Medicare value-based purchasing: '75 percent of hospitals face losses'

Many hospitals may be in for a rude awakening on Oct. 1, 2012, when Medicare institutes the national hospital value-based purchasing (VBP) program mandated by the Patient Protection and Affordable Care Act (PPACA). In a national analysis of hospital performance, Irving, Texas-based VHA Inc. recently calculated a national median VBP score of 53, when hospitals likely will need scores higher than 70 to maximize their Medicare reimbursements.

The VHA's findings generally support a 2009 VBP impact study (sponsored by Data Advantage LLC) of 2,989 non-exempt hospitals discussed by Gunter Wessels, a partner at Total Innovation Group, and Hal Andrews, managing director and chief development officer at The Martin Companies, during the session "Success Under Value-Based Purchasing: Strategic and Operational Imperatives" at last week's "2010 ANI: The Healthcare Finance Conference" held in Las Vegas by the Healthcare Financial Management Association (HFMA).

Under reform, "everybody loses," said Andrews, who was a co-author of the study. "Seventy-five percent of hospitals face losses." He offered some sobering financial projections for Medicare's VBP program. Hospitals face an average VBP revenue risk of $888,812 in 2012 and $6.67 million over five years. The median VBP risk is $250,415 for 2012 and $1.88 million over five years.

While the details of the VBP program are still being worked out, it's clear that "you get rewarded for being good, and you get rewarded for most improved," said Wessels. "And any sort of lapse is going to have a big impact. Every healthcare encounter becomes crucialized." For example, forgetting to offer smoking cessation advice to a cardiac patient could impact whether or not a hospital gets paid under the VBP program. "When you get to eight decimal points to the right to break a tie, every single thing matters," explained Andrews.

The "ticket out" of this looming financial hole is to "focus on reducing process variance," suggested Wessels. Often, hospitals have significant amounts of unknown variance because their dashboards aren't set up to indicate variance, he pointed out. Process variance indicators include readmissions, length-of-stay (LOS) variance by day, LOS variance by admission source, and mortality and morbidity by day of discharge.

Hospitals should start benchmarking from a national perspective, said Andrews. "Don't look at the guys across the street." Wessels agreed, saying "you have to have exposure to the national data." Hospitals also should examine their data by payer class, advised Andrews. "In an era of increased transparency, I would suggest that [a dramatic difference per payer] is not going to work anymore."

To learn more:
- read the VHA press release
- access the Data Advantage abstract here
- visit the HFMA ANI webpage

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