Research by Lee Ann Jarousse

Payment based on quality and service is not a new concept, but it's finally coming into play in health care. Delivery system reforms included in the Patient Protection and Affordable Care Act provide incentives for health care organizations to improve care coordination and quality and reduce costs—and penalties if they fail to do so. These provisions include pilot projects to test bundled Medicare payments and new value-based purchasing regulations. The goal is to create integrated delivery systems that are more accountable to their communities and to make providers assume greater financial risk.

This isn't the first attempt at Medicare payment reform, but there is a certain level of optimism that it will succeed in developing a more patient-centered and efficient delivery system. "The law is a significant move toward clinical integration," says Paul Keckley, executive director of the Deloitte Center for Health Solutions. "This is not Capitation 2.0. This is very different." The difference lies in the link between cost and quality. Hospitals and health networks will have to deliver high-quality care at a lower cost in concert with physicians and the full continuum of care.

"When you combine cost and quality, you get organizational commitment," says Nancy Carragee, R.N., vice president of quality at Daughter's of Charity Health System, Los Altos Hills, Calif. "It puts the focus on the patient."

Value-based purchasing seems like the logical next step, says Beth Feldpush, senior associate director for policy for the American Hospital Association, noting that many hospitals already report the proposed quality measures to the Centers for Medicare & Medicaid Services on a voluntary basis. "We've seen the field improve steadily over time on these measures," Feldpush says. "It's important for organizations to stay the course. They already have the groundwork in place."

Through the value-based purchasing program, Medicare will offer incentive payments to hospitals for delivering high-quality care. The incentives will be funded through a 1 percent deduction in the base operating diagnosis-related group payments for hospitals' discharges. The reductions will increase over subsequent years. Hospitals must meet or exceed a baseline score on a set of predetermined clinical and patient experience measures.

Organizations will need to figure out where they stand relative to the metrics to determine the organization's risk of losing reimbursement. "The biggest risk that a hospital may have is the damage to its reputation," says George Whetsell, managing director of Huron Consulting Group, Chicago. "The information will be out there and poor performance will lead to both financial and image consequences."

Another aspect of payment reform—bundled payments—presents more of a challenge. "Many organizations are well-positioned to manage under value-based purchasing types of arrangements, but they are not ready for shared-savings arrangements," says Chad Mulvany, technical director for the Healthcare Financial Management Association. That's due, in part, to limited data on how to design and administer bundled-payment arrangements. Through demonstration projects, CMS plans to test the use of bundled payments to enhance health care quality and efficiency. "If successful, bundled payments will provide benefits to all parties involved in the care delivery process: the payer, the patient, the hospital and the physician," says Steve Landgarten, M.D., chief medical officer of Hillcrest Medical Center, Tulsa, Okla. Hillcrest is serving as a pilot site for the Medicare Acute Care Episode Demonstration project for orthopedic and cardiovascular surgery. "We believe we can achieve equal or better-quality care at a better cost," Landgarten says.

This gatefold examines value-based purchasing and bundled payments and the potential implications for hospitals.

Why Value-Based Purchasing?

CMS has big intensions for value-based purchasing with the ultimate goal being the delivery of patient-centered, high-quality, efficient care. Value-based purchasing would incentivize providers to deliver high-quality care at a lower cost.

1 | Financial viability: The financial viability of the traditional Medicare fee-for-services program is protected for beneficiaries and taxpayers.
2 | Payment incentives: Medicare payments are linked to the value (quality and efficiency) of care provided.
3 | Joint accountability: Physicians and providers have joint clinical and financial accountability for health care in their communities.
4 | Effectiveness: Care is evidence-based and outcomes-driven to manage diseases better and prevent complications from them.
5 | Ensuring access: A restructured Medicare fee-for-service payment system provides equal access to high-quality, affordable care.
6 | Safety and transparency: A value-based purchasing-payment system gives beneficiaries information on the quality, cost and safety
of their health care.
7 | Smooth transitions: Payment systems support well-coordinated care across different providers and settings.
8 | Electronic health records: Value-driven health care supports the use of information technology to give providers the ability to deliver
high-quality, efficient, well-coordinated care.

Source: The Centers for Medicare & Medicaid Services' Roadmap for Implementing Value Driven Healthcare in the Traditional Medicare Fee-for-Service Program, 2009

Key Steps to Succeed Under Value-Based Purchasing

1 | Develop effective quality, utilization, risk and infection management programs.
2 | Implement reliable performance-improvement tools and measures.
3 | Ensure consistent use of best-practice clinical guidelines and pathways. Implement effective admission, discharge and transfer protocols.
4 | Enhance ability to improve performance in reducing hospital-acquired conditions, complications, mortality, readmissions and other key performance measures.
5 | Build solid clinical alignment in every aspect of the clinical-improvement process.

Source: Huron Healthcare Group, 2011

Key Steps to Succeed Under Bundled Payments*

1 | Construct a framework before beginning. The framework should include quality-improvement initiatives, cost-accounting systems and a robust
data warehouse.
2 | Renegotiate contracts with supply vendors. Getting more patient volume isn't as important as getting market share with supply vendors.
3 | Bring physicians on board early in the process to drive cost-cutting measures, quality metrics and negotiations with suppliers.
4 | Understand that the monetary incentive does not drive patients to the hospital.
5 | Hire a full-time case manager to track all patients in the program from admission to discharge.

*Lessons learned from Hillcrest Medical Center, Tulsa, Okla., during the CMS Acute Care Episode Demonstration.

Source: Health Research & Educational Trust, Early Learnings from the Bundled Payment Acute Care Episode Demonstration Project, 2011.

25 Value Measures

CMS proposed 25 measures for the FY 2013 value-based purchasing program. Seventeen measures are associated with clinical quality and eight are associated with patient experience based on Hospital Consumer Assessment of Healthcare Providers and Systems Survey scores. Additional measures will be added in future years.

Process of Care Measures

Acute Myocardial Infarction
1. Aspirin prescribed at discharge
2. Fibrinolytic therapy received within 30 minutes of arrival at hospital
3. Primary percutaneous coronary intervention received within
90 minutes of arrival at hospital

Heart Failure
4. Discharge instructions
5. Evaluation of left ventricular systolic function
6. ACE inhibitor or ARB for left ventricular systolic function

7. Pneumococcal vaccination
8. Blood cultures performed in the emergency department prior to initial antibiotic received in hospital
9. Initial antibiotic selection for community-associated pneumonia in immunocompetent patient
10. Influenza vaccination

Health Care-Associated Infections
11. Prophylactic antibiotic received within one hour prior to surgical incision
12. Prophylactic antibiotic selection for surgical patients
13. Prophylactic antibiotics discontinued within 24 hours after surgery end time
14. Cardiac surgery patients with controlled 6 a.m. postoperative serum glucose

15. Surgery patients on a beta blocker prior to arrival who received a beta blocker during the perioperative period
16. Surgery patients with recommended venous thromboembolism prophylaxis ordered
17. Surgery patients who received appropriate venous thromboembolism prophylaxis within 24 hours prior to surgery to 24 hours after surgery

18. Communication with nurses
19. Communication with doctors
20. Responsiveness of hospital staff
21. Pain management
22. Communication about medicines
23. Cleanliness and quietness of hospital environment
24. Discharge information
25. Overall rating of hospital

Source: The Federal Register/Vol. 76, No. 9. January 13, 2011

Performance and Payment Reduction Timeline

The initial FY 2013 payment for the CMS value-based purchasing initiative will be based on performance from July 1, 2011, to March 31, 2012. The performance will be compared with a baseline established between July 1, 2009, and March 31, 2009. The program will provide hospitals with incentive payments for delivering high-quality care. The incentive payments will be paid for through the reduction in base operating diagnostic-related group payments.

Future payments may be based on a 12-month reporting period; 2014 mortality measures may be based on an 18-month reporting period.

Incentive payments will be based on a hospital's performance on each measurement, using the higher of an achievement score or an improvement score. The achievement score will be based on points earned by a hospital along an achievement range, a scale between the achievement threshold (the minimum level of hospital performance required and the benchmark, a mean of the top 10 percent of hospital performance). The improvement score will be based on an improvement range (a scale between the hospital's prior score on the measure during the baseline period and the benchmark).