It's Oct. 1, the day some acute care hospitals have been eagerly awaiting...and which others have been dreading.
Because today the Patient Protection and Affordable Care Act begins its two-pronged impact on the way hospitals receive payment for care provided to Medicare patients, arguably the most significant pay-for-performance program impacting acute care facilities in federal history.
There are winners and losers. And if hospitals don't have a pretty good idea by now how they're performing, they should.
The two provisions of the law (Section 3001, for value-based purchasing incentives for quality; and Section 3025, penalties for excess 30-day readmissions) work somewhat differently.
But these two new rules each can impact up to 1% of a hospital's base Medicare diagnostic-related group (DRG) payments between now and Aug. 31, 2013, when new formulas will kick in.
In theory, a hospital that performs poorly in both categories could endure a penalty of 2%. For some struggling hospitals, that represents a significant chunk of payment, although at first glance no hospital will be penalized that severely.
It doesn't seem like a lot of money, but when you're a hospital with a 1 to 2% margin, a 1% to 2% penalty on Medicare payments can add up fast.
Value-based purchasing
The Patient Protection and Affordable Care Act calls for all 3,423 eligible acute care hospitals to receive a 1% cut of their Medicare base DRG payments, right off the top. That 1%, which Medicare officials recently recalculated, is expected to total about $963 million.
The money goes into a pool that is redistributed based on how hospitals scored during a base period and a performance period that ended June 30, 2011. Of the overall score, 30% is based on Hospital Consumer Assessment of Healthcare Providers (HCAHPS) surveys to reflect patients' favorable experience during their stay, and 70% is based on 12 process measures.
Of those 12, seven deal with prophylactic antibiotic and other medications for surgical patients, and five dealing with care for heart failure, pneumonia, or heart attack patients.
Officials for the Centers for Medicare & Medicaid Services say they are still working with the numbers, but a "dry run" estimates that some 1,472 better performing hospitals will receive all of their 1% "pool" funds back, plus up to 91 cents for every $100 of Medicare DRG.
About 534 hospitals will receive their 1% "pool" funds back, but no more.
The dry run indicates that about 1,377 hospitals are lower performing and will receive less than their 1% pool funds back and in the worst case, only 23 cents back for every $100 of Medicare base DRG payment withheld.
While Medicare has posted the results of its dry run, they are not the final word on winners and losers and their respective penalties or incentive payments, according to CMS spokeswoman Kathy Ceja. Hospitals won't find out exactly what their adjustments will be until late October, although the adjustments will impact all discharges beginning Oct. 1.
And, they won't actually realize those adjustments until payments come in January, which means that hospitals receiving more than the 1% will see a three-month windfall at the start of 2013 while underperforming hospitals should start budgeting for three-months of penalties.
The public will be able to see each hospital's adjustment factor, although not the dollar amounts, on Hospital Compare sometime this spring, Ceja says.
According to the dry run data, many of the hospitals that received penalty adjustment factors for their VBP scores also received the full 1% penalty for readmissions.
Alven Weil, spokesman for Premier, a hospital purchasing and quality network, says that was expected. "We hope that there is some relationship between the process measures chosen for the program and ultimate outcomes, such as readmissions, but more study is needed," he said.
Readmissions
Medicare's "dry-run" charts indicate that for 30-day readmissions penalties, 278 hospitals will be dinged the full 1% of their Medicare base DRG payment. Another 522 hospitals will receive a penalty of about one-half of a percent and 1,413 hospitals will be penalized less than one-half of a percent.
And 1,188 hospitals will not be penalized because their readmission rates were lowest in the country.
A Likely Winner
One of those double-headliners is Lincoln Surgical Hospital in Lincoln, NE, which also may receive the highest value-based purchasing adjustment factor of all hospitals eligible for the program. Under the dry-run estimates, for every $100 of Medicare base DRG that goes into the pool, Lincoln will get that entire $100 plus 91 cents. Additionally, Lincoln will not receive a penalty for its 30-day readmissions.
Asked how Lincoln accomplished such good results, CEO Robb Linafelter says the trick is being focused, and being physician-owned. "When you look at the HCAHPS and the quality measures, those are two things we focus on. The first is our patients and families, and meeting their needs, and second is our physicians, and third is our employees."
He adds that quality is maintained by allowing employees to see those results on a monthly basis. "We know if we're doing things right, those scores take care of themselves." He adds that Lincoln perhaps has an advantage because it is physician-owned, "and from a quality standpoint, it's easy for us to work with physicians because they have a vested interest in the outcome."
One element of note is that according to the "dry run" statistics listing the best performing VBP hospitals, nearly all are small hospitals or specialty hospitals, with no more than 30 beds. And that holds true for the top performing readmission hospitals too.
Weil says that new measures are being applied to the formula in coming years, and with those new measures will come a different lineup of winners and losers, especially as the formula that determines best and worst is adjusted.
"We believe the results are equitable in that about the same number of hospitals win versus lose," he says. "However, we need to watch carefully over time to determine if particular classes of hospitals, such as (those providing care as part of) the safety net, are disproportionately penalized."
Of course, for both the value-based purchasing incentive payments and readmissions penalties, stakes rise next year based on new, and more up-to-date, performance periods. For readmissions, the penalty increases to up to 2%. And the value-based purchasing incentive pool grows from 1% of Medicare base DRG to 1.25%