The Centers for Medicare & Medicaid Services (CMS) recently published proposed regulations to implement a hospital value-based purchasing (VBP) program. Under the proposed rule, value-based incentive payments will be made to hospitals for cost reporting years beginning after October 1, 2012, if the hospital meets certain performance standards for the fiscal year. Consequently, providers who do not meet the quality standards will, in effect, have a one percent payment reduction beginning in 2013.

The VBP program will change the financial stakes for hospitals for Medicare and perhaps other third party payers. While actual payment adjustments won't start until after October 1, 2012, the measurement periods commence as early as July 2011. Therefore, hospitals must begin analyzing their data to assure that their performance meets or exceeds the various VBP performance thresholds or to implement corrective actions. Hospitals also must carefully monitor forthcoming measures to assure that they meet the performance or improvement thresholds.

The VBP will be funded through a reduction to hospital diagnosis-related group (DRG) payments (excluding disproportionate share, indirect medical education, low volume adjustment or outlier payments) beginning at one percent in 2013 and increasing to two percent by 2017. Overall, the distributive impact of the VBP is estimated at $850 million for FY 2013.

The VBP generally is applicable to all hospitals other than psychiatric hospitals, rehabilitation hospitals, prospective payment system- (PPS) exempt children's hospitals, PPS-exempt cancer hospitals, critical access hospitals, long-term acute care hospitals and hospitals located in Puerto Rico or other territories. Hospitals ineligible for the VBP bonus program in an applicable fiscal year would be those determined to have an immediate jeopardy deficiency [as defined at 42 C.F.R. § 489.3] or a payment reduction under the Hospital IQR program, as hereafter defined, or for which there are insufficient numbers of cases (ten cases) or data (less than four performance measures are applicable).

Performance Measures

Initial Performance Measures

The 18 incentive performance measures initially proposed by CMS are a subset of the 45 quality measures already adopted for 2011 by the Medicare Hospital Inpatient Quality Reporting Program (Hospital IQR program) [formerly known as the Reporting Hospital Quality Data for the Annual Payment Update Program, or RHQDAPU].

Seventeen of the measures will be clinical process of care measures and will account for 70 percent of the hospital's total performance score. The final measure will be from the results of the Hospital Consumer Assessment of Healthcare Providers and Systems survey (HCAHPS), intended to capture the patient's perception of the healthcare experience, which will count for 30 percent of the hospital's total performance score. For 2014, CMS intends to add the following additional outcome measures:

  • Agency for Healthcare Research and Quality (AHRQ) patient safety indicators (PSI), inpatient quality indicators and composite measures.
  • AHRQ, PSI and nursing-sensitive care measures.
  • Acute myocardial infarction, heart failure and pneumonia mortality measures (Medicare patients).

CMS also is seeking comments on an efficiency measure, such as Medicare spending per beneficiary, and what should be included in the spending computation, if that is the chosen efficiency measure.

In evaluating the measures, CMS proposes to use a three-domain performance scoring model which considers the clinical process of care domain, the patient experience of care domain and, beginning in 2014, the outcomes domain. Hospital performance scores will be based on the higher of the hospital's achievement against an industry benchmark standard or, if higher, the hospital's improvement of its own performance from its base period for each measure. For new hospitals and hospitals that did not submit measure data for the baseline period, CMS is proposing that these hospitals be included in the VBP program, but that they be scored only on the achievement criteria, as no improvement metric can be calculated.

For a detailed overview of the proposed initial measures for the FY 2013 VBP Program, please click here.

The 2013 incentive payments will be based on a comparison of data collected from July 1, 2011 through March 31, 2012, against the hospital's data for July 1, 2009 through March 31, 2010. Likewise, the outcome measures for 2014 will be based on data from July 1, 2011 through December 31, 2012, compared to the hospital's performance from July 1, 2008 through December 31, 2009. Consequently, providers have only a short time period to review their operations to assure their performance will meet the incentive payment thresholds.

Identifying and Adding New Measures

Going forward, CMS intends to rely on a mix of standards, processes, outcomes and patient experience measures, including measures of care transitions and changes in patient functional status in developing its quality measures. CMS, to the extent possible, intends to use nationally endorsed measures that are aligned with best practices which are adjusted for risk and patient population/provider characteristics. CMS also intends to develop measures that are consistent across Medicare and Medicaid public reporting and payment systems, including those used in the Hospital Outpatient Quality Data Reporting Program, the Physician Quality Reporting Initiative and the quality reporting programs implemented for home health agencies, skilled nursing facilities and end-stage renal disease facilities.

New measures will be selected based upon their relation to CMS's six quality aims -- effective, safe, timely, efficient, patient-centered and equitable healthcare.

CMS's current and long-term priority topics include prevention and population health, safety, chronic conditions, high-cost and high-volume conditions, elimination of health disparities, healthcare-associated infections and other adverse healthcare outcomes, improved care coordination, improved efficiency, improved patient and family experience of care, effective management of acute and chronic episodes of care, reduced unwarranted geographic variation in quality and efficiency and adoption and use of interoperable health information technology.

CMS plans to add additional measures to the VBP program, including, but not limited to, AHRQ and hospital-acquired condition measures that have been specified for the Hospital IQR program and proposes that the performance period for those measures will begin one year after the measures have been displayed on the Hospital Compare website. However, CMS also indicated that it intends to add new measures if a measure has been part of the Hospital IQR program and has been on the Hospital Compare website for a year, without the notice and comment rulemaking "because of the urgency to improve the quality of hospital care, and in order to minimize any delay to take substantive action in favor of patient safety." Measures also would be removed through a subregulatory process. However, each of the measures must be established at least 60 days prior to the beginning of the applicable performance period.

CMS indicated that it would not include Hospital IQR program measures that do not discriminate among providers. For example, CMS found that all but a few hospitals have achieved a similarly high level of performance on the following measures: AMI-1 aspirin at arrival; AMI-5 beta blocker at discharge; AMI-3 ACEI or ARB at discharge; AMI-4 smoking cessation; HF-4 smoking cessation; PN-4 smoking cessation; and SCIP-Inf-6 surgery patients with appropriate hair removal. Hence, the foregoing measures would not be included in the VBP measures.

Quality Payment Scoring

To assess the performance of individual hospitals, CMS will score each hospital based on achievement and improvement ranges for each applicable measure. Scores are percentage of points achieved by the hospital for that domain/total points possible for the hospital for the criteria applicable to the hospital.

Clinical Process of Care Measures Score

In determining the achievement score, CMS will award hospitals from zero to ten points along an achievement range between the achievement threshold (the minimum level of hospital performance required to receive achievement points) and the benchmark. For any achievement measure where a hospital performs at or better than the benchmark, the hospital would receive ten points for the measure. If performance is below the threshold, the hospital would not receive any points. The base achievement performance standard threshold will be set at the median measure of hospital performance during the baseline period (e.g., July 1, 2009 -- March 31, 2010).

Improvement performance standard thresholds will be tied to the specific hospital's performance during the base period. In determining improvement scores, CMS will award hospitals from zero to ten points along an improvement range -- the scale between the hospital's prior score on the particular measure during the baseline period and the benchmark. The benchmark will be set at the mean performance level for the measure by the top ten percent of hospitals for that measure. For any improvement measure where a hospital performs at or better than the benchmark, the hospital would receive ten points for the measure. If performance is below the hospital's baseline period performance level, the hospital would not receive any points.

With respect to the clinical process of care and outcome domains, the points earned for each measure applicable to the hospital would be summed (weighted equally) to determine the total points earned by the hospital for the particular domain. The points then would be normalized to account for measures that do not apply to the hospital (e.g., less than ten cases). However, for a domain to be accorded weight by CMS, at least four measures within the domain must apply to the hospital.

HCAHPS Survey Measure Score

A similar scoring methodology will be used for the HCAHPS Survey Measure, except that all measures will be applicable to all VBP-eligible hospitals. However, for the HCAHPS Survey Measure to be applicable to a hospital, the hospital must report at least 100 HCAHPS surveys during the performance period. To ensure at least adequate performance on all eight of the HCAHPS Survey Measure criteria, CMS has added a consistency score to recognize consistent achievement by a provider on the HCAHPS Survey Measure criteria.

A hospital will receive zero consistency points if its performance on one or more HCAHPS Survey Measure criteria was at least as poor as the worst-performing hospital's performance on that dimension during the baseline period. A hospital can receive a maximum score of 20 consistency points if its performance on all eight HCAHPS Survey Measure criteria was at or above the achievement threshold (50 percent of hospital performance during the baseline period). Consistency points between those extremes will be awarded proportionately according to the number of percentiles. The lowest dimension score is between the 0th and 50th percentile of hospital performance during the baseline period.

Total Performance Score

Thus for 2013, a hospital's total VBP score will be equal to 70 percent X Percentage Clinical Process of Care Measures Score + 30 percent X Percentage HCAHPS Survey Measure Measures Score.

Payment Adjustments

CMS anticipates that it will begin reducing DRG payments by one percent by January 2013, which will allow the one percent reduction to be applied to all FY 2013 discharges, including those that have occurred beginning on October 1, 2012.

Because the proposed performance period would end only six months prior to the beginning of FY 2013, CMS will not be able to determine a hospital's performance score or final value-based incentive payment adjustment 60 days prior to the start of FY 2013 on October 1, 2012. Therefore, it has proposed informing hospitals through their QualityNet account at least 60 days prior to October 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.

Publication of Performance Scores

Section 1886(o)(10)(A)(i) of the Social Security Act requires CMS to make individual hospital performance information available to the public, including hospital performance on each measure that applies to the hospital, the performance of the hospital with respect to each condition or procedure and the total hospital performance score.

To meet this requirement, CMS has proposed publishing 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, AMI, HF, PN, SCIP, HAI), each hospital's domain-specific score and each hospital's total performance score on its Hospital Compare website. The Hospital IQR program data validation and data correction procedures will be used to validate and correct VBP published data.

Hospital-specific data for FY 2013 will be available on the hospital's QualityNet account on November 1, 2012, and hospitals should promptly review the accuracy of this information.