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Hospital VBP gains the attention of the New York Times

May 31, 2011 in Current Events, Hospitals, Medicare, Value-Based Purchasing | No comments

The Healthcare Economist has already commented on the impending Medicare implementation of a hospital value-based purchased (VBP) system.  Now, Medicare’s hospital VBP program has garnered the attention of the popular press.  According to the New York Times:

“The administration plans to establish ‘Medicare spending per beneficiary’ as a new measure of hospital performance…Hospitals could be held accountable not only for the cost of the care they provide, but also for the cost of services performed by doctors and other health care providers in the 90 days after a Medicare patient leaves the hospital…

In calculating Medicare spending per beneficiary, the administration said, it wants to count costs generated during a hospital stay, the three days before it and the 90 days afterward. This, it said, will encourage hospitals to coordinate care “in an efficient manner over an extended time period…

Medicare will begin computing performance scores in July, for monetary rewards and penalties that start in October 2012.“

Do hospitals like the plan? Some do, but many do not.

This plan has drawn fire from hospitals, which say they have little control over services provided after a patient’s discharge — and, in many cases, do not even know about them…Without opposing the change, lawmakers from higher-cost states like Massachusetts and New York say the payment formula needs more work…Kenneth E. Raske, president of the Greater New York Hospital Association, said the formula ‘tends to discriminate against inner-city hospitals with large numbers of immigrant, poor and uninsured patients.’

By contrast, J. Kirk Norris, president of the Iowa Hospital Association, welcomed the new plan. ‘Medicare ought to pay for value,’ he said.

Will Medicare adequately risk adjust provider payments? Can hospitals coordinate post-acute care once their patients leave the hospital? Will additional coordination lead to increased industry consolidation and–in the long-run–increased health care cost? Will hospitals be able to game the system? How will Medicare monitor quality?

I have discussed these issues in series of previous posts on value-based purchasing. Hopefully, Medicare will get it right this time and improve quality while reducing cost. At this point, however, with Medicare Trust Fund set to be exhausted in 2024, reducing cost may be the priority which trumps all others.

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Does WellPoint care about quality…or reducing cost?

May 19, 2011 in Health Insurance, Hospitals, Value-Based Purchasing | 2 comments

One large insurer is planning to begin paying hospitals based on quality.

“WellPoint is replacing the system it uses to help offset rising medical and other costs at hospitals in 14 states that serve its Blue Cross Blue Shield plans, which cover 34 million people. In recent years, it has raised its payments to those hospitals by an average 8% a year.

Under the new system, the company will pay increases only to hospitals that score high enough on a test based on 51 indicators of treatment quality. The indicators include whether the facility tries to prevent patients from relapsing after they leave the hospital, whether it follows a safety checklist and how satisfied the hospital’s patients say they are with their treatment.”

Does Well Point really care about quality?  The answer is maybe.

Improving quality of care could improve WellPoint’s bottom line.  If patients demand improved quality of care, implementing a hospital VBP system could attract more members. Further, WellPoint could just be altruistic and this may be an attempt to improve the health of its members (the Healthcare Economist is skeptical of this point).

It could also be the case the WellPoint does not care at all about quality.  High-quality hospitals will get the same annual increase they did before; low-quality hospitals will get less.  The chairman of the Federation of American Hospitals (FHA) accurately notes that hospital quality measures are far from perfect and are less-than comprehensive.  Nevertheless, even if the selected metrics measured quality inaccurately, certain hospitals would still receive lower payments and WellPoint would benefit either through increased profits or increased market share (by lowering premiums).

Rather than responding to pressure to increase qualityof care, WellPoint’s VBP efforts may in fact be a response to employer and beneficiary pressure to reduce premiums.

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Price Competition for UK Hospitals?

January 13, 2011 in Hospitals, International Health Care Systems, Regulation, Supply of Medical Services | 6 comments

Is health reform coming to the UK?  Since the middle of the decade, the NHS has used a tariff system which pays a fixed price per procedure. Now, however, the Financial Times, reports that the UK plans for “public and private hospitals to compete on price for the treatment of NHS patients.”  The reform calls for quality monitoring to ensure that quality does not slip.

What do British health economists think of the reforms?

  • Zack Cooper, a health economist at the London School of Economics, said introducing price competition “would be a hugely retro­grade step”. In ordinary markets, he said, people can see the trade-off between price and quality. “But in healthcare, it is difficult to measure quality, partly because the process is complex and partly because it may take days, weeks or even years for the outcome of treatment to become evident.” [In the U.S.], the use of fixed prices in the federally funded Medicare programme for the elderly has helped raise quality. “I’m very pro-competition in healthcare,” he said. “But price competition is not the right way to do it.”
  • Anita Charlesworth, chief economist at the Nuffield Trust health think-tank, said the evidence from the 1990s, when family doctors could negotiate on price, was that a huge amount of time and money went in to pricing rather than the appropriateness or quality of care
  • Nick Bosanquet, professor of health economics at Imperial College, London, argues in favour of price competition. “If you want a more flexible system it is illogical to have fixed prices, and after years of fixed prices in the NHS there is still a big variation in the quality of care.”

In my opinion, the value of price competition depends on your perception of how well patients and government can judge quality.  In a world without asymmetric information, it is clear that price competition is optimal.  The government could buy medical services by optimizing along a continuum of quality and price.  Even in the presence of asymmetric information, price competition can be a good thing especially if there are some observable–although imperfect–signals of quality.

If quality is completely unobservable, then providers would have an incentive to minimize quality and drive down price.   Unless of course, patients take price as a signal for quality.  In this case, higher priced providers could gain market share because of a false perception of quality.

In the case where the consumer would pay for medical services, one justification for fixed pricing would occur if the government is better able to measure quality than individuals.  For instance, individuals may be better at judging quality in terms of office amenities and the physician’s bedside manner, but policymakers can better judge whether providers follow best practices and have superior outcomes on average.  If society can agree that outcomes matter more than office amenities, than the government could regulate quality and counteract provider’s incentivize to drive down their costs to maximize profits.

It is not a foregone conclusion that the experts inside or outside the government can measure quality better than can patients. For instance, in the same FT article, Ms. Charlesworth, states that it “was  ’particularly worrying’ that GPs will set local prices for mental health services where quality is even harder to measure than in acute care.”  If quality is so difficult to measure, how can policymakers measure that quality has decreased after the implementation of price competition?

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Medicare Hospital Value-Based Purchasing

December 7, 2010 in Hospitals, P4P, Quality | 4 comments

The Health Reform (ACA) legislation mandated Medicare establish a hospital value-based purchasing (VBP) program by 2012.  In fact, the Deficit Reduction Act of 2005 already authorized Medicare to develop a plan to implement VBP for 2009.   How will they do this?  A CMS report from 2007 sheds some light on the topic.

Since 2005, Medicare began the Reporting Hospital Quality Data for Annual Payment Update (with the incredibly unintelligible acronym of RHQDAPU).  RHQDAPU at first just required hospitals to report quality measures.  The Health Reform VBP initiatives, however, will begin to pay hospitals based on their performance on these metrics.  The 2007 CMS report claims that any VBP plan should contain the following 7 components.

  1. A Performance Assessment Model that is used to score a hospital’s performance on a specified set of measures, generating a Total Performance Score for each hospital.
  2. Translation of the VBP Total Performance Score into an incentive payment.
  3. A measure development process, including selection criteria for choosing performance measures for the financial incentive, and candidate measures for VBP Program start.
  4. A phased approach to transition from RHQDAPU to VBP.
  5. Redesigned data submission and validation infrastructure to support the VBP Program requirements.
  6. Enhancements to the Hospital Compare website to support expanded public reporting of performance results.
  7. An approach to monitoring VBP impacts, including potential impacts on health disparities.

Below I discuss aspects of hospital VBP in more detail.

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Defining a Hospital Catchment Area

November 23, 2010 in Hospitals, Labor Economics | No comments

From what areas does a hospital draw on to fill its beds?  There have been many attempts to define a hospital’s catchment area.  The Dartmouth Atlas Group uses hospital referral regions (HRRs) and hospital service areas (HSAs). One method is to determine a minimum admission rate for a given geographic unit (e.g., county, census tract, zip code).  For instance, a given zip code would be placed in a hospital’s catchment area if that zip code made up at least 0.5% of hospital admissions.  Conversely, one could include all areas where at least a certain percent of resident admissions were to the hospital in question.

A paper by Gilmour (2010) examines how to create a hospital catchment area using K-means clustering.  The goal of this process is to assign local authority districts to hospitals based on the how likely the individuals are to visit a certain hospital.  K-means clustering is used to partition n observations into k clusters in which each observation belongs to the cluster with the nearest mean. The author applies the standard K-means clustering algorithm as follows:

  1. Two cluster centers are chosen arbitrarily,
  2. Each observation is assigned into the cluster whose center it lies closest to,
  3. The center of the cluster formed by this assignment is recalculated, and
  4. The process is repeated until the cluster assignments cease to change.

Gilmour uses a multivariate approach to estimate “closeness.”  He uses principal components analysis to incorporate additional information such as the size and distribution of the hospital’s activity.

Although the K-means clustering captures a larger share of the hospital’s admissions, the catchment areas are generally much larger than is the case using the marginal methods.

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Incentives for Long-term Care Facilities to Hospitalize Patients

October 27, 2010 in Hospitals, Medicare, Nursing Homes | 2 comments

Why are hospitalization rates so high for Medicare beneficiaries living in long-term care facilities (i.e., skilled nursing facilities, nursing facilities, and assisted living facilities)?  The first reason is obvious: they are sick.  If they weren’t, they wouldn’t need to be living in these facilities in the first place.  Hospitalizing sick patients is often necessary.  Unnecessary hospitalizations, however, can have adverse affects on patient outcomes.  For instance, unnecessary hospitalizations:

  • Can be physically and emotionally hard on frail patients (e.g., disorientation),
  • Hospital treatment records are rarely passed on to the LTC after patient discharge, and
  • Hospital physicians often prescribe patients new medications without consulting the LTC facility staff.

So why do LTC facilities send so many patients to hospitals unnecessarily? The reason is basically that they have lots of incentives to do so and none not to.  According to this series of interview conducted by the Kaiser Family Foundation, here a breakdown of LTC facility incentives to hospitalize.

Incentives

  • Limited on-site capabilities to deal with serious medical issues,
  • Reduces liability concerns (i.e., defensive medicine)
  • Allows for more timely diagnostic work,
  • Is more convenient for physicians (especially during weekend and nighttime hours),
  • Preference to send residents to hospital to die to avoid disrupting facility staff and other residents,
  • Is financially beneficial for the physician and facility.

Disincentives

  • None

As an economist, I of course focus in on the financial incentives.  Some quotations from the report:

  • “In the hospital, I am billing every day that [my patient] is there.”
  • “While in the hospital, I would be able to do procedures [on the long‐term care facility resident], which is billable, which is what puts the cost all the way up there.”
  • “As long as [the doctor] is treating them [in the hospital], they’re making money.”

Facilities can also earn money since when the residents return to the facility, they are eligible for skilled nursing care (SNF) which is reimbursed by the more generous Medicare.  Standard residential nursing facilities are paid for by Medicaid which is less generous. In addition, facilities can earn money through bed holds.

  • “The [facility] is getting a bed‐hold on a lot of them. The patient is not in the building, they are not caring for them, and they get money [for the patient] every day.”

Solutions

In summary, physicians and facilities have lots of incentives to send patients to inpatient care facilities, and very few not to.  How do we change this?  The KFF report offers some suggestions:

  • More training and reduced staff turnover will improve the ability of facility staff to handle a variety of medical situations without hospitalizations.  More training, however, increases the cost of SNF care.  Medicare may need to increase reimbursement rates to encourage LTC facilities to incur this extra expense.  It may be worth the cost to do this, however, if hospitalizations decrease significantly.  If facilities pocket the extra cash, but do not change behavior, then the money will have been wasted.
  • Despite physician aversion, more medical support to back up facility staff during late night and weekend shifts would provide the manpower to reduce hospitalizations. Physicians are expensive, however, so the increased cost from physician or nurse practitioner hours must be less than the expected cost decrease from reduced hospitalizations.
  • Review financial incentives of physicians and facilities.  And the economist always comes back to financial incentives.

Source:

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Are All Readmissions Bad Readmissions?

September 1, 2010 in Hospitals | 2 comments

Currently, Medicare and private insurers are attempting to put in place incentives to reduce the number of readmissions. Visits to the hospital are costly and reducing the frequency of hospital visits is the best means to reduce medical costs. In particular, if readmissions are the fault of the care the patients receive during the initial admissions, hospitals should be liable for subsequent care.

On the other hand, a recent letter to the New England Journal of Medicine, argues that high readmission rates may in fact indicate high quality care.

“A higher occurrence of readmissions after index admissions for heart failure was associated with lower risk-adjusted 30-day mortality. Our findings suggest that readmissions could be ‘adversely’ affected by a competing risk of death — a patient who dies during the index episode of care can never be readmitted. Hence, if a hospital has a lower mortality rate, then a greater proportion of its discharged patients are eligible for readmission. As such, to some extent, a higher readmission rate may be a consequence of successful care.”

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Wage Index Reclassifications

August 16, 2010 in Hospitals, Medicare | No comments

Should Medicare pay hospitals located in New York City more for the same care as hospitals in Montana?  Prima facie, one might believe that New York hospitals should receive higher wages since the costs of operating a hospital are much higher in New York.  Labor (i.e., nurses, doctors, etc.) may prefer to live in an urban environment and thus it is possible that the cost to attract labor in Montana would be higher.

To adjust inpatient prospective payments to hospitals, Medicare created a wage index system.  Each hospital’s wage index value determines whether their payments will be adjusted upwards or downwards depending on the cost of labor in their area.  The cost of labor is currently defined as the average hospital worker wage (adjusted for occupation) in a given metropolitan statistical area (MSA).

This simple methodology, however, is complicated by exceptions.  Today, I review some of those exceptions where hospitals can reclassify to MSAs where they’d receive a higher wage index value.

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Hospital Quality

July 27, 2010 in Hospitals, Quality | 1 comment

The HCAHPS (Hospital Consumer Assessment of Healthcare Providers and Systems) is a standardized survey instrument and data collection methodology for measuring patients’ perceptions of their hospital experience.  HCAPHS is the first national standard for collecting and reporting hospitals quality data.

The survey asks discharged patients 27 questions about their recent hospital stay.  The survey is administered to a random sample of adult patients across medical conditions between 48 hours and six weeks following discharge.

Although CMS publicly reports the results of the HCAPHS survey, the sample is not restricted to Medicare beneficiaries.  However, hospitals are allowed to collect their own data which begs the question of whether they manipulate the data.  For instance, they may prefer worse satisfaction scores to have a low baseline or prefer high satisfaction scores to attract more patients.  Although I do not know if this occurs, one could envision a patient conveniently being dropped from the survey if they give the hospital a bad review.

The number of hospitals that publicly report HCAHPS results has increased from 2,521 in March 2008, to 3,711 in March 2009.

Timeline:

  • 2002.  CMS partnered with the Agency for Healthcare Research and Quality (AHRQ), another agency in the federal Department of Health and Human Services, to develop and test the HCAHPS survey.
  • May 2005.  National Qualify Forum endorses HCAHPS
  • December 2005.  Office of Management and Budget (OMB) approves HCAHPS
  • October 2006.  CMS implements HCAHPS survey
  • July 2007.  The Deficit Reduction Act of 2005 requires IPPS hospitals to submit HCAPHS data to receive full IPPS annual payment update.  Non-IPPS hospitals, such as Critical Access Hospitals, may voluntarily participate in HCAHPS.
  • March 2008. CMS publicly reports HCAHPS survey results on Hospital Compare.

Source: HCAHPS Fact Sheet, March 2009.

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Effect of Massachusetts Health Reform on Hospital and Preventive Care

May 26, 2010 in Health Reform, Hospitals | 2 comments

Kolstad and Kowalski (2010) examine how the Massachusetts individual mandate affected uninsurance rates, hospital and outpatient utilization, and preventive care:

“Among the population discharged from the hospital in Massachusetts, the reform decreased uninsurance by 28% relative to its initial level. Increased coverage affected utilization patterns by decreasing length of stay and the number of inpatient admissions originating from the emergency room. We also find evidence that outpatient care reduced hospitalizations for preventable conditions. At the same time we find no evidence that the cost of hospital care increased.“

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