January 18‚ 2011

CMS Proposes New Hospital Value-Based Purchasing Program

By Stephen M. Weiner and Garrett G. Gillespie

On January 7, 2011, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule that would establish a hospital value-based purchasing (VBP) program for acute care hospitals that are paid under the Medicare Inpatient Prospective Payment System (IPPS).¹ The VBP program builds upon private initiatives to incentivize provider behavior with the intent to promote better quality care through so-called “pay for performance” (P4P) programs.

Currently, through the Hospital Inpatient Quality Report Program, hospitals are required to report quality data, but, rather than rewarding compliance, CMS penalizes the failure to submit the mandated information through lower prospective payment annual updates.² Medicare has adopted some P4P projects that provide for incentive payments when certain performance measures are met, but they are of a finite scope.³ The VBP program, based on the provisions of the Patient Protection and Affordable Care Act (as amended by the Health Care and Education Affordability Reconciliation Act of 2010, Pub. L. No. 111-152, the “Act”),⁴ expands on these P4P projects by allowing acute care hospitals to obtain additional reimbursement from CMS if performance targets are met. The VBP program would provide value-based incentive payments to these hospitals beginning in FY 2013, based on their achievement or improvement on a set of “clinical and patient experience of care quality measures.”⁵ According to CMS, value-based purchasing will “transform Medicare from a passive payer of claims based on volume of care to an active purchaser of care based on the quality of services its beneficiaries receive.”⁶

This significant change in Medicare’s incentive system emerges in the context of other discussions and legislative activity focused on moving away from fee-for-service reimbursement toward payment mechanisms intended to promote cost efficiency and quality improvement. The Act includes a number of provisions intended to promote quality and efficiency in the provision of services under the Medicare program, which might also be expected to have broader implications for the private payer market as well, of which VBP is one.⁷ Further, the application of VBP to acute care hospitals is the first in a series of steps contemplated by the Act that would eventually extend similar programs to critical access hospitals and certain other hospitals, skilled nursing facilities, home health agencies, and ambulatory surgical centers.⁸

To promote greater transparency, CMS, by statute, must make information available to the public regarding the performance of individual hospitals under the VBP program.⁹ To fund the program, CMS will reduce base operating DRG payments for all acute care hospitals, starting with a 1% reduction in FY 2013 and rising to 2% by FY 2017,¹⁰ and reallocate those dollars to pay hospitals that qualify for the incentive payments under the program.

The VBP is proposed to encompass the following: (1) measures, (2) performance standards, (3) a scoring scheme, and (4) a mechanism for how these scores would translate into value-based incentive payments. Each of these elements is presented in proposed form for public comment.

Under the VBP, hospitals would receive incentive payments for discharges occurring on or after October 1, 2012, if they: (1) meet certain performance standards during specified performance periods, or (2) improve their performance over their prior performance during a baseline period.¹¹ For FY 2013, CMS proposes to use seventeen clinical process of care measures, and eight measures from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey on patients’ experience of care.¹²

For FY 2014, CMS contemplates increasing the number of measures to be used, including adding three mortality measures.¹³ For scoring, CMS proposes a “Three-Domain Performance Scoring Model” that includes setting benchmarks and thresholds, scoring hospitals on achievement and improvement for three domains (clinical process of care, patient experience of care, and outcomes), weighting the domains, and calculating the hospital total performance score (TPS). The TPS would then be translated into a value-based incentive payment.¹⁴

With respect to the proposed performance periods, CMS:

• Proposes a performance period from July 1, 2011 through March 31, 2012 for the FY 2013 VBP payment determination;
• Anticipates that it may propose to use a full year as the performance period in future years;
• Proposes to use an 18-month performance period for the three proposed mortality measures for FY 2014; and
• Expects to propose performance periods for the remaining measures in future rulemaking.¹⁵

Comments on the proposed rule are due by March 8, 2011.¹⁶ CMS has stated that it is “particularly interested” in receiving comments on (1) alternative methods with respect to domain weighting and calculation of the TPS, and (2) “suggested new, improved scoring methodology alternatives that may achieve [its] objectives in better, straightforward, or more effective ways.”¹⁷

Endnotes

¹ Medicare Program; Hospital Inpatient Value-Based Purchasing Program, 76 Fed. Reg. 2454 (Jan. 13, 2011), http://edocket.access.gpo.gov/2011/pdf/2011-454.pdf. The proposed rule was issued on January 7, 2011, but appeared in the January 13, 2011 Federal Register.

² See 76 Fed. Reg. at 2456.

³ These include the Hospital Quality Incentive Demonstration (HQID), the Physician Group Practice Demonstration (PGP), and the Medicare Care Management Performance Demonstration (MCMP) for small and solo physician practices. See “Medicare demonstrations illustrate benefits in paying for quality health care” (Dec. 9, 2010), https://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_Press_Release.pdf.

⁴ Pub. L. No. 111-148, § 3001 (2010), codified at Social Security Act §1886(o) (42 U.S.C. 1395ww(o)).

⁵ 76 Fed. Reg. at 2457; see also, “Medicare proposes new Hospital Value-Based Purchasing Program” (Jan. 7, 2011) (“CMS Release”), here.

⁶ CMS Release.

⁷ The Act also included changes to Medicare’s payment policies for hospital-acquired infections and readmissions and provided for (1) a new Medicare “shared savings” program that permits groups of providers to work together through an accountable care organization (ACO) to manage and coordinate care for Medicare beneficiaries and potentially share in any savings to program, and (2) a medical home demonstration project using physician and nurse practitioner-directed, primary care teams with the goals of reducing expenditures and improving health outcomes for chronically ill beneficiaries.

⁸ See Pub. L. No. 111-148, §§ 3001(b)(1)(A), 3006, 10301 (amending § 3006).

⁹ Pub. L. No. 111-148, § 3001, codified at Social Security Act §1886(o)(10) (42 U.S.C. 1395ww(o)(10)).

¹⁰ CMS Release; Pub. L. No. 111-148, § 3001, codified at Social Security Act §1886(o)(7) (42 U.S.C. 1395ww(o)(7)).

¹¹ CMS Release; see also, 76 Fed. Reg. at 2454.

¹² CMS Release; 76 Fed. Reg. at 2462. The proposed FY 2013 quality measures are attached to the CMS Release at Appendix A.

¹³ For FY 2014, CMS proposes to adopt three mortality outcome measures, eight Hospital Acquired Condition (HAC) measures, and nine Agency for Healthcare Research and Quality (AHRQ), which are identified at Appendix A of the CMS Release. CMS Release; see also, 76 Fed. Reg. at 2476.

¹⁴ 76 Fed. Reg. at 2457. Only two domains will receive weight in FY 2013: clinical process of care and patient experience of care. Id. at 2457, 2466.

¹⁵ CMS Release; see also, 76 Fed. Reg. at 2457.

¹⁶ 76 Fed. Reg. at 2454.

¹⁷ 76 Fed. Reg. at 2476, 2479.

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