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Cash Incentives Help Improve Hospital Quality

Michelle Pointe, for HealthLeaders Media, August 10, 2009

When I was in the fourth grade, my teacher, Mr. Stone, rewarded spelling bee winners with a banana split. That probably wouldn't happen today, but it was a powerful motivator for me to win. The fact that my parents had banned all refined sugar products a few years earlier sharpened my focus even more. I aced a couple of spelling bees that year. Would I have won without the incentive? Maybe. Maybe not.

Having an incentive to do better works for kids and it works in business because we humans are hardwired, for the most part, to want to do our very best.

In the case of 260 hospitals that are part of CMS and Premier Inc.'s value based purchasing project, having financial and other incentives to improve quality is making a difference in five clinical areas, according to recent analysis of the project. The hospitals are rewarded with cash awards and public acknowledgement on the CMS Website for improved quality. In years 1 to 3, top performers had an opportunity to earn either a 1% or 2% bonus of Medicare DRG payments for a given condition. As well, the top 50% of hospitals in each clinical area received public acknowledgement.

CMS and Premier have been testing value based purchasing initiatives since 2003. Known as the Hospital Quality Incentive Demonstration P4P Project, the program was established to determine if hospitals could improve quality in acute myocardial infarction, congestive heart failure, coronary artery bypass graft, pneumonia, and hip/knee replacement if they were properly incentivized and also recognized on the CMS Web site. The results for the first three years show that the Composite Quality Score improved by an average of 15.8% and more than $24.5 million has been awarded to the top performers.

While all hospitals improved clinical quality while reducing care variation, it took safety net hospitals until year three to perform as well as non-safety net hospitals in the areas of heart attack, heart failure, and hip/knee replacement. For instance, safety net hospitals "received fewer awards and less recognition in the first two years of the project," according to analysis by Premier. But after year three, safety nets began receiving top performance awards. According to Premier's analysis, safety-net hospitals may take longer to adjust to value-based purchasing initiatives because they have "less reliable revenue streams," which make it more difficult to close performance gaps. How do you become a top performer? Hospitals must be in the top 10% and 20% of performance compared to all participants.

While the cash incentives are an important component, the fact that hospitals continue to set and achieve new quality goals throughout the project is very motivating for some of the organizations.

"The program creates a dynamic where the work is never done – quality goals keep getting more aggressive because as a group, HQID hospitals are improving rapidly over time," said Jack Garon, MD, chief medical officer at Sinai Health System of Chicago, in a press release. The program, he says, has incentivized the organization to "chase the top levels of performance."

CMS has extended the program through 2009 to include multiple conditions and test new "incentive models." At year four, for example, the top 20 percent of hospitals in each clinical area will receive an additional payment incentive.

Lesson's to be learned by Washington reformers? Radical payment reform takes years to implement successfully.


Michelle Ponte

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