute spending and the frequency with which the patient is readmitted to the hospital within the 30 days after the initial hospitalization.

Some policy experts were critical of the MSPB measure:

Nancy Foster, a vice president at the American Hospital Association, said the data do not answer key questions: Did the patients that got more services fare better than others? Could the patients that cost Medicare less actually have benefitted from more care? ”What we don’t know is if those additional investments yield differences in outcomes,” Foster said.

Foster makes a good point; the MSPB measure should not be analyzed in isolation.  CMS does not only measures hospital efficiency, but also includes a number of hospital quality measures.

Elliott Fisher, one of the main researchers from the Dartmouth Atlas, questioned the practical usefulness of the new information.  “As a hospital administrator I would go, how does this help me?” he said. “We just don’t know whether a lot of specialists are running through the hospital doing everything they can to every patient who is horizontal, or whether they’re discharging every patient to a rehab facility. Those are two very different causes of high costs.”

However, CMS did distribute a “hospital specific report” that detailed where the average spending went (e.g., inpatient, skilled nursing facility, home health physician) in the periods before, during and after the index hospital admission.  Each of these quantities is compared to the state and national average spending levels for each type of service.

Disclaimer: The Healthcare Economist worked with CMS and a team at Acumen to develop the MSPB measure.

“The Spending per Hospital Patient with Medicare measure shows whether Medicare spends more, less, or about the same per Medicare patient treated in a specific hospital, compared to how much Medicare spends per patient nationally. This measure includes any Medicare Part A and Part B payments made for services provided to a patient during the 3 days prior to the hospital stay, during the stay, and during the 30 days after discharge from the hospital.

This result is a ratio calculated by dividing the amount Medicare spends per patient for an episode of care initiated at this hospital by the median (or middle) amount Medicare spent per patient nationally.

A result of 1 means that Medicare spends ABOUT THE SAME amount per patient for an episode of care initiated at this hospital as it does per hospital patient nationally.

A result that is more than 1 means that Medicare spends MORE per patient for an episode of care initiated at this hospital than it does per hospital patient nationally.

A result that is less than 1 means that Medicare spends LESS per patient for an episode of care initiated at this hospital than it does per hospital patient nationally.

Lower numbers are better.“

This is the finding of a recent JAMA paper. After controlling for patient case mix, the authors examine variation in hospital spending in the last year of a patient’s life. The authors note that “Higher-spending hospitals differed in many ways, such as greater use of evidence-based care, skilled nursing and critical care staff, more intensive inpatient specialist services, and high technology, all of which are more expensive.” Higher spending hospitals (on a per patient basis) tend to be hospitals with a larger volume of patients. They are also more likely to “be located in urban areas; be associated with regional cancer centers; have on-site computed tomography and magnetic resonance imaging scanners, cardiac catheterization laboratories, and cardiac surgery capability; and be early adopters of critical care response teams.”

Higher spending hospitals had overall reduced mortality rates for four disease considered. “In the highest- vs lowest-spending hospitals, respectively, the age- and sex-adjusted 30-day mortality rate was 12.7% vs 12.8% for AMI, 10.2% vs 12.4% for CHF, 7.7% vs 9.7% for hip fracture, and 3.3% vs 3.9% for colon cancer.”

One reason for these differences could be that high-spending areas could be located in richer areas where mortality rates are lower for a variety of reasons. Although unobserved heterogeneity in patient case mix is a problem with any study, the authors do stratify their results based on neighborhood income and find similar results.

The relevance of this study to the United States, however, is hard to determine. Although high spending hospitals decrease mortality in Canada, almost all hospitals in the U.S. would be considered high spending by Canadian standards. Thus, it is unclear that marginal returns to additional spending in the U.S. would be similar to what was observed in this study. In fact, studies in the United States by Barnato et al. and Goodman et al. show “…a positive association between spending and outcomes among low-intensity hospitals or regions but no association at average or higher intensity levels.”

Sources:

• Stukel T, et al “Association of hospital spending intensity with mortality and readmission rates in Ontario hospitals“JAMA 2012; 307: 1037-1045.
• Barnato AE, Chang CC, Farrell MH, Lave JR, Roberts MS, Angus DC. Is survival better at hospitals with higher “end-of-life” treatment intensity? Med Care. 2010;48(2):125–132.
• Goodman DC, Fisher ES, Little GA, Stukel TA, Chang CH, Schoendorf KS. The relation between the availability of neonatal intensive care and neonatal mortality. N Engl J Med. 2002;346(20):1538–1544.

Based on data from Virginia looking at surgery wait times and rates of breast re-construction surgery, the answer appears to be ‘no.’  A 2012 study by Bradley and co-authors finds the following:

“There is little evidence to suggest that safety net hospitals attenuate treatment differences between insurance and racial groups. The time between diagnosis and surgery was longer in safety net hospitals for all patients, regardless of insurance source or race. Perhaps safety net hospitals are operating at capacity and are unable to schedule surgeries in a timely manner. If this is the case, their resources may be further stretched following the passage of the PPACA. Alternatively, as these hospitals are teaching hospitals, they may perform additional diagnostic tests prior to scheduling surgery or physicians who treat low-income patients may have a slower referral process.”

Source:

• Bradley, C. J., Dahman, B., Shickle, L. M. and Lee, W. (2012), Surgery Wait Times and Specialty Services for Insured and Uninsured Breast Cancer Patients: Does Hospital Safety Net Status Matter?. Health Services Research, 47: 677–697. doi: 10.1111/j.1475-6773.2011.01328.x

• Performance Value-Based Purchasing (VBP) — Offers increased update to diagnosis-related group (DRG) payment rates to hospitals according to demonstration of performance or improvement in designated performance areas relative to performance standards and benchmarks.
• Shared Savings Program — For groups of providers who form an Accountable Care Organization (ACO), potentially shares a portion of financial savings in caring for Medicare patients if performance standards are met, according to performance rated on a sliding scale against benchmarks.
• Readmission Reduction Program (RRP) — Decreases annual adjustments to DRG payment rates for hospitals that are in the lowest performance quartile for excess readmissions of Medicare patients with selected discharge diagnoses.
• HAC Payment Limitation — Decreases annual adjustments to DRG payment rates for hospitals that are in the lowest performance quartile for a designated set of Hospital-Acquired Conditions (HACs).
• Bundled Payments for Care Improvement Initiative — One of several initiatives of the CMS Innovation Center to give doctors and hospitals new incentives to coordinate care, improve the quality of care and save money for Medicare. Bundle care for a package of services patients receive to treat a specific medical condition during a single hospital stay and/or recovery from that stay. Applicants pick conditions to target and one of four ways to define the extent of pre- and post-hospital care included in the bundled payment.

Whereas most Medicare pays most hospitals through the inpatient prospective payment system (IPPS), it pays certain rural hospitals based on their reported costs.  Medicare pays Critical Access Hospitals (CAH), for instance, 101 percent of its report cost for inpatient, outpatient, laboratory, and therapy services.  It also pays this providers 101 percent of their cost for post-acute care for CAH beds are “swing beds” (which are beds that can be used for either acute or post-acute care).

However, how should Medicare define ‘critical’? The simplest definition is just whether a hospital is in a rural (i.e., non-metropolitan) area. However, there are various gradations of ‘rural’. A rural hospital on the outskirts of a big city would be far less ‘critical’ then one very far from distant areas. One could define ‘critical’ based on facility volume. If the low volume is due to poor quality, however, defining these hospitals as critical could just reward poor hospitals. Third, could define a hospital as isolated based on its distance from other facilities who could provide comparable care. Alternatively, one could identify critical hospitals based on demographic factors such as population density in the surrounding areas.

Below, I provide more information on other types of types of rural hospital designations in Medicare.

Not all rural hospitals are CAH’s however.  CAHs are limited to 25 beds and primarily operate in rural areas. Medicare also can designate a hospital as a sole community hospital (SCH) or a Medicare-dependent hospitals (MDHs). According to MedPAC, “SCHs receive the higher of either (a) standard inpatient prospective payment rates or (b) payments based on the hospital’s costs in a base year updated to the current year and adjusted for changes in their case mix. MDHs are similar to SCHs, but they
are eligible for a prospective payment rate based on a blend of current PPS rates (25 percent) and their historical costs (75 percent).”

Below is a breakdown by the number of rural hospitals.

Some provisions in health reform which affect rural hospitals include:

• A low-volume adjustment for hospitals with under 1,600 discharges
• A wage index floor of 1.0 for certain frontier states
• $400 in funding for hospitals in low-spending urban and rural areas

Source: MedPAC Payment Basics, Critical Access Hospitals.

• 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.

• Source: Avalere Health Webinar, “Increasing Capital Productivity in a Value-Based World“, October 26, 2011.

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)

Value-Based Purchasing (VBP) Program

Beginning in October 2012 (FY 2013 rates), Medicare will begin reducing base operating DRG payments to all subsection (d) hospitals in annual increments. The first year (FY 2012) the rate will fall by 1 percent, decreasing further each year until FY 2017, when the total reduction will be 2 percent. Hospitals may be able to recoup some of the lost revenue by qualifying for incentive payments under the VBP Program. Under the program, hospitals will qualify for value-based incentive payments based either on performance on certain quality measures (if performance meets thresholds) or improvement during established baseline and performance periods. Because the formulae for scoring and calculating adjustments incorporate a sliding scale based on relative performance, many hospitals will end up with negligible adjustments for VBP (an overall net loss in DRG payment rates). CMS calculates the range in performance-based adjustments between the lowest and highest performing hospitals to be 0.0236-1.817 percent. Net adjustments in Year 1 are expected to be no greater than ±1 percent.

Excessive Hospital Readmissions Penalty

During the same year that VBP is launched, the hospital readmission reduction program will take effect. Beginning in October 2012 (FY 2013 rates), CMS will reduce reimbursement for hospitals with excess readmission rates by 1 percent. Hospitals will initially be evaluated based on the percentage of discharged Medicare patients with pneumonia, heart failure and acute myocardial infarction who are readmitted to a hospital for any cause within 30 days of discharge. Hospitals with an excess readmission ratio relative to that of other hospitals stand to lose 1 percent of base DRG payments, an adjustment amount that will increase further each year until it reaches 3 percent in 2014 (FY 2015 rates). Additional conditions are set to be added to the program in 2014 (FY 2015), including chronic obstructive pulmonary disease, coronary artery bypass graft, percutaneous transluminal coronary angioplasty and “other vascular conditions” as required by the ACA.

Hospital Acquired Condition Payment Limitation

Beginning in October 2014 (FY 2015 rates), CMS will penalize hospitals in the highest quartile of national, risk-adjusted Hospital Acquired Condition (HAC) rates (i.e., those with the worst performance). Hospitals face a 1 percent reduction in payment that would otherwise apply. This penalty comes on top of the existing policy of case-by-case non-payment for the treatment of HACs or conditions that were not present on admission. CMS currently recognizes 10 HACs for non-payment. (Fewer specifics have been released concerning this program, including the formulae to be used for calculating performance and adjustments. A proposed rule is expected shortly to provide more information.)

Source

Jane Metzger, Caitlin Lorincz and Marta Arthur “The Hospital Agenda for Accountability” CSC.

• HVBP Open Door Forum Presentation.
• Healthcare.gov information.
• HHS News Release.

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.

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

• Ryan, A. M. and Blustein, J. (2011), The Effect of the MassHealth Hospital Pay-for-Performance Program on Quality. Health Services Research, 46: 712–728. doi: 10.1111/j.1475-6773.2010.01224.