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Improving Hospital Care through Pay-for-Performance under the Affordable Care Act

Michael P. Quinn, Jr.

On March 23, 2010, President Barack Obama signed into law “The Patient Protection and Affordable Care Act”. This law, commonly referred to as the Affordable Care Act (ACA) or “Obamacare”, had two main goals: to lower health insurance rates and to increase the quality of insurance. It sought to do so by lowering the number of uninsured Americans, expanding public and private insurance coverage, and reducing the costs of health care. Some of the more popular elements of the ACA have been highlighted again and again in print and broadcast media. For example, under the ACA: no health insurance company can charge you more for coverage if you’re sick or have a pre-existing condition; insurance companies are barred from setting lifetime or yearly limits on your coverage; and patients are entitled to receive services like immunizations, blood pressure screenings and mammograms without paying a co-pay at their doctor’s office. One element of the ACA, however, has received far less attention – its goal of improving medical care provided by doctors, hospitals, and nurses through the Hospital Value-Based Purchasing (HVBP) program.

Under the Value-Based Purchasing program, Medicare shifted to a pay-for-performance/value system. The goal of the program is to pay hospitals based on the efficiency and quality of care rendered to patients in the hospital as opposed to paying hospitals simply based on volume of patients treated. The VBP program went into effect on October 1, 2012. To fund the program, Medicare initially reduced payment rates to all hospitals by 1% (the amount initially withheld at the beginning of each fiscal year will rise by 0.25% points per year until it is capped at 2% in 2017 and beyond). That money was set aside in a “pot” for incentives. The quality of care provided by hospitals was then measured through a set of clinical quality measures and a composite measure of patient experience. There is also an element of the scoring system that pits hospitals in competition with each other. The scoring is complex and some observers believe unfair, but the end result is that a hospital’s performance will result in either a potential financial bonus, breaking-even, or loss per patient reimbursement. In short, there are potentially hundreds of thousands of dollars at stake each year for hospitals.

As reported by Kaiser Health News in November 2013, at the close of fiscal year 2012-2013, more American hospitals had been penalized than rewarded. Specifically, 1,451 hospitals across the country were penalized under the pay-for-performance program and had their payment rates decreased. 1,231 hospitals had their payment rates increased.

According to Kaiser, Rhode Island hospitals performed as follows:

hospital chart

Any percentage number preceded by a subtraction (-) sign indicates that the hospital was paid less than it had been previously. Any percentage portrayed without a subtraction (-) sign indicates an increase in payment. Under the VBP program, a loss in payment is suggestive of a “penalty” for failing to meet goals. View this interactive chart with more U.S. hospitals.

Most experts agree that it is too early in the program to know whether the pay for performance system will meet its intended goal of improving the quality of health care in American hospitals. What should not be in dispute is that the goal itself is worth pursuing.

For further information on hospital pay-for-performance under VBP, see below:

“Getting ready for value-based purchasing” Today’s Hospitalist

“Where is The Value In Health Care?” Forbes