The Implications of Value Based Purchasing in the American Healthcare System

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The Implications of Value-Based Purchasing
in the American Healthcare System

As a result of the Patient Protection and Affordable Care Act of 2010, beginning in October 2012, US hospitals will begin having their payments from Medicare affected by the Hospital Value-Based Purchasing Program. Essentially, this legislation will shift the way hospitals are reimbursed for services from a focus on quantity to a focus on quality. The following research study will examine the background of this legislation, how it is structured, and the pros and cons of this reform. Currently, hospitals are paid a flat fee per hospital case by the federal Medicare program, using the Inpatient Prospective Payment System (IPPS). The prospective payment price, also referred to as the DRG (Diagnosis Related Groups) payment, covers all hospital costs for treating the patient during a specific inpatient stay, including the costs of all devices that are used. CMS adjusts DRG payments annually to reflect changes in hospital costs and changes in technology. This fee is paid to the hospital based on the patient’s symptoms, age, sex, discharge status, and the presence of complications, but does not account for length of stay or how many hospital services are actually used. (Ellis, 2011) Over time, the attempt has been to keep these rates close to the average cost of providing the services per case, although many hospitals claim that often the case payments they receive are below their own full costs. (Reinhardt, 2009) In October 2012, the Centers for Medicare and Medicaid Services (CMS) is implementing the Hospital Value-Based Purchasing (VBP) Program. This initiative will reward acute-care hospitals with incentive payments for the quality of care they provide to people with Medicare. This means that DRGs are still in place, but incentives can be reached based on how well the hospital performs on certain quality measures, or how much the hospital’s performance improves compared to its performance during a baseline period. There are 25 measures that determine performance, including: patients’ communication between physicians and nurses, hospital staff responsiveness, patients’ pain management and hospital cleanliness. The higher the performance, the higher the incentive payment will be. (Ellis, 2011) This regulation is causing much contention, as CMS has never before tied payment to a facility’s performance on quality care more than quantity. Performance and patient satisfaction measures are not new concepts, and actually have been around for quite some time. In 2003, CMS and Premier, Inc. (a national group purchasing organization and alliance of more than 2,400 US hospitals and over 70,000 other health care sites) initiated the Premier Hospital Quality Incentive Demonstration (HQID), a voluntary pay-for-performance program. In the first year of the project, 260 hospitals participated. According to Premier, the HQID value-based purchasing project raised the overall quality in the participating hospitals by an average of 18.6 percent over six years. This figure was based on their delivery of more than 30 nationally standardized and widely accepted care measures to patients in six clinical areas: acute myocardial infarction (AMI), heart failure, community-acquired pneumonia, coronary artery bypass graft (CABG), hip and knee surgery, and ischemic stroke. Additional research by Premier using the Hospital Compare dataset showed that, by September 2009, HQID participants scored on average 5.44 percentage points higher (95.64 percent to 90.2 percent) than non-participants on 25 performance measures used by Hospital Compare, the government's scorecard for hospital quality. After the sixth and final year of the project, CMS announced that it will award incentive payments of almost $12 million dollars to 211 providers for top performance, as well as top improvement in the project's six clinical areas. (Premier, 2012) Following this first leap into the concept of...
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