CMS touts hospital demo as proof of pay-for-performance promise

Washington -- Armed with what it is describing as evidence that pay-for-performance works for hospitals, the Bush administration is stepping up its efforts to lay the groundwork for a similar program for physicians.

The Centers for Medicare & Medicaid Services recently announced the second-year results from a three-year demonstration project that ended in October 2006.

Under the Premier Hospital Quality Improvement Demonstration, more than 250 participating hospitals were given the opportunity to receive bonuses for boosting the quality of care that they provided to Medicare beneficiaries.

CMS declared the demo a rousing success even before it had the chance to process the results from the third year. For the 30 quality measures on which the project was based, participating hospitals saw an average improvement of nearly 12 percentage points over the first two years, the agency said.

For the 115 hospitals that were deemed top performers, the results will translate into bonus payments totaling roughly $8.7 million. For the government, the outcome indicates that paying more for better care is a viable concept for Medicare.

"CMS has been considering the integration of quality and payment systems as a way to maximize the value of Medicare payments," said Leslie V. Norwalk, the agency's acting administrator. "These latest results provide one more piece of solid evidence that pay-for-performance works."

The administration already has plans to extend the model to all hospitals in Medicare.

In its budget proposal for fiscal year 2008, the White House also suggests that Medicare could benefit from encouraging better quality on the physician side.

"Building off its successful efforts among hospitals, CMS will continue to expand its voluntary quality reporting program for physicians in 2007," the budget blueprint states.

The administration did not elaborate on how that would occur.

Physicians are next

Medicare is not yet reimbursing physicians based on the quality of care they provide. But the program will take a major step toward such a system in July, when it starts differentiating between physicians who participate in its quality reporting initiative and those who do not.

Physicians who report from July through December on how well they do on at least three quality measures approved by CMS will receive a 1.5% lump-sum bonus payment sometime in 2008. Participating doctors will get the additional money no matter how they rate on the measures.

More information will be available this spring as physicians get closer to the time that they will be expected to start participating if they want the extra reimbursements.

The upcoming incentive program is pay-for-reporting, as opposed to full-fledged pay-for-performance. But if Congress or the Bush administration determines that the voluntary physician program is as promising as the hospital demo, they easily could take the next step by linking actual quality scores to reimbursement levels in 2008 or beyond.

Physicians are going to require evidence that pay-for-performance in its developing form is an effective quality tool, much as they do for any new therapy, said Arnold M. Epstein, MD, in an editorial in the Feb. 1 New England Journal of Medicine. He is a professor at the Harvard School of Public Health in Boston.

"The reality, however, is that we are at the tipping point with pay-for-performance programs, and such information is unlikely to be forthcoming before political pressure forces policymakers to act," he said.

Payday or penalty

Some hospitals soon will get a Medicare quality bonus. A 2% incentive payment will go to hospitals scoring in the top 10% on the demonstration's 30 quality measures in five clinical areas -- acute myocardial infarction, heart failure, coronary artery bypass graft, pneumonia, and hip and knee replacements. Hospitals in the 11% to 20% range will get a 1% bonus.

Physicians and administrators whose facilities scored high marks said the incentive structure helped facilitate quality improvements across the board. Stricter adherence to best clinical practices and the potential patient lives saved as a result translate into money well spent, said Glenn Crotty Jr., MD, chief operating officer at the Charleston (W.Va.) Area Medical Center. His facility will receive an award of more than $700,000 for being a top performer in four of the five clinical areas.

"The quality project is about reliably delivering the best evidence-based care to every patient every day," he said. "The recognition and reward is nice, but the main issue is reliable care to reduce risk of death and reduce readmissions to hospitals so every patient's health status is better."

But not every hospital will have scored high enough to get a bonus, and some might lose money. Facilities that fall in the bottom 20% of the pack when the scores come in for year three will owe CMS 1% to 2% of the associated diagnosis-related group payments they received that year. The hit could be even worse for hospitals that spent a lot of money on initiatives to boost quality.

This aspect of the hospital project raises red flags among doctors. Physician groups, including the AMA, have warned that pay-for-performance for doctors will not work if some physicians are penalized to fund bonus payments for others. The AMA in 2005 adopted a set of principles and guidelines to help physicians evaluate any pay-for-performance program.

Did it work well enough?

CMS officials said the Premier demonstration shows that incentive payments are one of the best ways to enable medical professionals to drive up quality of care significantly and save Medicare money in the long run by reducing unnecessary hospitalizations and emergency department visits.

Researchers at Baystate Medical Center in Springfield, Mass., and Tufts University School of Medicine in Boston were not so sure. In a study of the demo commissioned by CMS also appearing in the Feb. 1 NEJM, the investigators conclude that the bonuses prompted improvements that were only 2.6% to 4.1% higher than those accomplished by hospitals that publicly reported quality data but did not participate in the bonus project.

The physician researchers said questions remain as to whether financial incentives should consist of new money or be funded through penalties to low performers. The demo also raised the question of whether the federal government should reward only those at the top of the pile, even though those closer to the bottom might have undergone significantly more quality improvements.

"With these issues in mind, it will be important to determine not simply whether the addition of pay-for-performance results in more improvement than public reporting alone, but whether the benefits of such a program are worth the added cost and complexity," wrote lead author Peter K. Lindenauer, MD, an associate medical director at Baystate.