The Hospital Value Programs

Three programs adjust hospital payment under the inpatient prospective payment system. Each attaches to the same base MS-DRG payment, and each uses a different mechanism, which makes them a useful set for understanding how quality incentives can be built.

Hospital Value-Based Purchasing: redistribution

The program “withholds participating hospitals’ Medicare payments by a percentage specified by law (2%)” and “uses the estimated total amount of those reductions to fund value-based incentive payments to hospitals based on their performance in the program.” The net result is applied “as a claim-by-claim adjustment factor to the base operating Medicare severity diagnosis-related group (MS-DRG) payment amount.”

Hospitals are scored on mortality and complications, healthcare-associated infections, patient safety, patient experience, and efficiency and cost reduction. Critically, “each hospital may earn 2 scores on each measure, one for achievement and one for improvement,” and the higher of the two counts. That is a deliberate design choice: a hospital starting from a poor baseline can still earn by improving, which keeps the program from being purely a reward for pre-existing advantage.

This is a redistribution program. Every dollar paid out came from another hospital.

Hospital Readmissions Reduction Program: penalty only

The readmissions program reduces payment for excess 30-day unplanned readmissions across six conditions and procedures: acute myocardial infarction, COPD, heart failure, pneumonia, coronary artery bypass graft surgery, and elective hip or knee replacement. “The payment reduction is capped at 3 percent (that is, a payment adjustment factor of 0.97).”

There is no upside. A hospital with excellent readmission rates is not paid more, it simply avoids a cut.

Since FY 2019, the 21st Century Cures Act has required CMS “to assess a hospital’s performance relative to other hospitals with a similar proportion of beneficiaries who are dually eligible for Medicare and full Medicaid benefits.” That peer-grouping change was a direct response to evidence that hospitals serving poorer populations were being penalized for the circumstances of their patients rather than their care, and it is one of the clearest instances of a federal program being redesigned around a social risk objection.

Hospital-Acquired Condition Reduction Program: the bottom quartile

“Hospitals with a Total HAC Score greater than the 75th percentile of all Total HAC Scores will receive a 1-percent payment reduction.” The score is the equally weighted average of a claims-based patient safety composite and five healthcare-associated infection measures reported to the CDC.

Worth remembering: the HAC program is built so that roughly a quarter of hospitals are penalized every year, permanently. If every hospital in the country halved its infection rate, the same number would still be cut, because the comparison is to the distribution rather than to a standard. A relative threshold guarantees the appearance of persistent failure regardless of actual progress, and it cannot signal when the field as a whole has succeeded. The quality measurement module of the introductory course drew the same distinction between absolute and relative benchmarks, and this is the largest live example of the relative kind.

Key takeaways

• Value-Based Purchasing withholds 2 percent and redistributes it based on achievement or improvement, whichever is higher.
• The readmissions program is a penalty-only program capped at 3 percent, peer-grouped by dual-eligible share since FY 2019.
• The HAC program cuts payment 1 percent for the worst-performing quartile, so a fixed share is penalized every year.
• All three adjust the same base MS-DRG payment, so a hospital can be hit by more than one at once.

Sources

• CMS, The Hospital Value-Based Purchasing Program (opens in a new tab)
• CMS, Hospital Readmissions Reduction Program (opens in a new tab)
• CMS, Hospital-Acquired Condition Reduction Program (opens in a new tab)