Health care newsletters and the policy blogosphere have been buzzing for a week or more over the Centers for Medicare and Medicaid Services publishing a proposed rule (PDF) for implementation of inpatient hospital value-based purchasing for discharges occurring on or after Oct. 1, 2012. And the buzz is justified.
The proposed rule describes the first step toward a Medicare system that considers quality of care in setting payment to individual providers. Medicare already provides a minor financial incentive to hospitals for collecting and reporting specific quality-associated data; beginning in fiscal 2013, the incentive shifts from reporting compliance to documented performance — with performance compared to both established national standards and the hospital’s own baseline performance. The amount of the performance incentive is small — 1 percent in 2013, 2 percent thereafter — but meaningful given hospitals’ typically low operating margins.
CMS has been laying the groundwork for VBP for several years, commissioning issues papers (PDF) from outside consultants and holding public forums since at least January 2007. And it’s clear that the agency understands the seriousness of this initiative for the hospital industry: The 19 quality measures used for VBP in fiscal 2013 are a subset of the nearly 50 measures currently required for quality reporting; the financial impact is phased in slowly; concrete outcome measures won’t be included in calculation of performance scores until 2014; and hospitals are being given a reasonably long preparation period before the new program is implemented.
Finally, it is important to understand that inpatient hospital VBP is only the first element in a much broader and carefully designed program to inject quality performance into the Medicare payment systems. CMS has published a clear and comprehensive roadmap (PDF) for that program, which will extend to physician practices, ESRD facilities and home health providers. In each case, well constructed demonstration projects have provided, or will provide, guidance for development of system-wide initiatives to reward providers meeting or exceeding clearly defined quality of care objectives. And CMS isn’t ignoring cost control incentives. In home health (PDF), home medical equipment and ESRD, quality incentives are integrated into payment system changes that also create serious cost-control incentives. For physicians, quality improvement measures and cost savings are both central to the recently concluded and highly successful first phase of the Physician Group Practice Demonstration (PDF), an experiment that also provides the blueprint for Medicare’s future implementation of accountable care organizations under the Affordable Care Act.
None of these changes directly affect payment for medical devices and technology. But collectively they change health provider incentives and, consequently, mindset. They will, in time, begin to redefine the criteria for success in a changed health technology marketplace.
Edward Berger is a senior healthcare executive with more than 25 years of experience in medical device reimbursement analysis, planning and advocacy. He’s the founder of Larchmont Strategic Advisors and the vice president of the Medical Development Group. Check him out at Larchmont Strategic Advisors.