Medicare Discloses Hospitals' Bonuses, Penalties Based On Quality
Medicare compared hospitals on how faithfully they followed rudimentary
standards of care and how patients rated their experiences
By Jordan Rau, KHN Staff Writer
Dec. 21, 2012 - Medicare on Thursday disclosed bonuses and penalties for
nearly 3,000 hospitals as it ties almost $1 billion in payments to the
quality of care provided to patients. The revised payments, which will
begin in January, mark the federal government’s most extensive effort
yet to hold hospitals financially accountable for what happens to
In what amounts to a nationwide competition, Medicare compared hospitals
on how faithfully they followed rudimentary standards of care and how
patients rated their experiences.
In many regions, the hospitals that did the best are not the ones with
the most outsized reputations, but regional and community hospitals,
according to government records. New York-Presbyterian in Manhattan and
Massachusetts General Hospital in Boston, both dominant hospitals in
their cities, will have their payments reduced. Other leading names in
the hospital industry, including the Cleveland Clinic and Intermountain
Medical Center in Utah, will receive bonuses, although not the largest
in their regions.
In all, Medicare is rewarding 1,557 hospitals with more money and
reducing payments to 1,427 others, according to a Kaiser Health News
analysis of records released by the Centers for Medicare & Medicaid
Services. The maximum amount any hospital could gain or lose was 1
percent of its regular Medicare payments.
For nearly two-thirds of the hospitals, the changes are less than a
quarter of a percent. In many cases, it’s little more than a rounding
error on their bottom lines: Cedars-Sinai Medical Center in Los Angeles
will have its payments reduced by 0.05 percent. Still, for hospitals
with lots of Medicare patients, hundreds of thousands of dollars are at
The biggest bonus this year is going to Treasure Valley Hospital, a
physician-owned, 10-bed hospital in Boise, Idaho, that is getting a 0.83
percent increase in payment for each Medicare patient, the records show.
Auburn Community Hospital, a nonprofit near Syracuse in upstate New
York, is facing the biggest cut, losing 0.9 percent of every payment.
On average, hospitals in Maine, Nebraska, South Dakota, Utah and South
Carolina will fare the best, while hospitals in the District of
Columbia, Connecticut, New York, Wyoming and Delaware come out among the
worst, the data shows.
Results for hospitals within the same system often varied. For instance,
in Rochester, Minn., the Mayo Clinic’s Methodist Hospital will be
getting a bonus. But Mayo’s flagship St. Mary’s Hospital, also in
Rochester, will be losing money. Dr. Michael Rock, an orthopedic surgeon
at the Mayo Clinic, said that Medicare’s scoring system tends to favor
hospitals with patients like those at Methodist, which primarily does
elective surgeries, over hospitals with lots of trauma and emergency
cases, which St. Mary’s handles.
Created By The Health Law
The payment change was created by the federal health law and is known as
the Hospital Value-Based Purchasing Program. It is part of the
government’s effort to shift away from paying hospitals and doctors
based on the quantity of care they provide with no regard for how good a
job they did.
"To me, it's the tip of the iceberg for where we are going," said Dr.
Michael Henderson, chief of quality at the Cleveland Clinic. "We've been
working on this for two or three years, and it really made us strive for
Dr. Raj Behal, senior patient safety officer at Rush University Medical
Center in Chicago, which is getting a bonus, said the prospect of the
financial incentives has not had a huge effect. "I wouldn't say we've
changed our course radically. All of these things were already on our
radar," he said. "These are nuts and bolts measures. All of us should be
doing these things right. But is that enough?"
The program is one of several Medicare is launching to make hospitals
and doctors accountable for quality and more careful stewards of public
money. In October, Medicare also began reducing payments to 2,217
hospitals because too many of their
patients ended up back in their
care within a month. Medicare already gives bonuses to the private
Medicare Advantage insurance plans that score well on quality metrics.
In 2015, the health law calls for the government to begin a quality
payment program for physician groups
of 100 professionals or more, and that is to be expanded to all
doctors by 2017.
The way the program works is that Medicare is reducing payments to all
hospitals by 1 percent, estimated at $964 million. It then calculated a
score on how much money each hospital deserved to get back based on the
quality of its care. While every hospital is getting something back,
almost half aren't recouping the 1 percent they forfeited and thus are
Seventy percent of the scores are based on how frequently hospitals
followed 12 basic clinical standards of care, such as controlling heart
surgery patients' blood sugar levels and giving them beta blockers to
lower their blood pressure. The other 30 percent is determined by how
well hospitals were rated by
former patients in surveys asking
about the communication and responsiveness of doctors and nurses and the
cleanliness and quietness of their environment.
Medicare already publishes the scores for individual facilities on its
Hospital Compare website. Hospitals
were scored both on how well they performed compared to their peers from
July 2011 through March 2012, and how much they improved over time.
Nicholas Genna, CEO of Treasure Valley Hospital in Idaho, recipient of
the biggest bonus, credited close attention to patients, including a low
nurse-to-patient ratio and handwritten thank-you notes to patients,
along with the fact that the doctors own the hospital. "People answer
the phone with a smile on their face," he said.
Thomas Filiak, the chief operating officer at Auburn Community Hospital
in New York, which received the largest penalty, said executives have
begun a number of initiatives to lower noise near patient hallways,
including putting new wheels on squeaky food carts. "They sounded like
Mack trucks going through the hallway," he said.
Only 39 percent of Auburn patients reported their rooms were always
quiet, below the national average of 60 percent, according to Hospital
Compare. Filiak also said the hospital has been improving the quality of
the food, which a private survey company found was affecting patient
satisfaction, and ramping up the overall performance by focusing teams
of workers on the problems. Auburn’s low scores included its rate of
giving the right antibiotic to surgery patients, which did not occur 11
percent of the time.
"We know we started off at the bottom, but we are going to work our way
to much more acceptable scores," Filiak said. The penalty will cost
Auburn an estimated $100,000, he said, which the hospital's $85 million
budget can absorb without having to take drastic measures like layoffs.
The penalties are impacting some types of hospitals more than others,
according to an analysis Thursday by Dr. Ashish Jha's research team at
the Harvard School of Public Health. Bigger hospitals, teaching
hospitals and hospitals with the most poor patients tended to do worse
than smaller hospitals, hospitals that don’t train residents and
hospitals with a more affluent patient mix, the researchers found.
Fifty-seven percent of for-profit hospitals are receiving bonuses, while
only 21 percent of government-owned hospitals are gaining money.
It is far from clear that the new payment program will significantly
improve hospitals. When Medicare tested
a similar approach with 266 hospitals that volunteered
through the Premier hospital alliance, performance scores shot up
significantly. But a
subsequent study found that other
hospitals not receiving financial incentives ultimately did just as
well. Death rates for patients in the demonstration project also were no
better than for patients elsewhere, another study found. A
third study found the
lowest-performing hospitals did not get appreciably better.
Harold Miller, a health care expert in Pittsburgh, said he doubted the
amount of money at play is enough to change the way these institutions
function. "It's better than nothing, but it's not what is necessary,"
Miller said. "It doesn't fix the underlying problem, which is fee for
Others say because Medicare insures so many hospital patients,
executives have no choice but to respond to the incentives. "It has
definitely captured the attention of the industry," said Chas Roades,
chief research officer at the Advisory Board Co., a consulting firm that
advises hospitals. About 40 private insurers have already adopted their
own versions of pay for performance, which Roades said closely track the
ones Medicare is using. "They can do that because of the air cover of
the largest payer putting in place this process," he said.
blog post, Medicare called the
program "carefully crafted" and "built on the same recommendations that
private purchasers of health care and the Institute of Medicine have
recommended and tested for a decade or more." The Institute of Medicine
is an independent advisory group and part of the National Academy of
Medicare will begin adjusting payments next month through the end of the
federal fiscal year in September and will retroactively apply the
changes to payments made in the last three months of this year. The
cumulative gain or loss for each facility will not be clear until the
end of the fiscal year, since hospitals do not know exactly how many
patients they will end up admitting and for what conditions.
The bonuses and penalties do not apply to money Medicare pays hospitals
for capital expenses, to teach residents or to treat large numbers of
low-income patients. Hospitals with too few cases and ones that only
offer specific specialties, such as psychiatry, long-term care,
rehabilitation and cancer treatment, are exempted. Maryland hospitals
are also excluded because the state has a unique reimbursement
arrangement with the federal government.
While the numbers of winners and losers in the value-based purchasing
program were about even, 2,245 hospitals, or about two-thirds, will end
up losing money this year after the readmissions penalties are factored
in, according to the KHN analysis. A total of 277 hospitals will lose 1
percent or more of their reimbursements. The Medical Center of
Southeastern Oklahoma in Durant will take the biggest hit, with Medicare
lowering its payments by 1.8 percent.
For some of the metrics Medicare is using, the differences among
hospitals are small and compliance almost universal. For instance,
nationally, 97 percent of pneumonia patients in the emergency room had a
blood culture performed before receiving their first dose of
antibiotics. Just a few patients not getting a test on time or
negatively rating their experience can significantly shift how a
hospital looks compared to its peers.
Over the next four years, the program will expand to encompass 2 percent
of all Medicare payments. Next year
Medicare is adding death rates of
heart and pneumonia patients, and for future years it is considering
other measures, including the cost-efficiency of hospitals; the
frequency of infections; and wait times in emergency rooms.
"We're in a transition period," said Rock, the Mayo surgeon. "The whole
concept of moving to value-based purchasing is going to unquestionably
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