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1,700 Hospitals Win Quality Bonuses From Medicare, But Most Will Never Collect

Penalties wipe out rewards

Medicare is giving bonuses to a majority of hospitals that it graded on quality, but many of those rewards will be wiped out by penalties the government has issued for other shortcomings, according to a new report from Kaiser Health News.

As required by the Patient Protection and Affordable Care Act, the government is taking performance into account when paying hospitals –– one of the biggest changes in Medicare’s 50-year history. This year 1,700 hospitals –– 55% of those graded –– earned higher payments for providing comparatively good care in the federal government’s most comprehensive review of quality, the report says. The government measured criteria such as patient satisfaction, lower death rates and how much patients cost Medicare. This incentive program, known as value-based purchasing, led to penalties for 1,360 hospitals.

However, fewer than 800 of the 1,700 hospitals that earned bonuses from this program will actually receive extra money, according to the Kaiser Health News analysis. That’s because the others are being penalized through two other Medicare quality programs: one punishes hospitals for having too many patients readmitted for follow-up care, and the other lowers payments to hospitals where too many patients developed infections during their stays or were injured in other ways.

When all these incentive programs are combined, the average bonus for large hospitals –– those with more than 400 beds — will be nearly $213,000, whereas the average penalty will be approximately $1.2 million, according to estimates from The Advisory Board Company, a consulting firm based in Washington, D.C. For hospitals with 200 or fewer beds, the average bonus will be about $32,000 and the average penalty will be about $131,000, the company estimated. Twenty-eight percent of hospitals will break even or get extra money.

On top of that, Medicare this year also began docking about 200 hospitals for not making enough progress in switching over to electronic medical records. Together, more than 6% of Medicare payments are contingent on performance.

Among these programs, the hospital value-based purchasing initiative, now in its third year, is the only one that offers bonuses as well as penalties. It is also the only one that recognizes hospital improvement even if a hospital’s quality metrics are still subpar. The value-based purchasing bonuses and penalties were based on 26 different measures, including how consistently hospitals followed a dozen recommended medical guidelines, such as giving patients antibiotics within 1 hour of surgery, and how patients rated their experiences while in the hospital. Medicare also examined death rates for patients with congestive heart failure, heart attack, and pneumonia, as well as bloodstream infections from catheters and serious complications from surgery, such as blood clots.

Medicare this year added a measure intended to encourage hospitals to deliver care in the most efficient manner possible. Federal officials calculated what it cost to care for each hospital’s average patient, not only during the patient’s stay but also in the 3 days before and 1 month after. Often the biggest differences in medical costs between hospitals are due to what happens to patients after they leave. For instance, Medicare pays more to inpatient rehabilitation facilities than it does to skilled-nursing homes, even though both treat similar kinds of patients.

This year, Medicare judged hospitals based on how they performed in comparison to others in the second half of 2012 and all of 2013, and on how much they had improved from 2 years before. Medicare adds a hospital’s bonus or penalty to every Medicare reimbursement for a patient stay from last October through the end of September.

Nationally, the average bonus for hospitals under value-based purchasing was a 0.44% increase, whereas the average penalty — not including the other penalty programs — was a 0.30% reduction, the Kaiser analysis found. The actual dollar amount will depend on the mix of Medicare patients that hospitals treat through September and how much they bill Medicare. Medicare set aside 1.5% of its payments for the incentives, totaling approximately $1.4 billion.

Hospitals awarded bonuses in one year of the value-based purchasing program do not necessarily do as well the next year. Out of 2,672 hospitals that have been evaluated during the 3 years of the program, roughly 25% received bonuses during all 3 years and 25% lost money during all 3 years. The rest had a mix of bonuses and penalties, the Kaiser analysis found.

Source: Kaiser Health News; January 22, 2015.

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