How Quality Will Pay for Hospitals Under New Reform Measures

According to a 2009 PricewaterhouseCoopers consumer survey, individuals are using the Internet as a source for making decisions. Online content was found to edge out physicians as an information source: For instance, 48% of consumers said they use health websites to find information to make decisions about their healthcare.

Within this consumer realm, hospital quality information will move "beyond the organization and government websites" to health websites and consumer advocacy sites, the researchers note.

In addition, making more quality information available to consumers could impact a system's perception in the community and payers' contracting strategies with them. More informed decisions by patients could lead them away from organizations listed as "poor performers"—or those in the bottom quartile of hospitals.

For the typical hospital, being on the bottom quartile in terms of quality could mean millions of dollars lost annually. For instance, for a 300-bed community hospital with $50 million in Medicare inpatient net revenue, failure to improve on hospital readmissions (a loss of about $96,780), failure with VBP (a loss of $750,000), and ending up in the lowest quartile for HAC ($500,000), would create a drop of $1.35 million in income.

In addition to Medicare, hospitals also will have to learn to live with cuts in Medicaid. Hospitals that care for high numbers of uninsured and Medicaid patients currently receive extra funding from Medicare and Medicaid under the disproportionate share program. But in 2014, Medicare DSH will be reduced 75%—the same year that the insurance exchanges and individual and employer mandates go into effect.