The Centers for Medicare & Medicaid Services (“CMS”) intends to become an “active purchaser” of health care, thereby driving increased quality and efficiency in health care delivery. In 2009, the various elements of CMS’ Hospital Quality Initiative (“HQI”) will converge into a comprehensive Value- Based Purchasing (“VBP”) plan, which the agency believes will transform the way that Medicare pays for health care. Value-Based Purchasing will be both a pay-for-performance system and a public information and comparison tool. In this article we first examine the component pieces of the current HQI, and then discuss CMS’ proposed plan to build on and—in some cases—transform each piece into the unified VBP plan. Clients with technologies that link to better patient outcomes or quality measurements may wish to highlight these developments when speaking with health care providers, and look for ways to work with CMS to develop additional quality measures that include their technology.

Reporting of Hospital Quality Data Linked to Annual Payment Update

The Hospital Quality Data (“HQD”) initiative was initially developed as a result of the Medicare Prescription Drug Improvement and Modernization Act (“MMA”) of 2003. The Deficit Reduction Act (“DRA”) of 2005, in turn, set out new requirements for the HQD program, increasing both the number of quality measures on which hospitals must report data and the amount of the penalty reduction in the Annual Payment Update (“APU”) for non-reporting hospitals. As of 2007, hospitals paid under Medicare’s inpatient prospective payment system (“IPPS”) who do not submit data on 21 measures will receive a 2 percent reduction in their APU.

The HQD measures are clinical, evidence- based “process of care” measures. Among the conditions covered by the current 21 measures are acute myocardial infarction, heart failure and pneumonia. Also addressed is the broader category of surgical care improvement. Specific measures include “patient given aspirin at arrival” for heart attacks and “patient given oxygenation assessment” for pneumonia.

Consumer Assessment of Health Providers and Systems Survey for Hospitals

Beginning in FY 2008, IPPS hospitals also must meet reporting requirements for this new standardized survey of consumers to receive the full annual payment update. The survey is designed to create information for policy-makers and stakeholders, as well as consumers themselves, regarding hospital performance. As such, it fills a gap in national information available, enabling “apples to apples” comparison across certain measures for various hospitals.

The Consumer Assessment of Health Providers and Systems Survey for Hospitals (“HCAHPS”) is composed of 27 items: 18 substantive items that encompass critical aspects of the hospital experience (communication with doctors and with nurses, responsiveness of hospital staff, cleanliness and quietness of the hospital, pain control, communication about medicines, and discharge information); four technical items to facilitate reporting; three items to adjust for the mix of patients across hospitals; and two items to support congressionally mandated reports. This initiative is currently in the “dry run” stage, with initial publication planned for March 2008.

Premier Hospital Quality Incentive Demonstration

This demonstration is a trial run of the pay-for-performance model. Under this program, CMS rewards top-performing hospitals in five clinical areas: acute myocardial infarction (“AMI”), heart failure, community-acquired pneumonia, coronary artery bypass graft (“CABG”), and hip and knee surgery. Any hospital subscribing to Premier’s Perspectives database can participate, because this system was already set up to track and report data on 30 quality measures, enabling a very quick evaluation of the success of the use of incentives to increase quality performance.

CMS has stated that it is pleased with the results. In the first year of the demonstration, composite quality scores for each measure rose between 4 and 14 percent. The overall improvement after the second year of the demonstration was estimated at 11.8 percent. CMS’ former Acting Administrator, Leslie Norwalk, cites these improvements as evidence that even limited additional payments can drive “acrossthe- board improvements in quality, fewer complications, and reduced costs.” The incentive structure used for the demonstration was a 2 percent bonus on Medicare payments for a given condition for hospitals in the top 10 percent, a 1 perecent increase for those in the second 10 percent, and recognition for the remaining top half of hospitals. Meanwhile, those hospitals that fail to improve beyond a baseline defined by the lowest 20 percent of hospitals at the end of the first year face reduction from the third year forward.

Lessons learned from this pay-forperformance demonstration, along with the infrastructure of the HQD pay-forreporting system, will be used to structure the Value-Based Purchasing plan described below.

Future Plans: Options for VBP

Value-Based Purchasing is the unified quality program that CMS’ other quality initiatives will eventually combine to produce. As described by a CMS Options Paper released in April of this year, VBP will encompass both public reporting and financial incentives for high performance in order to drive improvements in clinical quality, patientcenteredness and efficiency. Like the HQD program, the broad approach was mandated by the DRA of 2005. VBP commences October 2008, and CMS has been engaged in a series of listening sessions with stakeholders to craft program specifics.

VBP is designed to reward both attainment and improvement. CMS further asserts that the program has been designed to “raise all boats” rather than separate out winners and losers. Once fully implemented, CMS will produce an overall performance score for each provider using methodology called the Performance Assessment Model. Under this model, hospitals will receive 0 to 10 points for each measure, based either on improvement or on attainment of a benchmark number of patients given the required care. These scores combine to produce an overall performance score which CMS will translate into the incentive payment using an “exchange function.” Fifteen measures from HQD program will form the initial set of measures, and CMS will add new measures and change existing ones as the program progresses. Future measures will likely include measures relating to patient safety, efficiency, care coordination, and emergency care.