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Hospitals see first impacts of new model

Rochester Business Journal
January 11, 2013

With a few exceptions, the new year finds most area hospitals looking at cuts in Medicare payments as the first application of a new performance-based formula for hospital reimbursement takes effect.
Reductions so far are small, amounting to changes of less than 1 percent in each institution's per-patient reimbursement. But as the government insurance program adds criteria and bumps up the percentage of hospital reimbursements subject to pay-for-performance measures, the bite could increase.
Still, the pay-for-performance model ultimately will benefit hospitals and be welcomed by most, predicted Robert Panzer M.D., chief quality officer for the University of Rochester Medical Center.
The new model rewards hospitals that do well with higher payments while it punishes those that do not with funding cuts, he said. An upward adjustment of several percent would provide an incentive to make real improvements in patient care and safety.
"There are carrots as well as sticks," Panzer said. "I prefer the carrot to the stick, but I think on balance people will get very engaged and interested in how they do."
Pay for performance is not new to the region, he added. The area's dominant private insurer, Excellus BlueCross BlueShield, has based part of its hospital reimbursement rates on performance measures for several years.
The Excellus program, which uses some of the same measures as Medicare, affects 95 percent the insurer's hospital admission claims, explained James Redmond, Excellus vice president of communications, in an email. Like the federal program, it can both reduce and add to reimbursements. Last year, Excellus' Hospital Performance Improvement Program paid out $21.4 million in rewards to 53 upstate hospitals.
The Medicare pay-for-performance measures, which track the federal government's fiscal year, which begins Oct. 1, have been in effect for several months. Adjustments are based on data hospitals have submitted to the Center for Medicare and Medicaid Services and on surveys CMS collects from a representative sample of adult patients.
Most of hospitals' Medicare rates will continue to be based on factors CMS has always used, such as individual overhead costs and case mix. Still, pay-for-performance adjustments are scheduled to account for an increasing portion of reimbursements. Performance-based adjustments could eventually slice as much as 8 percent off Medicare payments, which typically account for 35 percent to 55 percent of hospitals' revenues.
Among hospitals directly serving the city of Rochester, only URMC's Strong Memorial and Highland hospitals, which are getting increases of 0.14 percent and 0.16 percent per patient for their Medicare payments, will see a net rise in Medicare reimbursement.
Experiencing a 0.43 percent reduction is Unity Health System's Unity Hospital. Rochester General Health System's Rochester General and Newark-Wayne Community hospitals are seeing 0.83 percent and 0.75 percent reductions per patient in Medicare payments.
Unity and RGHS officials also welcome pay for performance.
In the traditional fee-for-service model, doctors and hospitals get no reward for doing jobs well but instead are paid only for the number of services provided or procedures performed, so they have had little incentive to improve the quality of care, said Robert Mayo M.D., RGHS chief medical officer.
A move away from quantity-based payment is a positive step, he said.
Thomas Crilly, Unity chief financial officer, concurs. A focus on patients who need to be readmitted motivated Unity, which runs several nursing homes as well as its Greece hospital, to look more closely at hospitalizations of its long-term care residents and to provide less disruptive on-site care for more of them instead of ferrying them back and forth between the hospital and a nursing home.
The changes in Medicare reimbursements come in two ways: as a result of a change in how CMS calculates payments and as a penalty for what CMS says are too many readmissions. Known as value-based purchasing, the former adjustment can add or subtract from payments. Failure to hew to readmission standards only results in a penalty.
This year, the value-based calculation looks at performance in heart care, pneumonia and surgeries but does not yet take patient mortality into account. Other treatment categories are slated to be added in future years.
When CMS starts factoring in mortality rates next year, Mayo anticipates a swing to positive territory for the RGHS hospitals, whose low mortality rates, he said, are a point of pride for the system.
The readmission penalty has brought down all area hospitals' Medicare payments, moving some from positive to negative territory and lowering others' payments.
F.F. Thompson Hospital in Canandaigua, for example, got an increase of 0.11 percent in value-based payments, but with a 0.46 percent reduction based on its readmission history, it will net 0.35 percent less per Medicare patient.
Highland Hospital stayed in positive territory but lost 0.03 percent per patient on the readmission calculation. Strong Memorial saw a 0.11 percent reduction for the readmission penalty.
Panzer, Crilly and Mayo agreed that value-based purchasing goes hand-in-hand with other health reform initiatives, such as the push to move providers into electronic medical records and incentives meant to encourage accountable care organizations.
While it might be hard for outsiders to see now, Panzer said, most people working in health care see seemingly unrelated initiatives as reinforcing one another. The reform initiative's parts will gel, creating a generally more responsive and efficient U.S. health care system, he believes.
The level of data collection and analysis needed to make value-based purchasing work would not be possible without electronic medical records, Mayo said. But electronic record keeping also improves care and patient safety, giving physicians access to vital information such as patients' medical history that was not always available in a paper world when it was most needed.
A less optimistic point on which the health system officials also agreed is the lack of proof that the more efficient, safer and less-overused health care system they envision would bring U.S. health care costs under control.
Some believe a more efficient system will result in a healthier population that will need less care, but a population that lives longer could require more care despite its relative good health, Crilly said.
CMS's most recent figures show that health care spending accounted for 17.9 percent of the country's gross domestic product in 2009 and stayed flat as a percentage of GDP over the next two years despite a rise in the number of dollars spent. Over the same period, the rate of growth in spending on nursing home and other facility-based care increased to 4.5 percent, from 3.2 percent.
Ultimately, added Crilly, there is a limit to how much incentives can affect behavior.
"These things certainly have an effect," he said. "But in the end doctors and hospitals are going to do what they see as the right thing."

1/11/13 (c) 2013 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email

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