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The Executive's Guide to Value-Based Purchasing

Samantha Collier, MD, MBA, for HealthLeaders Media, March 7, 2008

One of your hospital's most significant payors has just notified you that, starting next year, it plans to withhold $1 million annually in reimbursement. The hospital may have a chance to regain some of that money, but only if you hit certain quality benchmarks and can demonstrate performance that exceeds that of your competition.

This isn't a pie-in-the-sky scheme concocted by the insurance industry to boost revenue and please Wall Street. Welcome to the reality of the federal government's proposed Value-Based Purchasing (VBP) program.

In this election year, much uncertainty surrounds the future of U.S. healthcare. But one thing is clear: Any and all health reforms, no matter the political party behind them, are certain to underscore quality and efficiency, rewarding top performers and potentially punishing poor ones.

In this environment of change, it is imperative that hospital leaders begin now to prepare for the changing reimbursement landscape ahead. Value-based purchasing (VBP) demonstrates just how high the stakes can be.

The proposed changes

Under the VBP proposal currently being considered by CMS and Congress, "a percentage of the hospital's base operating payment for each discharge or DRG payment would be contingent on the hospital's actual performance on a specific set of measures."

The idea is to try to move away from a hospital payment system based primarily on volume of procedures and instead reward hospitals for delivering on evidence-based quality measures and improved patient outcomes. The new program would move hospitals to a system "that rewards the best performers."

One possible implementation of the new program envisions taking a withheld amount from all hospitals and returning some or all of that money only to the top performers, effectively "grading on the curve" and guaranteeing that some percentage of hospitals will not get all or perhaps any of their withheld money back.

However, CMS also included provisions to pay hospitals not only for meeting or exceeding certain quality benchmarks, which would favor top-performing hospitals, but bonus payments to hospitals that show substantial improvement. The intention was to ensure funding for poorer-performing programs that are striving to make progress.

Needless to say, this amorphous formula could pose substantial challenges for hospital leaders laying out strategies for maximizing reimbursement under VBP.

For forward-thinking executives who want to maximize financial success under quality-based reimbursement systems, the time for action is now. Quality should be a top strategic focus for hospital boards and administrators as 2008 begins and resources need to be appropriately allocated. If there was any doubt that quality performance was going to drive payment, this should be settled now.

Anticipating VBP

To get and stay ahead of the VBP curve, it is vital for hospital leaders to understand that this isn't simply about how you are doing on processes (like Core Measures), but also about how CMS sees your mortality rates and how your scores compare to other hospitals nationwide.

According to a study of nearly 5,000 non-federal hospitals released in January by HealthGrades, the nation's best hospitals not only had mortality rates 27 percent lower across the board than all other hospitals, but they also improved at a faster rate, reducing mortality by an average of 15 percent from 2004 to 2006 compared to 11.4 percent for all others.

Hospital executives anticipating VBP should ensure that they are measuring and then monitoring the most effective clinical quality measures. After all, the whole intent of transparency is to help consumers make value-based decisions and purchases.

The first step is to identify and understand what CMS has proposed be reported in its VBP. Assess which of those quality metrics are already being measured, tracked and reported and how does your organization stack up? How do you think you will stack up against all other hospitals?

Some of the quality measures being considered won't be new to most hospitals. At least half are essentially "Core Measures" or "SCIP" measures (Surgical Care Improvement). However, even the hospitals that are doing satisfactorily on these measures may not know how they stack up in other areas such as mortality and complications related to Acute MI and Congestive Heart Failure.

Second, it is important to identify what part of VBP is currently not being measured, tracked and reported by your hospital. If these metrics are important enough to be in the VBP, they should also be evaluated by your organization.

Third, discuss the findings with your board's quality committee and review how decisions are made on which metrics to incorporate into quality reporting.

Fourth, make it a point to drop the same number of metrics that you add, eliminating measures that don't have the same impact.

The challenge for senior leaders is that the best hospitals are running faster and faster and, as a result, everyone else must work harder to catch up. But the good news is that the consistent clinical performance and rate of improvement HealthGrades research has identified among top-performing hospitals demonstrates that better is possible for all hospitals and many are working successfully to achieve this.


About Samantha Collier, MD, MBA
Dr. Collier's role as a senior vice president and HealthGrades' chief medical officer has allowed her the opportunity to lead consulting teams that have helped more than 100 hospital organizations throughout the country develop and implement quality improvement initiatives that have improved their quality of care and public profiling positions. Dr. Collier, who continues to practice part time as a hospitalist, is frequently called to speak about quality improvement, the important impact of consumerism and healthcare ratings, public profiling and patient safety to the news media and at major conferences that have included the Harvard Quality Colloquium, CMS National Customer Service conference, the American College of Healthcare Executives and the National Association for Healthcare Quality.

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