Medicare Compliance & Reimbursement

Starting next year, top performing hospitals can get a boost in their Medicare reimbursements under a new three-year Medicare demonstration project unveiled July 10.

In addition, hospitals that perform poorly will be at risk for losing money in the last year of the three year demo, which will be administered by the Centers for Medicare & Medicaid Services in conjunction with Premier, Inc. Premier is a group purchasing organization with a membership including about 1,500 nonprofit hospitals across the country.

The demo will be open on a voluntary basis to the roughly 500 hospitals that currently report and track quality of care information through Premier's Perspectives database. The GPO expects about 300 hospitals to participate. CMS Administrator Tom Scully said he had originally wanted to launch a pay-for-performance demo in the for-profit hospital sector as well, but he is not currently pursuing this course because the two chains big enough to partner with CMS, Tenet Healthcare Corp. and HCA-Hospital Corp. of America, have proved unsuitable as a result of financial controversies involving outlier payments and other matters.

Hospital performance will be assessed on thirty-five measures in five clinical areas: heart attacks, heart failure, coronary artery bypass graft, pneumonia, and hip and knee replacement. A majority of the measures are process metrics, such as whether a heart attack victim is given aspirin upon arrival, but outcomes measures, such as the inpatient mortality rate for heart attack victims, are also included.

Under the demo's terms, hospitals that score in the top 10 percent on thirty-five clinical outcomes measures will get a two-percent bonus on their Medicare reimbursements. Hospitals in the second highest 10 percent will get a one-percent bonus. CMS said it expects to pay out $7 million in bonuses each year, for a total of $21 million over the three-year life of the project.

For the first two years of the demonstration, low-performing hospitals will not be penalized financially. But in the third year, hospitals with outcomes that would have put them in the bottom 10 percent of the first year's rankings will lose two percent of their Medicare reimbursement, and hospitals that would have been in the next lowest 10 percent in the first year will lose one percent.

If all hospitals improve their performance over the course of the demo, explained Scully, it is possible that by 2006 no hospitals would remain in the bottom 20 percent as measured by 2004 data. Under this scenario, no hospitals would receive reimbursement cuts. Nevertheless, Health and Human Services Secretary Tommy Thompson said the demo would "without a doubt" save Medicare money overall by promoting better quality care and reducing complications and hospital readmissions.