HEALTH INDUSTRY ONLINE - Medicare value-based purchasing (VBP) for hospitals: "The right care, for every person, every time."

On April 12, 2007, the Centers for Medicare & Medicaid Services (CMS) conducted its second Public Listening Session at its headquarters in Baltimore, Maryland to address Medicare value-based purchasing (VBP) for hospitals. CMS has adopted as its vision for health care "the right care, for every person, every time."

We attended the all day listening/comment session in which CMS representatives, led by Dr. Tom Valuck, the CMS Director for Value-Based Purchasing, outlined the payment program which, if Congress approves, CMS intends to initiate in FY 2009 (beginning on October 1, 2008). Dr. Valuck said that VBP provides CMS a key mechanism to transform from a passive payor to an active purchaser of health care services.

In 2006, Congress authorized CMS to develop an approach to value-based purchasing as part of the Deficit Reduction Act of 2005 (DRA). VBP has been developed as a process more than a payment methodology. VBP will include principles of pay for performance (P4P), gainsharing, and other quality-based measures for infusing efficiency into the program. In June or July of 2007, CMS will report its proposal to Congress for authorization to implement the program. If the program is adopted in its current form, the following will be the primary components of the VBP which will apply initially to hospitals and, as the program is expanded, to all physicians and providers who provide services to the Medicare population.

Under this initial iteration of VBP, hospitals will receive incentive bonus payments for meeting or exceeding standards of clinical care based on inpatient and outpatient measures developed by CMS. The incentive payments earned by hospitals will be based on the scores the hospital receives relative to the CMS quality performance measures. The score for each quality measure will range from 0 to 10. For each quality measure, the hospital will get the higher of its attainment score (relative to a benchmark which represents exemplary performance and for which, if attained, the highest incentive payment would be made) or the score which measures its improvement from the prior period. To translate the hospital's scores to the payment the hospital will receive, the scores for all quality measures are aggregated and compared to the total scores attainable for the measures on which the hospital is reporting. That ratio is then compared to the continuum of ratios from the minimum ratio acceptable to CMS to the benchmark identified by CMS as the ratio on which the full incentive amount will be paid. This comparison to the continuum is called the exchange rate.

The initial quality measures which will be used by CMS are 17 of the original 22 process reporting measures included in the Reporting Hospital Quality Data for Annual Update Payment (RHQDAPU-pronounced Rack-da-poo with the emphasis on the Rack). CMS would like to add two outcomes measures and a patient centered measure: (a) the 30 day acute myocardial infarction (AMI) rate; (b) the 30 day heart failure (HF) mortality rate; and (c) the results of the Hospital Consumer Assessment of Health Providers and Systems surveys (HCAHPS). RHQDAPU gave hospitals a bonus payment for reporting on the original 22 measures from the Medicare Annual Payment Updates (APU). VBP will replace RHQDAPU.

The source of funding for VBP is the hospital's DRGs. CMS is requesting comments on which components of the hospital payments should be included in the pool:

A. A percentage of the current base DRG payment only, with geographic and DRG relative weight adjustments; or
B. Base the incentives on all components of the Inpatient Prospective Payment System (IPPS) payment, including:
	1. Capital costs in addition to operating costs.
	2. Disproportionate Share Hospital (DSH) payments.
	3. Indirect Medical Education (IME) payments.
	4. Outlier payments for cases that are unusually costly.

At the April 12 session, a number of the commenters put forth 1% of the base DRG rates as a possible basis for collecting a pool of money which CMS could then use to provide incentive payments under the VBP initiative. CMS has not yet formally proposed any specific percentage of the DRG payments. The message is that CMS wants to be able to tie the benefit a hospital receives for quality care to the reimbursement the hospital receives for providing care to the Medicare beneficiary.

If the base DRG payment is the basis for the VBP pool, at this point, CMS is considering retaining the percentage from all hospital DRG payments, not just those which are being measured.

Since not all hospitals will earn their full VBP incentive payment based on their scores and the exchange rate, there will be some amount of money remaining in the pool after the hospitals have received their VBP incentive payments. That money could be distributed either to all hospitals based on their VBP performance scores; to top performers only either as an incentive to keep up the good work or perhaps as an incentive to assist hospitals which are not top performers; or to be used by CMS to further develop VBP program, to introduce new measures and to bring other players into the VBP program to align incentives.

In addition to the incentive payments earned by hospitals, transparency, i.e., public reporting is the second prong of VBP. CMS sees transparency in quality and in cost not only as a consumer tool but also as a means for health care providers to compare themselves to each other.

The VBP construct has been designed to be flexible. It includes a methodology for testing quality measures before they are included and discarding measures which become outdated; it permits adaptation for other kinds of measures in addition to the process measures which have been unfavorably reported in certain circles as cook book medicine; it allows CMS the flexibility to top out measures which become so widely accepted that measuring them for incentive payment purposes makes no sense without removing the requirement that they still be reported. VBP is a moving target which will affect the payment received by all health care providers both from the government pay programs and likely from commercial payors as they follow CMS lead.

In subsequent issues of Health Industry Online, we will analyze in more detail the various components of VBP as they are understood at this time and some of the unintended consequences which CMS will need to address as the program is rolled out.