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January 2011

Medicare Proposes New Hospital ValueBased Purchasing Program


What Hospitals Should Do Now 2 About the Proposed Rule 3

n January 7, 2011, the Centers for Medicare & Medicaid Services (CMS) issued a proposed rule regarding Medicare's Value Based Purchasing (VBP) Program to reward hospitals for providing high quality, safe patient care. CMS Administrator Donald Berwick, M.D., explains that the new VBP Program will make the "inevitable leap" from the current state of fee-for-service reimbursement to a payment system that rewards only high-quality care. CMS considers VBP a step in completing the transition of Medicare from a passive payer for services to an active purchaser of

only high quality care. The VBP Program, which was mandated by the Affordable Care Act of 2010, will apply to Medicare payments under the Inpatient Prospective Payment System beginning in October 2012 and will affect more than 3,000 acute care hospitals. CMS estimates that hospital payments resulting from this proposed rule will reduce Diagnosis -Related Group (DRG) payments for the lowest-scoring hospitals, but should result in an increase in DRG payment for the highest-scoring hospitals. Thus, if the proposed rule becomes final, high performing hospitals have the opportunity to increase their

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January 2011



reimbursement, which can be a financial boon to many hospitals. Hospitals must act now if they wish to have the greatest chance at reimbursement under the VBP program. Payments under the program will be based upon a comparison of each hospital's performance period against its comparative period. Under the proposed rule, a hospital's baseline performance is already established, and is based upon the hospital's performance from July 1, 2009 through January 1, 2010. More importantly, the proposed performance period for purposes of calculating a hospital's FY2013 reimbursement would begin on July 1, 2011, which is less than six months away. Information needed to calculate a hospital's estimated performance under the VBP Program currently is available in the proposed rule inspection.aspx#special and on CMS' Hospital Compare website at http:// These data can be used to calculate a hospital's likely performance under VBP. With this information in hand, hospitals can and should act now to implement changes to improve performance before the actual measurement period begins on July 1, 2011.

What Hospitals Should Do Now

Calculate the hospital's estimated performance based on data in the proposed Rule related to 2008, even though the Comparative Period to be used by CMS will be based on 2009 data Start focusing on the proposed 17 clinical process of care measures in order to increase the hospital's prospect for better performance under the VBP Evaluate and improve current physician alignment strategies to maximize performance Review the hospital's processes to ensure that all associated data is accurate and verifiable Submit comments if the hospital wishes changes to the proposed rule

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January 2011



About the Proposed Rule

This VBP program is one of many CMS programs designed to forge a connection between Medicare's payment system and improvements in health care efficiency, quality and safety. Under the Affordable Care Act, CMS was tasked to begin the VBP Program in FY2013, changing hospital payments for inpatient discharges occurring on or after October 1, 2012. Under the proposed rule, a hospital's valuebased payment will be based on demonstrated performance on clinical quality and patient satisfaction measures during a period commencing on July 1, 2011 (Performance Period) as compared to the hospital's performance during a similar period commencing on July 1, 2009 (Comparison Period). The financial incentives will be funded by a one percent reduction in the base operating DRG payments starting in FY 2013, rising to two percent by FY2017. If the proposal rule becomes final, a high-performing hospital will have the opportunity to recover more than the amount withheld from its base payment, making the VPB Program a financial boon to high performing hospitals.

For the FY2013 Hospital VBP program, CMS proposes to use 17 "clinical process of care" measures in five health categories which include: acute myocardial infarction, heart failure, pneumonia, healthcare associated infections, surgical care improvement, and eight additional measures from the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey that document patients' experience of care. These measures are not new to hospitals, as they have already been reporting these measures as part of the Hospital Inpatient Quality Reporting Program (Hospital IQR). For the FY2014 VBP Program, CMS proposes to adopt additional measures that will include three mortality outcome measures, eight Hospital Acquired Condition (HAC) measures, and nine measures from the Agency for Healthcare Research and Quality (AHRQ). Under the proposed VBP Program, CMS will score each hospital based on both the hospital's achievement based on national measures and on the hospital's improvement as against the hospital's own base line performance. These scores are measured by evaluating the hospital's performance during the Performance Period and comparing them to the same measures during the Comparative Period. The achievement measures compare a hospital's performance on each

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January 2011



of the quality and patient satisfaction indicators during the Performance Period against national benchmark performance (defined as the median performance by top decile hospitals during the Comparative Period), as long as the hospital's performance exceeds the applicable threshold measure (defined as the median performance of all hospitals during the Comparative Period). Although the precise threshold measures are not yet known for the Comparative Period beginning July 1, 2009 that will be used for purposes of FY2013 reimbursement, the threshold data is known for a similar comparative period one year earlier, i.e. commencing July 1, 2008 and these threshold metrics are set forth in the proposed rule. http:// The benchmark measures for each of the quality and patient satisfaction indicators for the Comparative Period can be obtained from Hospital Compare. http:// Thus, hospitals now can estimate their likely achievement performance based on a 2008 comparative period. As stated above, under the proposed rule, a hospital's performance for purposes of calculating its VBP payment, for each of the measures, will be based on the higher of its achievement score or its improvement score during the performance period. The improvement score is calculated by comparing the hospital's actual

performance during the Comparative Period to its actual performance during the corresponding Performance Period commencing July 1, 2011. Under the proposed rule, the measures are further divided into three domains (only two domains apply to FY2013), which then can be weighted by CMS based on its policy goals for the applicable Performance Period. The domains include a clinical process of care domain which, for FY2013, includes the 17 clinical process of care measures; a patient experience of care domain, which, for FY2013, includes the eight dimensions that address patient satisfaction; and an outcome measure domain which does not apply to FY 2013 but, for FY 2014, will include the three mortality outcome measures, eight HAC measures, and nine measures from the AHRQ. CMS proposes to weight the FY2013 domains, 70 percent for clinical process of care and 30 percent for patient experience of care. CMS will calculate a Total Performance Score (TPS) for each hospital by combining the hospital's scores on each of the measures within each domain, multiplying the score on each domain by the proposed weight for the domain, and adding the weighted scores for the domains. Each hospital's TPS would then be translated into a value-based incentive payment using a linear exchange function, which provides the same marginal incentives to both lower-and higher-

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January 2011



performing hospitals. The proposed VBP Program rule raises several implications for hospitals. In addition to the recommendation that each hospital calculate now its estimated score based on currently known data, we think it is imperative that hospitals re-energize their work with physicians to engage them in the work necessary to drive improved hospital performance. Without physician support and assistance, hospitals will face significant challenges in performing well under the VBP Program. Thus, we believe hospitals and physicians should begin now to evaluate and implement those physician/hospital alignment strategies to assure optimal performance under the VBP Program that starts July 1, 2011. We also recommend that hospitals be prepared to demonstrate the accuracy of

their reporting processes. Under the 2011 OIG Work Plan, the OIG has announced a priority to review hospital controls for ensuring the accuracy of data related to the quality of care that they submit to CMS for Medicare reimbursement. Thus, hospitals would be well advised to review and improve their reporting processes to be sure that the data reported to CMS is accurate and complete. Finally, hospitals should immediately determine if they wish to submit comments to CMS related to the proposed VBP rule prior to March 8, 2010, the comment period deadline. The proposed rule is placed on display at the Federal Register and can be found under Special Filings at: http://

For More Information

If you would like to discuss the implications of the new proposed rule, please contact: Janice Anderson, 312.873.3623, or [email protected] Alan Parver, 202.626.8306, or [email protected] Kimela West, 816.360.4330, or [email protected]

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Matthew J. Murer Practice Area Chair Chicago 312.873.3603 [email protected] Randal L. Schultz, Practice Area Vice-Chair Kansas City 816.374.0521 [email protected] Alan K. Parver, Practice Area Vice-Chair Washington, D.C. 202.626.8306 [email protected] Janice A. Anderson Chicago 312.873.3623 [email protected] Douglas K. Anning Kansas City 816.360.4188 [email protected] Cynthia E. Berry, Washington, D.C. 202.626.8333 [email protected] Mary Beth Blake, Kansas City 816.360.4284 [email protected] Tina M. Boschert, Kansas City 816.360.4118 [email protected] Gerald W. Brenneman, Kansas City 816.360.4221 [email protected]

Teresa A. Brooks Washington, D.C. 202.626.8304 [email protected] Jared O. Brooner St. Joseph 816.364.2117 [email protected] Anne M. Cooper Chicago 312.873.3606 [email protected] Meredith A. Duncan Chicago 312.873.3602 [email protected] Fredric J. Entin Chicago 312.873.3601 [email protected] Kara M. Friedman Chicago 312.873.3639 [email protected] Rebecca L. Frigy St. Louis 314.889.7013 [email protected] Randy S. Gerber St. Louis 314.889.7038 [email protected] Jay M. Howard Kansas City 816.360.4202 [email protected]

George Jackson, III Chicago 312.873.3657 [email protected] Joan B. Killgore St. Louis 314.889.7008 [email protected] Jason T. Lundy Chicago 312.873.3604 [email protected] Patrick J. Martinez Chicago 312.873.3677 [email protected] Jane K. McCahill Chicago 312.873.3607 [email protected] Edward F. Novak Phoenix 602.650.2020 [email protected] Thomas P. O'Donnell Kansas City 816.360.4173 [email protected] Daniel S. Reinberg Chicago 312.873.3636 [email protected] Charles P. Sheets Chicago 312.873.3605 [email protected]

Heidi R. Slaw Chicago 312.873.3658 [email protected] Kathryn M. Stalmack Chicago 312.873.3608 [email protected] Leah Mendelsohn Stone Washington, D.C. 202.626.8329 [email protected] Chad C. Stout Kansas City 816.572.4479 [email protected] Steven K. Stranne Washington, D.C. 202.626.8313 [email protected] Emily C. Tremmel Chicago 312.873.3661 [email protected] Andrew B. Turk Phoenix 602.650.2097 [email protected] Kimela R. West Kansas City 816.360.4330 [email protected] Christopher K. Wilson Kansas City 816.395.0647 [email protected] Mark R. Woodbury St. Joseph 816.364.2117 [email protected]

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January 2011


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