Pay for Performance – Hospital Purchasing Models Reading Discussion After reading the information on pay for performance (including the old P4P and the new

Pay for Performance – Hospital Purchasing Models Reading Discussion After reading the information on pay for performance (including the old P4P and the new Value-Based Hospital Purchasing models) and watching the video on motivation you should have some background on this topic. Pay for performance is a complicated issue, and I have mixed feelings about it. On one hand, complications are the sometime unavoidable result of the use of medical devices like ventilators and intravenous catheters. On the other hand, many problems are potentially preventable. One argument in favor of pay for performance is that it would encourage more hospitals and health care professionals to adhere to the guidelines, which could potentially save lives and reduce health care costs. Unfortunately, I fear that many of these complications may not be preventable, even when guidelines are followed, and the rule is merely an attempt to further reduce payments to hospital systems that are already on shaky ground financially.

Question: Do you think we can have NO falls, NO cases of urinary tract infections, etc. Have you had direct experience with pay for performance? Some hospitals will experience significant cuts in their payments because of pay for performance but should they if they don’t prevent these “Preventable errors”.

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2 to 3 Paragraphs in length and be convincing enough that I would want to take your position on the issue. You may use whatever resources you would like to answer this question but do NOT plagiarize. If you use someone else’s words then provide a reference.

APA STYLE PLEASE must reference the target article and any other articles you use in your response.

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In responses, always indicate to whom you are responding The
october 18, 2007
Nonpayment for Performance? Medicare’s New
Reimbursement Rule
Meredith B. Rosenthal, Ph.D.
o defuse physicians’ and hospitals’ opposition
to the creation of Medicare back in 1965, the
program’s congressional architects selected payment mechanisms designed to preserve the status
quo.1 But as Medicare has expanded and problems of affordability and quality of care have
grown, such an approach has become untenable. Recently, the Centers for Medicare and Medicaid
Services (CMS) announced its decision to cease paying hospitals
for some of the care made necessary by “preventable complications” — conditions that result
from medical errors or improper
care and that can reasonably be
expected to be averted. This rule,
which implements a congressionally mandated change in hospital reimbursement, is the latest in
a series of steps that have rendered Medicare’s payment policy
far less passive than it once was.2
The starting point for current
Medicare payments for inpatient
care is the system based on diagnosis-related groups (DRGs) that
was adopted in 1983 by CMS’s
predecessor, the Health Care Financing Administration. That system is considered prospective, in
that the amount paid to a hospital for a patient is fixed in advance and depends only on the
diagnoses and major procedures
reported at discharge (which, in
turn, map to a specific DRG).
In reality, payments under this
system have never been completely prospective, being influenced
to some degree by what happens
to an individual patient during a
hospitalization. For example, high­
er payments are made on behalf
of patients in whom clinically sig-
n engl j med 357;16
nificant complications develop after admission than for those with
the same diagnosis who have no
such complications. There are also
so-called outlier payments that
partially compensate hospitals for
the additional expenses incurred
for very-high-cost cases. With regard to preventable complications,
these retrospective features of the
DRG payment system have harbored a perverse incentive: hospitals that improved patient safety
and ameliorated problems such as
nosocomial infections saw their
Medicare revenues — and sometimes their profits — reduced.
Believing that this counterproductive incentive should be eliminated, Congress instructed the
Secretary of Health and Human
Services in 2005 to “select at least
2 conditions that are (a) high cost
or high volume or both, (b) result
in the assignment of a case to a
DRG that has a higher payment
when present as a secondary di-
october 18, 2007
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Copyright © 2007 Massachusetts Medical Society. All rights reserved.
Nonpayment for Performance? Medicare’s New Reimbursement Rule
agnosis, and (c) could reasonably have been prevented through
the application of evidence-based
guidelines.”2 After issuing a proposed set of measures and considering comments from stakeholders and experts, CMS decided to
disallow incremental payments
associated with eight secondary
conditions that it sees as preventable complications of medical
care (see table).2 These conditions, if not present at the time
of admission, will no longer be
taken into account in calculating
payments to hospitals after October 1, 2008.
The new rule will result in hospitals seeing substantial reductions
in payment for the care of individual patients with preventable
complications. For example, if a
patient were admitted to a Boston-area hospital with pneumonia
and developed a urinary tract infection or bed sores during the
hospitalization, the hospital would
currently be paid $6,253.58, under
DRG 89 (“pneumonia with com-
plications”); under the new rule,
if there were no other complications, the hospital would be paid
only $3,705.38, under DRG 90
(“simple pneumonia”) — a difference of $2,548.20 (a reduction
of approximately 40%). The policy, however, is unlikely to change
the total Medicare payments to
hospitals substantially, because the
payment will be “reduced” only for
instances in which preventable
complications were the only factors causing a case to be reclassified under a more expensive DRG.
Medicare will continue to make
outlier payments for cases with
costs substantially exceeding the
average for the appropriate DRG,
even when these costs are the
consequence of preventable complications — and the likelihood
of incurring such outlier payments
will actually be increased by the
new policy, because cases in which
there are complications will more
easily exceed the threshold associated with the lower-paying DRG.
Moreover, preventable complica-
Conditions for Which Medicare Will No Longer Pay More If Acquired
during an Inpatient Stay.*
No. of Medicare Cases
in Fiscal Year 2006
Average Medicare
Payment for Admissions
in Which Condition
Was Present
Air embolism
Blood incompatibility
Object left in patient during
Catheter-associated urinary
tract infection
Pressure ulcer
Mediastinitis after coronaryartery bypass grafting
Fall from bed
* Data are from the Federal Register.2
† Data are unknown because a unique code for this condition was introduced for
fiscal year 2008.
n engl j med 357;16
tions including the eight that CMS
identified for exclusion may continue to result in higher Medicare
payments to hospitals, because
their downstream consequences
may place cases in entirely different and very-high-cost DRGs,
such as DRG 483 (tracheostomy
with mechanical ventilation for
96 hours or more). The new approach does not attempt to unravel these more complex clinical
Although in the near term, the
amount of money withheld may
be small, in terms of the percentage of all payments to hospitals,
it can be expected to have a disproportionate effect on their behavior. One reason is that this
change represents the leading edge
of a series of anticipated CMS reforms of provider payment, which
include a shift toward pay for performance. Hospitals may therefore
view the new policy as a harbinger of things to come and act in
anticipation of more substantial
reimbursement changes. In addition, nonreimbursement for costs
associated with perceived quality
failings may be a more powerful
motivator than an equal reward
for eliminating complications.3
Finally, because hospitals will
be obliged to ascertain and code
infections and other conditions as
“present on admission” to avoid
reductions in their revenues, the
policy may lead to more widespread adoption of quality measurement and reporting or to improved targeting of prophylaxis
against or treatment of community-acquired infections.
During its development, the
new rule was criticized both for
going too far and for not going
far enough. Some stakeholders argued that it will penalize hospitals for treating frail or otherwise
high-risk patients, encouraging
october 18, 2007
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Copyright © 2007 Massachusetts Medical Society. All rights reserved.
Nonpayment for Performance? Medicare’s New Reimbursement Rule
them to avoid such patients. Although this concern may be valid,
the new rule only exacerbates an
inherent side effect of prospective
payment in the absence of perfect
risk adjustment: to the extent that
certain observable patient characteristics are associated with
higher costs and are not accounted for in the payment formula,
the DRG system already rewards
hospitals for avoiding patients with
these risk factors. On the other
side of the issue, some stakeholders proposed substantial expansions of the list of nonreimbursable conditions, given the extent of
injuries, the number of deaths,
and the magnitude of the expense
associated with patient-safety problems in hospitals; the approval of
a much larger set of conditions
would have ratcheted up the financial implications and made a
more compelling case for more
fundamental and comprehensive
reform of inpatient care. In the
end, however, CMS ruled out a
number of candidate conditions,
either because they could not be
identified through existing DRG
codes or because of a lack of proven strategies for preventing them.
In the same regulatory ruling,
Medicare has also refined the DRG
system to increase the extent of
payment differentiation according
to the severity of illness. Thus,
along with emerging pay-for-performance initiatives, the new policy appears to be part of a larger
reform of the Medicare payment
scheme. The current reform rests
on the following three principles:
payers should pay more for the
treatment of conditions that require more resources and that
the provider could not reasonably
have prevented; they should pay
more when evidence-based or consensus-based best practices are
followed; and they should pay less
or not at all for low-quality care.
Naturally, the last will be the most
The conditions for which Medicare will cease to pay hospitals as
of next October have been shown
to be within the control of hospitals, so there is a relatively compelling case that their costs should
fall on the provider rather than the
purchaser. It is unclear how Medicare will generalize the principle
of refusal to pay for poor-quality
care beyond this initial and largely symbolic effort. As inadequate
as the store of evidence-based beneficial practices appears to advocates of pay for performance, there
is even less empirical support or
consensus for the identification
of inappropriate or clearly contraindicated services and care patterns.
Dr. Rosenthal is an associate professor of
health economics and policy at the Harvard
School of Public Health, Boston.
1. Ball RM. What Medicare’s architects had
in mind. Health Aff (Millwood) 1995;14(4):6272.
2. Medicare program: changes to the hospital inpatient prospective payment systems
and fiscal year 2008 rates. Fed Regist 2007;
3. Kahneman D, Tversky A. Prospect theory:
an analysis of decision under risk. Econometrica 1979;47:263-92.
Copyright © 2007 Massachusetts Medical Society.
Satisfaction Guaranteed — “Payment by Results”
for Biologic Agents
Alan M. Garber, M.D., Ph.D., and Mark B. McClellan, M.D., Ph.D.
s increasing numbers of promising but expensive biologic
agents are introduced for use as
medical treatments, drug pricing
has become a high-profile issue.
Earlier this year, pricing practices
took a new turn in Britain, when
the National Institute for Health
and Clinical Excellence (NICE), the
evaluative agency that applies costeffectiveness analysis in making
recommendations concerning drug
coverage, declined to support coverage of the proteasome inhibi-
tor bortezomib (Velcade) by the
British National Health Service
(NHS) for the treatment of multiple myeloma. It concluded that
the price was too high relative to
NICE’s estimates of its average
benefits for the population to be
covered. Rather than reducing bor­
tezomib’s price, its manufacturer,
Johnson & Johnson, offered to
forgo charges for patients who do
not have an adequate response
to the drug. Although many details remained to be negotiated
n engl j med 357;16
— including the criteria defining
a response — the proposal reflected the recognition that the time
has come to consider new approaches to drug pricing.
Payment based on results, including “pay for performance,” has
been touted as a way to avoid waste
and increase value in health care.1
In a conventional pay-for-performance contract, a small part (typically, 1 to 10%) of the reimbursement to providers is tied to
measures of the quality and cost
october 18, 2007
Downloaded from at BOISE STATE UNIVERSITY on October 14, 2009 .
Copyright © 2007 Massachusetts Medical Society. All rights reserved.
Value-Based Purchasing and Bundled
What hospitals should know about new federal payment and purchasing strategies
Research by Lee Ann Jarousse
Payment based on quality and service is not a new
concept, but it’s finally coming into play in health
care. Delivery system reforms included in the Patient
Protection and Affordable Care Act provide
incentives for health care organizations to improve
care coordination and quality and reduce costs—and
penalties if they fail to do so. These provisions
include pilot projects to test bundled Medicare
payments and new value-based purchasing
regulations. The goal is to create integrated delivery
systems that are more accountable to their
communities and to make providers assume greater
financial risk.
This isn’t the first attempt at Medicare payment
reform, but there is a certain level of optimism that it
will succeed in developing a more patient-centered
and efficient delivery system. “The law is a
significant move toward clinical integration,” says
Paul Keckley, executive director of the Deloitte
Center for Health Solutions. “This is not Capitation
2.0. This is very different.” The difference lies in the Click here for PDF version of Gatefold.
link between cost and quality. Hospitals and health networks will have to deliver high-quality
care at a lower cost in concert with physicians and the full continuum of care.
“When you combine cost and quality, you get organizational commitment,” says Nancy
Carragee, R.N., vice president of quality at Daughter’s of Charity Health System, Los Altos
Hills, Calif. “It puts the focus on the patient.”
Value-based purchasing seems like the logical next step, says Beth Feldpush, senior associate
director for policy for the American Hospital Association, noting that many hospitals already
report the proposed quality measures to the Centers for Medicare & Medicaid Services on a
voluntary basis. “We’ve seen the field improve steadily over time on these measures,” Feldpush
says. “It’s important for organizations to stay the course. They already have the groundwork in
Through the value-based purchasing program, Medicare will offer incentive payments to
hospitals for delivering high-quality care. The incentives will be funded through a 1 percent
deduction in the base operating diagnosis-related group payments for hospitals’ discharges. The
reductions will increase over subsequent years. Hospitals must meet or exceed a baseline score
on a set of predetermined clinical and patient experience measures.
Organizations will need to figure out where they stand relative to the metrics to determine the
organization’s risk of losing reimbursement. “The biggest risk that a hospital may have is the
damage to its reputation,” says George Whetsell, managing director of Huron Consulting Group,
Chicago. “The information will be out there and poor performance will lead to both financial and
image consequences.”
Another aspect of payment reform—bundled payments—presents more of a challenge. “Many
organizations are well-positioned to manage under value-based purchasing types of
arrangements, but they are not ready for shared-savings arrangements,” says Chad Mulvany,
technical director for the Healthcare Financial Management Association. That’s due, in part, to
limited data on how to design and administer bundled-payment arrangements. Through
demonstration projects, CMS plans to test the use of bundled payments to enhance health care
quality and efficiency. “If successful, bundled payments will provide benefits to all parties
involved in the care delivery process: the payer, the patient, the hospital and the physician,” says
Steve Landgarten, M.D., chief medical officer of Hillcrest Medical Center, Tulsa, Okla. Hillcrest
is serving as a pilot site for the Medicare Acute Care Episode Demonstration project for
orthopedic and cardiovascular surgery. “We believe we can achieve equal or better-quality care
at a better cost,” Landgarten says.
This gatefold examines value-based purchasing and bundled payments and the potential
implications for hospitals.
Why Value-Based Purchasing?
CMS has big intensions for value-based purchasing with the ultimate goal being the delivery of
patient-centered, high-quality, efficient care. Value-based purchasing would incentivize
providers to deliver high-quality care at a lower cost.
1 | Financial viability: The financial viability of the traditional Medicare fee-for-services
program is protected for beneficiaries and taxpayers.
2 | Payment incentives: Medicare payments are linked to the value (quality and efficiency) of
care provided.
3 | Joint accountability: Physicians and providers have joint clinical and financial
accountability for health care in their communities.
4 | Effectiveness: Care is evidence-based and outcomes-driven to manage diseases better and
prevent complications from them.
5 | Ensuring access: A restructured Medicare fee-for-service payment system provides equal
access to high-quality, affordable care.
6 | Safety and transparency: A value-based purchasing-payment system gives beneficiaries
information on the quality, cost and safety
of their health care.
7 | Smooth transitions: Payment systems support well-coordinated care across different
providers and settings.
8 | Electronic health records: Value-driven health care supports the use of information
technology to give providers the ability to deliver
high-quality, efficient, well-coordinated care.
Source: The Centers for Medicare & Medicaid Services’ Roadmap for Implementing Value
Driven Healthcare in the Traditional Medicare Fee-for-Service Program, 2009
Key Steps to Succeed Under Value-Based Purchasing
1 | Develop effective quality, utilization, risk and infection management programs.
2 | Implement reliable performance-improvement tools and measures.
3 | Ensure consistent use of best-practice clinical guidelines and pathways. Implement effective
admission, discharge and transfer protocols.
4 | Enhance ability to improve performance in reducing hospital-acquired conditions,
complications, mortality, readmissions and other key performance measures.
5 | Build solid clinical alignment in every aspect of the clinical-improvement process.
Source: Huron Healthcare Group, 2011
Key Steps to Succeed Under Bundled Payments*
1 | Construct a framework before beginning. The framework should include quality-improvement
initiatives, cost-accounting systems and a robust
data warehouse.
2 | Renegotiate contracts with supply vendors. Getting more patient volume isn’t as important as
getting market share with supply vendors.
3 | Bring physicians on board early in the process to drive cost-cutting measures, quality metrics
and negotiations with suppliers.
4 | Understand that the monetary incentive does not drive patients to the hospital.
5 | Hire a full-time case manager to track all patients in the program from admission to discharge.
*Lessons learned from Hillcrest Medical Center, Tulsa, Okla., during the CMS Acute Care
Episode Demonstration.
Source: Health Research & Educational Trust, Early Learnings from the Bundled Payment
Acute Care Episode Demonstration Project, 2011.
25 Value Measures
CMS proposed 25 measures for the FY 2013 value-based purchasing program. Seventeen
measures are associated with clinical quality and eight are associated with patient experience
based on Hospital Consumer Assessment of Healthcare Providers and Systems Survey scores.
Additional measures will be added in future years.
Process of Care Measures
Acute Myocardial Infarction
1. Aspirin prescribed at discharge
2. Fibrinolytic therapy received within 30 minutes of arrival at hospital
3. Primary percutaneous coronary intervention received within
90 minutes of arrival at hospital
Heart Failure
4. Discharge instructions
5. Evaluation of left ventricular systolic function
6. ACE inhibitor or ARB for lef…
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