NCPA - National Center for Policy Analysis


November 27, 2007

"Pay for performance," is often described as paying hospitals more if they take better care of patients. In a new proposal, Medicare offers a twist: Pay hospitals less if they aren't among the top performers, says the Wall Street Journal.

The Center for Medicare and Medicaid Services (CMS) envisions its "value-based purchasing plan" as essentially a redistribution scheme:

  • Medicare would withhold 2 percent to 5 percent of hospitals' reimbursement funds -- with some payments excluded -- and use it to create a big incentive pool.
  • The incentive money then would be parceled out to two groups of hospitals -- those that score the highest on a set of quality indicators, and those that show the most improvement.
  • CMS would start with 17 of 25 existing criteria from a program requiring hospitals to report a variety of quality measures in return for inflation-based increases to their Medicare reimbursements.
  • The agency would pay the new bonuses initially to hospitals that simply report those measures, and shifting over three years to paying those scoring best on quality and improvement.

The biggest losers, at least early on, could well prove to be hospitals in the middle of the quality continuum, notes Arnold Epstein, chairman of Harvard University's Department of Health Policy and Management.  That's because the worst-performing hospitals have the most room to improve -- making them candidates for bonuses.  Meanwhile, the best-performing hospitals are already likely to meet the bonus targets.

And given that Medicare payments can make up nearly half of revenue for some hospitals, a 2 percent to 5 percent reduction in reimbursements could be serious.  "That's going to be a challenge for a hospital that's got a very tight margin, and many hospitals do," says Epstein.

Source: Theo Francis, "No Hospital Left Behind," Wall Street Journal, November 26, 2007.

For text: 


Browse more articles on Health Issues