The Facts

Recently enacted health reform legislation will establish reimbursement incentives to reward highly efficient hospitals. Under the new law, $400 million has been made available, over fiscal years 2011 and 2012, for hospitals located in counties in the lowest quartile of age-, sex- and race-adjusted Medicare Part A and B spending.

In fiscal years 2011 and 2012, a qualifying hospital will receive, in addition to its regular Medicare reimbursement, a portion of the $400 million based on the ratio of the hospital’s fiscal year 2009 reimbursement relative to total reimbursement in 2009 for all qualifying hospitals.

According to a review of available Medicare databases, hospitals most likely to benefit will be those located in counties in southern, northwestern or midwestern states that are more sparsely populated and that have a lower number of chronically ill enrollees, including Kentucky, Montana, Wisconsin, Nebraska, Colorado and Arkansas.

What’s at Stake

This reimbursement incentive is one of many changes intended to incentivize quality and efficiency over quantity. Although non-qualifying hospitals will not be penalized, this section of the legislation clearly incentivizes greater efficiency and shows a commitment by the U.S. Congress and the Centers for Medicare & Medicaid Services (CMS) to consider new methods of hospital reimbursement.

Steps to Consider

Although CMS will have to create new databases to implement this provision, hospitals can make some early rough predictions about whether they may be located in a qualifying county by consulting the Dartmouth Atlas of Health Care and data available on the CMS website.