Health care reform has recognized that payment models beyond the current Fee for Service need to be explored, but that quality of care and patient outcomes need to be critical elements in any payment revisions.  The prior capitated contracts were the first foray into changing the incentives for compensation but the result was the cherry picking of patients and substandard care for a number of patients.  Quality performance standards were identified as the key to preventing the reduction of needed services and to the development of efficient and patient centered care.  Therefore, incentive or reduced payments have been built into the models for payment reform that are being explored and they are being reviewed for all sites of care and for the continuum of care for select disease categories.

Medical management of chronic and acute conditions are highlighted under these reform proposals and drugs which are critical for those patient populations have new standards that they need to address for their consumers, standards which are linked to efficiency, quality processes, quality outcomes, patient safety and patient satisfaction.  There is also a renewed emphasis for Comparative Effectiveness of treatments and transparency and costs which encompasses all pharmaceutical products.  As a result of these changing provisions, hospitals/physicians/pharmaceutical/medical device manufacturers need to align their values and prepare for these changes before they are implemented.  A review of some of the provisions in the recently passed legislation HR 3590 impacting quality of care and payment models is set forth below:

Section 3001 Hospital Value Based Purchasing Plan (VBP)

CMS shall establish a VBP program which uses incentive payments and is slated to apply payments to discharges occurring on or after October 1, 2012.  Quality measures to qualify for an incentive payment shall cover at least AMI, HF, Pneumonia, SCIP surgeries, HAI and the hospital’s HCAHPs performance.  For discharges during FY 2014 or thereafter, CMS shall also include severity adjusted efficiency measures.  These measure sets may be supplemented but they must be on Hospital Compare for at least one year before becoming part of the VBP program. 

CMS shall look at the higher of the performance or improvement scores in assessing hospital performance and the amount of their incentive payment.  The payments must be budget neutral so DRGs shall be reduced a certain percentage, beginning with FY 2013 by 1%, 1.25% in 2014, 1.5% in 2015 and 1.75% in 2016 and then 2% thereafter.  Incentive payments will then be paid to those hospitals showing the best performance or the most improved score, with the highest bonuses paid to the best performers.

Hospital performance score and their individual score cards will be publicly available on the Hospital Compare website.  There shall also be public reports on the aggregate number of hospitals receiving VBP payments and the total amount of those payments and the number of hospitals achieving less than the maximum VBP incentive available.

Medicare is tasked with setting up a demonstration program for inpatient critical access hospitals to develop innovative methods of tying performance with reimbursement by 2012, which shall run for 3 years, and also a demonstration for those hospitals excluded from the VBP program due to insufficient numbers of measures and cases.

Section 3008 Payment Adjustment for Conditions Acquired in Hospitals

Discharges occurring FY 2015 or thereafter shall be equal to 99% of the payment otherwise applied to selected discharges if certain conditions were acquired while in the hospital.  Confidential reports shall be provided to the hospitals before becoming public at the onset of the program.  CMS shall conduct a study on expanding this policy to other facilities.

Section 3021 Establishment of Center for Medicare and Medicaid Innovation within CMS

CMS is tasked with exploring various payment models and funds have been allocated to this endeavor with funding of $5M for FY 2010 and $10B for 2011 through 2019.

Section 3022 Medicare Shared Savings Program

No later than Jan. 1, 2012 Accountable Care Organizations (ACOs) that coordinate services under Parts A and B can receive payments for shared savings if they meet quality performance standards.  Some of the potential alliances which would qualify as an ACO are a group practice, a network of individual practices, partnership or JV between hospitals and ACO professionals, hospitals employing ACO professionals, or others that would support the continuum of care.

The ACO must participate in the program not less than 3 years, have a legal structure to receive and distribute payments to participants, shall include adequate numbers of primary care physicians to service the Medicare population, and met other organization and administrative requirements.  Quality measures must be met to participate in the program and the measures will address clinical processes and outcomes, experience of care and utilization (such as rates of admission for ambulatory care sensitive conditions).  Providers will be paid their usual rate and a certain percentage of the shared savings as long as they meet quality goals.  If it is determined they are avoiding at-risk patients, they may be assessed a fine and terminated from the program.

Section 3023 National Pilot Program on Payment Bundling

This pilot program deals with an Episode of Care (EOC) around a hospitalization and has a negotiated bundled payment paid for the select EOCs.  EOCs shall be one of 8 conditions selected by CMS and must include a mix of chronic and acute conditions, a mix of surgical and medical conditions, a condition that needs improvement in quality of care, has significant variation in number of readmissions and expenditures for post acute care, is high-volume and high cost, and is amenable to bundling.

The EOC should include 3 days prior to admission, LOS in hospital and 30 days following discharge, but   CMS has the latitude to define the time frame for each EOC.  CMS and AHRQ are tasked with developing appropriate quality measures to use with the pilot program.

Section 3025 Hospital Readmissions Reduction Program

FY October 1, 2012 discharges, CMS shall reduce payments for excess readmissions.  The applicable conditions shall be those selected by CMS that are high volume or high expenditures or have associated endorsed measures.  Beginning FY 2015, CMS shall expand the applicable conditions beyond the 3 currently identified (AMI, HF and pneumonia) to include the 4 noted by MedPAC in its June 2007 report to Congress (COPD, CABG, PTCA, Other Vascular).  Readmission includes readmission to another hospital within a time period specified by CMS from the date of discharge (such as 30 days).  Readmission rates shall be publicly available.

CMS shall make a program available for hospitals with high severity adjusted readmission rates to help them with best practices.  CMS shall also establish funding for a community based care transitions program.  They legislation also extends the current gainsharing demonstration.