On January 13, 2011, CMS published a proposed rule (Rule) in the Federal Register that would establish a value-based purchasing program for hospital inpatient services under Medicare (Hospital VBP Program) that will pay incentive payments to hospitals based on the quality and efficiency of the care they provide. Under the Hospital VBP Program, incentive payments will be available beginning with discharges that occur on or after October 1, 2012. CMS will fund the Hospital VBP Program for FY 2013 through a one-percent reduction to the base operating DRG payment for each hospital discharge. CMS estimates the overall distributive impact of the one-percent reduction to be $850 million for FY 2013. Since the Social Security Act requires total reductions for hospitals to equal the amount available for value-based incentive payments so that the result is budget-neutral, the incentive payment funds are estimated to be $850 million for FY 2013. Hospitals must meet certain performance standards for a specified performance period to qualify for the incentive payments. The establishment of the Hospital VBP Program is required by the Patient Protection and Affordable Care Act (PPACA).

The Hospital VBP Program builds upon previous steps Congress and CMS have taken to introduce quality measures into Medicare reimbursement. The existing Medicare Hospital Inpatient Quality Reporting Program (Hospital IQR Program), previously known as the Reporting Hospital Quality Data for the Annual Payment Update Program (RHQDAPU), provides hospitals with financial incentives to report certain quality measures, but does not vary compensation based on the content of those reports. The results of the Hospital IQR Program are reported to the public at www.hospitalcompare.hhs.gov. The Hospital VBP Program utilizes a subset of the measures reported through the Hospital IQR Program and proposes to reward hospitals that achieve higher scores on the reported quality and outcome measures.

The proposed Hospital VBP Program marks a significant change in the way hospitals are reimbursed under Medicare. The Rule describes the Hospital VBP Program as the next step in transforming Medicare into an active purchaser of quality health care for its beneficiaries. The stated intention of CMS is to provide incentives for participating hospitals to take immediate action to improve the quality of care they furnish to their patients. Comments on the Rule must be submitted before March 8, 2011.

Proposed Measures, Performance Period, and Performance Standards

For the FY 2013 Hospital VBP Program, the Rule proposes to adopt 18 quality and outcome measures for use in determining a hospital's incentive payments. For incentive payments beginning on October 1, 2012, the quality measures will be collected for a performance period of three calendar quarters, from July 1, 2011 to March 31, 2012, and hospitals will be scored based on how well they perform during this period. For future years, CMS anticipates that it will use a full-year performance period. As required by statute, each of the quality measures is currently being collected as part of the Hospital IQR Program and reported on the www.hospitalcompare.hhs.gov Web site. The measures proposed for FY 2013 are listed in the table below.

CMS also has selected performance standards for the FY 2013 Hospital VBP Program. The performance standards measure both clinical processes and patient experience. CMS proposes to give a 70-percent weight to clinical process of care services, and 30 percent to patient experience. These performance standards are based on a similar three-quarter period from July 1, 2009 to March 31, 2010. For each proposed measure, the Rule proposes setting the performance measure at the median of the performance level of all hospitals for that measure during the baseline period. Hospitals that exceed this amount could receive incentive payments. The precise median levels have not yet been calculated for the time period, but the Rule includes example data from an earlier time period for each measure. These data also are included in the list below. The precise data will be included in the final rule.

FY 2013 Proposed Measure and Example of Performance Standard

Acute Myocardial Infarction

  • Aspirin Prescribed at Discharge: 0.987
  • Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival: 0.673
  • Primary PCI Received Within 90 Minutes of Hospital Arrival: 0.856

Heart Failure

  • Discharge Instructions: 0.872
  • Evaluation of LVS Function: 0.983
  • ACEI or ARB for LVSD: 0.944

Pneumonia

  • Pneumococcal Vaccination: 0.929
  • Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic Received in Hospital: 0.951
  • Initial Antibiotic Selection for CAP in Immunocompetent Patient: 0.909
  • Influenza Vaccination: 0.909

Healthcare-Associated Infections

  • Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision: 0.955
  • Prophylactic Antibiotic Selection for Surgical Patients: 0.978
  • Prophylactic Antiobiotics Discontinued Within 24 Hours After Surgery End Time: 0.927
  • Cardiac Surgery Patients With Controlled 6 a.m. Postoperative Serum Glucose: 0.912

Surgeries

  • Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative Period: (not listed)
  • Surgery Patients With Recommended Venous Thomboembolism Prophylaxis Ordered: 0.938
  • Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery: 0.913

HCAHPS Survey

  • Hospital Consumer Assessment of Healthcare Providers and Systems Survey (Includes: Communication With Nurses, Communication With Doctors, Responsiveness of Hospital Staff, Pain Management, Communication About Medicines, Cleanliness and Quietness of Hospital Environment, Discharge Information, and Overall Rating of Hospital): 0.500

CMS also proposes to include three mortality-related measures currently reported through the Hospital IQR Program, which will measure whether patients with certain principal diagnoses die for any cause within 30 days of admission, even if after discharge. The three mortality measures are for principal diagnoses of heart attack, heart failure, and pneumonia. Because this data is reported under the Hospital IQR Program on a three-year rolling average, CMS believes the shortened three-quarter performance period for FY 2013 would be too short, and it proposes to extend the performance period used to assess such measures to 18 months, from July 1, 2011 to December 31, 2012. These mortality-related measures would not affect the FY 2013 incentive payments, but would be taken into account for the FY 2014 incentive payments. The performance standards for these measures also would be based on the median score over a comparable baseline period.

CMS also proposes to implement a subregulatory process to allow it to expedite the timeline for adding measures to the Hospital VBP Program without the necessity of notice and comment rulemaking. Under this process, CMS would be able to add any measure to the Hospital VBP Program if the measure is adopted under the Hospital IQR Program and has been listed on the www.hospitalcompare.hhs.gov Web site for at least one year. In addition, CMS proposes a subregulatory process to permit it to retire measures from the Hospital VBP Program by posting its intention to do so at least 60 days prior to the date the measure is to be retired.

Scoring Clinical Process Measures

In the Rule, CMS proposes a methodology for assessing each hospital's total clinical performance based on a Three-Domain Performance Scoring Model (TDPM). This scoring methodology is similar to the Performance Assessment Model proposed in the 2007 Report to Congress; however, CMS believes the TDPM is a better scoring model because it more accurately captures a hospital's achievements and improvements under the Hospital VBP Program. CMS intends to make scoring methodologies reliable, straightforward, and stable and to enable consumers, providers, and payers to make meaningful distinctions among the performance of providers.

Under the TDPM, a hospital's performance on each quality domain is based on the higher of an achievement score in the measurement period or an improvement score, which is determined by comparing the hospital's current measure score with a baseline period of performance. The improvement score is intended to provide an incentive for hospitals that participate in the Hospital VBP Program by rewarding improvement rather than focusing solely on outperforming other hospitals. Hospitals that have already undertaken quality steps, and that may have only incremental improvement in quality, may still receive incentive payments based on their comparison to a national benchmark.

The achievement score will be based on points earned by a hospital along an achievement range, which is a scale between the achievement threshold (the minimum level of hospital performance required) and the benchmark (the mean of the top 10 percent of hospital performance levels during the baseline period). The improvement score will be based on an improvement range, which is a scale between the hospital's prior score on the measure during the baseline period and the benchmark. CMS proposes to establish the benchmarks and achievement thresholds using national data from a three-quarter baseline period of July 1, 2009 through March 31, 2010. The achievement threshold will be set at the 50th percentile, to further CMS's goal of rewarding only those hospitals that can demonstrate a certain level of quality with a desire to set a bar at an attainable level.

Calculation of the overall clinical process of care and outcome measures will be based on all measures that apply to the hospital. A measure applies to a hospital if the hospital treats a minimum of 10 cases that meet the technical specifications for reporting the measure. CMS also proposes that at least four measures within a domain must apply to the hospital in order for the hospital to receive a performance score on that domain. Total points for each domain will be compared to the total possible points for the domain and then converted into a percentage. Measurement domains will not be given equal weight initially, but over time scoring methodologies will become more weighted toward outcome, patient experience, and functional status measures.

CMS seeks comments and suggestions on improving the simplicity of the Hospital VBP Program performance score methodology and its alignment with other CMS value-based purchasing programs.

Scoring Patient Experience of Care Measures

The Rule proposes to utilize the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS), which assesses the patient experience through surveys. CMS proposes a scoring approach for the HCAHPS that would measure eight dimensions of patient experience. CMS seeks to incentivize hospitals to improve on each of the eight dimensions of patient experience. As with the clinical process measures described above, the Rule proposes separate scores for achievement and improvement, with the total score on each dimension being the higher of the achievement or improvement score. The achievement thresholds and benchmarks would be established using data from a proposed baseline period. The hospital would earn points for achievement if it performed at least as well in the performance period as the mid-performing hospital performed during the baseline period.

For each dimension, a hospital will receive an achievement score between zero and 10. If the hospital's score is below the baseline median for that dimension, its score will be zero. If the hospital's score is at or greater than the 95th percentile, which is the benchmark for the dimension, it will receive a score of 10 for that dimension. If the hospital's score is equal to or greater than the achievement threshold of the 50th percentile but below the benchmark 95th percentile, it will receive a score of one to nine based on a ratings formula.

A hospital will receive an improvement score between zero and nine for each dimension, depending on how much its performance on the dimension improved from its performance on the dimension during the baseline period. CMS stated that this proposal is to recognize and encourage improvement for each of the eight patient experience dimensions.

CMS also proposes to include a consistency score as a component of the performance scoring model to recognize consistent achievement across dimensions. The scoring range will be from zero to 20.

The final step in measuring the patient experience of care will be to calculate an overall score combining the achievement, improvement, and consistency scores. For each dimension, the larger of the zero to 10 achievement score or the zero to nine improvement score would be used, and the zero to 20 consistency score would be added.

A hospital will be required to report the results of a minimum of 100 HCAHPS surveys during the performance period to be eligible for the Hospital VBP Program for FY 2013.

Weighting of Hospital Performance Domains for Clinical Process of Care and Patient Experience

CMS proposes to implement a weighting scheme for the FY 2013 Hospital VBP Program consisting of 70 percent clinical process of care measures and 30 percent patient experience of care. CMS will then add the weighted scores together to obtain a total performance score. CMS requests public comments on the proposed weighting approach and calculation of the total performance score.

Comments Requested on Proposed Hospital VBP Performance Score Methodology and Alternatives

CMS assessed two alternative hospital scoring models for the Hospital VBP Program — the Six-Domain Performance Scoring Model, and the Appropriate Care Model. In assessing both models, it considered their: (1) impact on quality improvement in patient care; (2) accuracy with regard to the comparisons made between hospitals; (3) impact on ranking of hospitals in terms of their performance; (4) ability to capture meaningful variation; and (5) impact on the number of hospitals that would receive a score from the Hospital VBP Program. CMS is requesting public comments on the proposed TDPM, as well as other potential performance scoring models.

In addition to the assessment factors described above, CMS considered the following additional factors in its selection of the hospital scoring model: (1) simplicity and transparency of performance score methods to hospitals; (2) alignment of Hospital VBP Program performance score methodology with other CMS value-based purchasing programs; (3) quantitative characteristics of the measures and hospital-level data; (4) relative emphasis placed on achievement and improvement in a performance score methodology; (5) elimination of unintended consequences for rewarding inappropriate hospital behaviors and patient outcomes; and (6) use of the most currently available measure data to assess improvement in a performance score methodology. CMS requests comments on the merits and drawbacks of these factors on the proposed and alternative performance score methodologies, and any new, improved scoring methodology alternatives to achieve its objectives.

Hospitals to Which Hospital VBP Program Is Applicable

For purposes of the Hospital VBP Program, the term “hospital” means a “subsection (d) hospital,” that is, a “hospital located in one of the 50 States or the District of Columbia” that is reimbursed under the Acute Care Inpatient Prospective Payment System (IPPS). Thus, under the Rule, the Hospital VBP Program is not applicable to: hospitals located in U.S. territories, and hospitals and hospital units excluded from the IPPS (except acute care hospitals in Maryland), such as psychiatric, rehabilitation, long-term care, children's, and cancer hospitals.

In addition, CMS proposes that hospitals shall not be subject to the Hospital VBP Program in the following circumstances:

  • Hospitals Subject to Hospital IQR Payment Reductions. Any hospital that is subject to the Hospital IQR payment reduction because it does not meet the requirements for the Hospital IQR Program will be excluded from the Hospital VBP Program for the fiscal year. However, CMS is concerned that hospitals may elect to “opt out” of the Hospital VBP Program by choosing to not submit data under the Hospital IQR Program, thereby avoiding the base operating DRG payment reduction, but forgoing the possibility to receive a value-based incentive payment. Although such hospitals will still be subject to the Hospital IQR Program reduction to their annual payment increase for the fiscal year, CMS plans to track hospital participation in the Hospital IQR Program and welcomes public comment on this issue.
  • Hospitals With Cited Deficiencies. Any hospital that is cited by CMS through the Medicare State Survey and Certification process for deficiencies during the proposed performance period (as noted above, for purposes of the FY 2013 Hospital VBP Program this means July 1, 2011 to March 31, 2012) that pose immediate jeopardy to patients will be excluded from the Hospital VBP Program for the fiscal year.
  • Hospitals That Do Not Meet Minimum Reporting Requirements. Hospitals that do not report a minimum number of measures and a minimum number of cases for the measures are excluded from the Hospital VBP Program. CMS proposes to exclude from the Hospital VBP Program any hospitals to which less than four of the proposed clinical processes measures apply. The minimum number of cases required for each measure under the proposed TDPM is 10. CMS proposes to exclude from a hospital's total performance score calculation any measures for which the hospital reports fewer than 10 cases. In addition, for FY 2013, hospitals must report a minimum of 100 HCAHPS surveys during the performance period on the patient satisfaction measure.

Hospitals for which CMS has data from the applicable performance period, but no data from the baseline period (because these hospitals either were not open during the baseline period or otherwise did not participate in the Hospital IQR Program during that period), will still be included in the Hospital VBP Program, but will be scored based only on achievement. CMS invites public comments on this approach and welcomes input on scoring hospitals that do not have baseline performance data.

Notification to Hospitals of Reduction, Performance Scores, and Incentive Payments

CMS proposes to notify hospitals of the one-percent reduction to their FY 2013 base operating DRG payments for each discharge in the FY 2013 Inpatient IPPS rule, which should be finalized at least 60 days prior to October 1, 2012. CMS expects to incorporate this reduction into the claims processing system in January 2013, which will allow the one-percent reduction to be applied to the FY 2013 discharges, including those that have occurred beginning on October 1, 2012. CMS estimates that the overall economic impact of this reduction will be $850 million.

Because the proposed performance period will end only six months prior to the beginning of FY 2013, CMS will not know each hospital's exact total performance score or final value-based incentive payment adjustment 60 days prior to the start of the FYI 2013 on October 1, 2012. As a result, CMS proposes to inform each hospital through its QualityNet account no later than August 1, 2012 of the estimated amount of its value-based incentive payment for FY 2013 discharges based on estimated performance scoring and value-based incentive payment amounts, which will be derived from the most recently available data. CMS proposes that a hospital participating in the Hospital VBP Program establish a QualityNet account, if it does not have one, for purposes of the Hospital IQR Program.

CMS also proposes to notify each hospital of the exact amount of its value-based incentive payment adjustment for FY 2013 discharges on November 1, 2012. The value-based incentive payment adjustment would be incorporated into the claims processing system in January 2013, which will allow the value-based incentive payment adjustment to be applied to the FY 2013 discharges, including those that have occurred beginning on October 1, 2012.

Public Disclosure of Information

The PPACA requires the Secretary of Health and Human Services to make information available to the public regarding individual hospital performance in the Hospital VBP Program, including: (1) hospital performance on each measure that applies to the hospital; (2) the performance of the hospital with respect to each condition or procedure; and (3) the total hospital performance score. To meet this requirement, CMS proposes to publish hospital scores with respect to each measure, each hospital's condition-specific score (that is, the performance score with respect to each condition or procedure, for example, acute myocardial infarction, heart failure, pneumonia, healthcare-associated infections, and surgeries), each hospital's domain-specific score, and each hospital's total performance score on the Hospital Compare website. CMS notes that it is not proposing to use a hospital's condition-specific score for purposes of calculating its total performance score under the proposed TDPM.

Review and Corrections

The PPACA requires the Secretary to ensure that each hospital has the opportunity to review and submit corrections related to the information to be made public prior to such information being made public. As stated above, CMS proposes to derive the Hospital VBP Program measures data directly from measures data submitted by each hospital under the Hospital IQR Program. The Rule proposes that the procedures CMS adopted for the Hospital IQR Program also will be the procedures that hospitals must follow for reviewing and submitting corrections related to the information to be made public under the Hospital VBP Program. The Rule also proposes to provide hospitals with 30 calendar days to review and submit corrections related to their performance measure scores, condition-specific scores, domain-specific scores, and total performance score after they are made available to the hospital.

The PPACA also requires the Secretary to periodically post on the Hospital Compare Web site aggregate information on the Hospital VBP Program, including: (1) the number of hospitals receiving value-based incentive payments under the program as well as the range and total amount of such value-based incentive payments; and (2) the number of hospitals receiving less than the maximum value-based incentive payment available for the fiscal year involved and the range and amount of such payments. The Rule proposes that CMS post aggregate Hospital VBP information on the Hospital Compare Web site and provide further details on reporting aggregated information in the future.

Proposed Reconsideration and Appeal Procedures

While the PPACA requires the Secretary to establish a process by which a hospital may appeal the calculation of its performance assessment with respect to the performance standards and the hospital performance score, CMS did not propose an appeal process in the Rule. Instead, CMS deferred this to future rulemaking. CMS invites public comment on the structure and procedure of an appropriate appeal process. Specifically, CMS seeks comments on the appropriateness of a process that would establish an agency-level appeal process under which CMS personnel having appropriate expertise in the Hospital VBP Program would decide the appeal. CMS seeks insight on what qualifications such personnel should hold. Further, CMS invites comments on how the appeal process should be structured. Finally, CMS seeks public input on the timeframe in which these appeals should be resolved.

Proposed FY 2013 Validation Requirements

In the Rule, CMS proposes that the validation process utilized for the FY 2013 Hospital IQR Program will also apply to the FY 2013 Hospital VBP Program. CMS contends that using this process for both the Hospital IQR Program and the Hospital VBP Program will be beneficial for both hospitals and CMS because no additional burden will be placed on hospitals to separately return requested medical records for the Hospital VBP Program.

Because the measures data CMS is using for the Hospital VBP Program is the same as the data CMS collects for the Hospital IQR Program, CMS believes that it can ensure that the Hospital VBP Program measures data are accurate through the Hospital IQR Program validation process.

In future rulemaking related to the Hospital IQR Program, CMS may propose refinements to its annual Hospital IQR validation sample selection, targeting, and annual validation period for enhanced alignment and use in the Hospital VBP Program. CMS seeks to reduce hospital burden and ensure that the information CMS collects for both the Hospital IQR Program and the Hospital VBP Program is accurate.

Conclusion

The Rule is another step in CMS's implementation of Congress' intent to align the Medicare reimbursement system with quality outcomes instead of merely the utilization of health services. Hospital providers should carefully study and provide comments on the standards and methodologies CMS proposed to ensure they are well positioned to be eligible to receive the incentive payments. The one-percent reduction to FY 2013 base operating DRG payments means a $850 million reduction in overall inpatient DRG payments. Accordingly, if hospital providers are not strategic in achieving applicable quality measures and performance standards, they may experience a negative financial impact.