Hospital and health system CFOs check numerous metrics on a daily basis and, as reimbursement becomes more closely linked to health outcomes, finance chiefs are examining quality metrics as a part of their daily routines.
The arenas of cost and quality have become more connected in recent years through various Affordable Care Act initiatives and due to the increasing use of bundled payments and formation of accountable care organizations.
Medicare initiatives connect cost and quality
Established by the ACA, the Medicare Hospital Readmissions Reduction Program took effect in fiscal year 2013. During the first year of the program, CMS cut Medicare reimbursement by up to 1 percent for 2,213 hospitals with high 30-day readmission rates for heart attack, heart failure and pneumonia. The second round of penalties started Oct. 1, 2013, and CMS cut reimbursements for 2,225 hospitals by up to 2 percent. A year later, with the program expanded to track readmissions for additional conditions, Medicare fined a record 2,610 hospitals, and harsher penalties were imposed with CMS cutting reimbursements up to 3 percent. In the fourth year of the program, 2,592 hospitals were hit with penalties, which will be in effect until Sept. 30, 2016.
Another program established under the ACA linking reimbursement to outcomes is the Hospital Value-Based Purchasing Program, which is intended to encourage hospitals to provide high-quality care more efficiently by adjusting payments to hospitals based on the quality of care they provide.
The program adjusts Medicare payments to hospitals under CMS' Inpatient Prospective Payment System. In FY 2016, base operating MS-DRG payments to eligible IPPS hospitals are being reduced by 1.75 percent, up from the 1.5 percent reduction the year prior, to fund an estimated $1.5 billion in incentive payments for the VBP Program. The highest performing hospitals in FY 2016 will receive a net change in payments of slightly more than 3 percent after the mandatory 1.75 percent reduction, while the worst performing hospitals will not recoup any of the mandatory reduction.
There are four VBP Program domains used to score hospitals in fiscal 2016: clinical process of care, patient experience of care, outcomes and efficiency. The metrics are weighted differently, and a hospital's total weighted score is based 10 percent on clinical process of care, 25 percent on patient experience of care, 25 percent on efficiency and 40 percent on outcomes. For FY 2017, CMS is adopting two new safety measures and one new clinical care-process measure. More than 78 percent of the measures in the Value-Based Purchasing Program will assess health outcomes, patient experience and cost in FY 2017.
A third ACA program, the Hospital Acquired-Condition Reduction Program, penalizes facilities for high rates of patients who are hospitalized again within 30 days of discharge. The program uses public reporting and financial incentives to encourage IPPS hospitals to reduce HACs and improve patient safety. In FY 2015, the 25 percent of hospitals with the highest rates of certain HACs had their payments reduced by 1 percent. CMS calculates a total HAC score using three measures assigned to two domains. For FY 2016, domain 1 includes a single measure: PSI-90 composite measure. Domain 2 includes measures for central line-associated bloodstream infections, catheter-associated urinary tract infections, and surgical site infections for colon surgeries and abdominal hysterectomies.
The push for value-based care
Propelled by the Medicare initiatives, hospitals and health systems are increasingly using value-based payment models as they transition away from fee-for-service medicine: As of February, 42 percent of hospitals reported that 10 percent or more of their revenue stems from value-based contracts, according to a survey from Kaufman, Hall & Associates — an increase of 20 percent since August 2014.
The survey found even more dramatic growth in expectations for future use of value-based payments. The percentage of hospitals anticipating that value-based contracts will constitute 50 percent or more of their revenue within the next 24 months tripled, from 7 percent to 22 percent, in six months.
The survey findings followed a big development in the industry's move to value-based care delivery. In January, HHS announced its goal to shift 30 percent of all Medicare payments to value-based models by 2016. By 2018, the benchmark is to have half of all Medicare provider payments fall under an alternative model, which includes ACOs, patient-centered medical homes or bundled payments.
A couple of days after HHS made its announcement, the Health Care Transformation Task Force — which includes 30 insurers and provider organizations — committed to moving 75 percent of their businesses to value-based arrangements by 2020.
Hospitals pick up the pace with bundled payments and ACOs
As HHS called for, hospitals are entering into various types of bundled payment arrangements, including through the Bundled Payments for Care Improvement initiative. Composed of four broadly defined models, which bundle payments for multiple services Medicare beneficiaries received during an episode of care, the initiative allows healthcare organizations to enter into payment arrangements that include financial and performance accountability for an entire episode.
In August, CMS said that more than 2,100 acute care hospitals, skilled nursing facilities, physician group practices, long-term care hospitals, inpatient rehabilitation facilities and home health agencies transitioned from a preparatory period to a risk-bearing implementation period in which they assumed financial risk for episodes of care. The participants include 360 organizations that entered into agreements to participate in the BPCI initiative and an additional 1,755 providers that partnered with those organizations.
The transition followed CMS' proposal in July that it would require certain hospitals to be held accountable for the quality of care delivered to Medicare beneficiaries for hip and knee replacement surgery through recovery. Through the five-year Comprehensive Care for Joint Replacement model, hospitals would continue to be paid under existing Medicare payment systems. However, the hospital where the hip or knee replacement takes place would be held accountable for the quality and costs of care from the time of surgery through 90 days after discharge.
Under the payment model, hospitals would be eligible to receive an additional payment or be required to repay Medicare for a portion of the episode costs depending on the quality of care the hospital provides and its cost performance.
Along with the growing use of bundled payments, hospitals are continuing to form ACOs. Although numerous organizations have dropped out of Medicare's Pioneer ACO program — which is down to 16 participants from the original 32 — the overall number of ACOs continues to increase. As of January, there were 426 Medicare ACOs, up from 368 in 2014 and 134 in 2013, according to an analysis from consulting firm Oliver Wyman. Outside of Medicare, healthcare organizations are also increasingly forming ACOs with private insurers.
Quality metrics hospital CFOs are tracking
With quality performance having a direct and growing effect on hospital reimbursements, CFOs are stepping out of their comfort zones and taking a closer look at quality metrics that have consequences on revenue.
The following are some of the key quality metrics identified by CFOs.
1. Rate of readmissions. Due to the potential penalties under the Medicare Hospital Readmissions Reduction Program, finance chiefs are tracking readmission numbers to project possible penalties ahead of time and gain insight into the factors that are contributing to unplanned readmissions.
2. Patient experience. A significant domain in the VBP Program is patient satisfaction, which has captured the attention of hospital finance chiefs. The HCAHPS survey asks patients to score a hospital on items related to their hospital experience, and CFOs are getting insight by tracking those scores.
3. Cost per visit. CFOs are looking at spending per patient visit to track the patient populations that are driving costs the most. By identifying the high-cost patient populations, executives from the finance side and the clinical side can come together to determine what steps need to be taken to get those costs down.
4. Mortality rates. The outcomes domain of the VBP Program includes hospital mortality measures. The mortality measures are estimates of deaths from any cause within 30 days of a hospital admission for acute myocardial infarction, heart failure and pneumonia. With the outcomes domain weighted heavily under the VBP Program, hospital finance chiefs should start tracking this measure.
5. Hospital-acquired infection rates. Although tracking CLABSI, CAUTI and SSI rates may not be part of a hospital CFO's daily routine, finance chiefs need to get involved in quality and infection control meetings to understand how the rates of those infections are impacting reimbursement.