CMS Proposes Medicare Hospital Payment System

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CMS on Monday proposed changes to the Medicarehospital reimbursement system that would reduce payments by a flat rate tocreate an incentive payment pool for rewarding hospitals that meetquality-of-care thresholds, the Wall Street Journal reports. Underthe proposal, which was outlined in a 104-page report to Congress, payments toall facilities would be cut by a flat 2% to 5% to fund the incentive pool fordistribution to hospitals that show the most improvement or meetquality-of-care standards (Francis, Wall Street Journal, 11/27).

The plan would create a "Value-Based Purchasing Program" that wouldbase hospitals' "diagnosis-related group" payments, the money theyreceive for each discharge, on quality performance, according to CQ HealthBeat (Carey, CQ HealthBeat,11/26). CMS said the proposal would be cost-neutral to the federal government,and it could save money if Congress does not require that the entire pool bedistributed (Wall Street Journal, 11/27).

Quality improvements would be judged by a hospital's "total performancescore," which would be based on patient outcomes, adhering to certainclinical practices, patient satisfaction and other areas (CQ HealthBeat,11/26). Acting CMS Administrator Kerry Weems said that the proposed paymentsystem would be established over three years and initially would apply to thetreatment of conditions such as heart failure and pneumonia (Hartford Courant, 11/27). The proposal would requirecongressional approval (CQ HealthBeat, 11/26).

According to the Journal, the proposed changes have "thepotential to squeeze hospitals already facing financial difficulties even as itoffers monetary incentives to improve medical care." However, CMS wouldmonitor the program if implemented, and Weems said the agency would make sureno "unintended or perverse consequences" come from it (WallStreet Journal, 11/27).

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Senate Finance Committee ranking member Chuck Grassley(R-Iowa) said that a value-based approach is the "kind of reform thatevery branch of our government ought to go after with full force," adding,"Now that the plan is set, Congress needs to get the job done and passadditional legislation to start implementing value-based purchasing." AARPDirector of Public Policy John Rother said, "We are pleased that Medicareis now taking concrete steps to begin tying a portion of hospital payments totheir actual performance, rewarding both those that provide high quality andthose that demonstrate meaningful improvement" (CQ HealthBeat,11/26).

Stacey Brown -- a spokesperson for Premier, which worked with CMS on anearlier pay-for-performance project -- said, "We want to make sure whatwe're doing here is rewarding hospitals for quality gains and not developing acost-cutting program" (Wall Street Journal, 11/27). However,Jayne Hart Chambers, senior vice president for the Federation of American Hospitals, said, "The Federation reallybelieves there needs to be a new pool of money for the incentive payments andthat the funds not come out of the base DRG rate because you're injuring thehospitals that need the funds to do the improvement" (CQ HealthBeat,11/26).

Reprintedwith permission from kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign upfor email delivery at kaisernetwork.org/email . The Kaiser Daily Health PolicyReport is published for kaisernetwork.org, a free service of The Henry J.Kaiser Family Foundation.

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