Medicare Compliance & Reimbursement

Bonuses paid out for facilities that improve care quality.

The Centers for Medicare and Medicaid Services' landmark pay-for-performance demonstration, which it kicked off in 2003, is showing significant quality-of-care improvements in participating hospitals. And for the first time, the agency is rewarding these hospitals with big cash bonuses.

"We are seeing that pay-for-performance works," CMS administrator Mark McClellan said in a statement. More than 260 hospitals voluntarily participate in the Premier Hospital Quality Incentive demonstration, which offers bonuses for hospitals that show improvements in the quality of their care in five clinical areas.

But participating in the project came with a risk: hospitals that scored below certain baselines in a clinical area would receive a 1-percent--and in some cases a 2-percent--Medicare payment reduction for that area.

The potential benefits outweigh the risks, however, because CMS anticipates that "most hospitals will exceed the baseline level and that few, if any, hospitals would get a payment reduction."

Some Hospitals Net Nearly $9 Million In Bonuses

"We are seeing increased quality of care for patients, which will mean fewer costly complications--exactly what we should be paying for in Medicare," McClellan maintained. And CMS did pay out a hefty sum--$8.85 million--to hospitals that showed "measurable improvements in care" during the program's first year.

But the agency believes that the bonus payments will only benefit the ailing Medicare program. "Improvement in these evidence-based quality measures is expected to provide long-term savings, because of their demonstrated relationship to improved patient health, fewer complications and fewer hospital readmissions," CMS said.

Quality of care improved in all five clinical areas, the agency announced. Between the first and last quarters of the demonstration's first year, participating hospitals' average scores increased:

• from 87 percent to 91 percent for patients with acute myocardial infarction;

• from 65 to 74 percent for patients with heart failure;

• from 69 to 79 percent for patients with pneumonia;

• from 85 to 90 percent for patients with coronary artery bypass graft and

• from 85 to 90 percent for patients with hip and knee replacement.

"Preliminary information from the second year of the demonstration shows that quality scores are continuing to improve at the hospitals in the demonstration in each of the five clinical conditions," CMS maintained. The demonstration will end in September 2006.

Health plans are increasingly attracted to P4P models and have taken quality monitoring from the testing stage to implementation. On Nov. 21, the National Committee for Quality Assurance, a private non-profit organization, issued additional draft standards for its voluntary Quality Plus program.

The new standards focus on how health plans measure their network physicians' and hospitals' quality of care.