Are Safety-Net Hospitals Being Unfairly Penalized by Medicare’s Value-Based Purchasing Program?

July 12, 2017
An analysis by the Government Accountability Office finds concerning discrepancies between the stated goals of the Hospital Value-Based Purchasing Program and its execution in practice, around the penalization of safety-net hospitals

It was fascinating to read the report released late last month by the United States Government Accountability Office (GAO), on challenges in the measures embedded in Medicare’s Hospital Value-Based Purchasing (HVBP) Program, a cornerstone federal effort to improve quality, patient safety, and efficiency outcomes in U.S. hospitals. As our article noted, the GAO has identified what it sees as some rather fundamental flaws in the measurements in the HVBP Program, in a report entitled “CMS Should Take Steps to Ensure Lower Quality Hospitals Do Not Qualify for Bonuses.” Reading the report, it’s hard to argue that some things are off in terms of the program’s current measurement system. Let’s take a look.

As the report notes, “The Hospital Value-Based Purchasing (HVBP) program aims to improve quality of care and efficiency by creating financial incentives for about 3,000 participating hospitals. From fiscal years 2013 through 2017, performance on quality and efficiency measures varied by hospital type. Safety net hospitals—those that serve a high proportion of low-income patients—generally lower in quality compared to all participating hospitals. In contrast, small rural and small urban hospitals—those with 100 or fewer acute care beds—scored higher on efficiency compared to all hospitals. Payment adjustments—bonuses or penalties, announced prior to each fiscal year —have varied over time for all hospitals. In four out of the five years of GAO’s analysis, small rural and small urban hospitals were more likely to receive a bonus compared to all participating hospitals, while safety net hospitals were more likely to receive a penalty. While a majority of all hospitals received a bonus or a penalty of less than 0.5 percent each year, the percentage of hospitals receiving a bonus greater than 0.5 percent increased from 4 percent to 29 percent from fiscal year 2013 to 2017. In dollar terms, most hospitals had a bonus or penalty of less than $100,000 in fiscal year 2017.”

So, right there, one can see some flaws in the measurement system. We need to keep in mind an obvious fact—safety-net hospitals are designated as such, because they take care of a disproportionate share of impoverished patients, including those on Medicaid and the completely uninsured. That is something that literally everyone in the healthcare system knows. Now, the fact that the measurement system implicitly seems to favor small and rural hospitals, based on the outcomes elicited so far, is something that really does need to be looked at. And, thus, the GAO report.

Now, why might it be that safety-net hospitals would be producing consistently slightly lower patient safety and quality outcomes? Well, essentially, they are dealing with a patient population that has higher levels of chronic illness, but also one with extremely challenging socioeconomic and sociodemographic characteristics, including homelessness, near-homelessness, unemployment, general poverty, social dislocation and transience, lower educational levels—all of the personal challenges that also impact health status, as members of that population tend to have wildly inconsistent healthcare experiences over time.

So essentially, what the GAO is saying here, is this: it’s time to reweight/adjust the measurements in the Hospital Value-Based Purchasing Program (which, as I’ll mention below, has happened before already). As the GAO report notes, “Some hospitals with high efficiency scores received bonuses, despite having relatively low quality scores, which contradicts the Centers for Medicare & Medicaid Service’s (CMS) stated intention to reward hospitals providing high-quality care at a lower cost. Further, among hospitals that were missing one or more quality scores, the efficiency score had a greater effect on the total performance score because of the methodology used by CMS. This methodology compensated for the missing scores by increasing the weights of all of the non-missing scores. Consequently, hospitals with missing scores were more likely to receive bonuses than hospitals with complete scores.” That is pretty important.

Now, the good news, as the GAO notes, is that, “Throughout the five years of the program, CMS has made modifications to meet these goals by changing quality performance domains and domain weighting from year to year.” That’s the good news. The report goes on to say that, “With the addition of the efficiency domain in fiscal year 2015, CMS signaled the importance of hospitals’ providing care at a lower cost to Medicare, and, in its weighting formula, the agency tried to find balanced consideration for quality and cost. Rather than achieving this balance—which would have allowed the agency to identify and reward higher quality and lower cost hospitals—CMS’s weighting formula has resulted in bonuses for some lower quality hospitals, solely due to their cost efficiency. Because the program is budget neutral, bonuses for lower quality hospitals may result in smaller bonuses for hospitals that are performing well across all domains.” And that’s the bad news.

But some of the adjustments that the GAO has called for seem relatively simple, at least conceptually (setting aside for a moment the massive complexity of getting things adjusted and changed in federally mandated programs). And, based on the analysis the GAO has provided, I would second its motion to “revise the formula for the calculation of hospitals’ total performance score or take other actions so that the efficiency score does not have a disproportionate effect on the total performance score; revise the practice of proportional redistribution used to correct for missing domain scores so that it no longer facilitates the awarding of bonuses to hospitals with lower quality scores.”

The reality is that the U.S. healthcare system-wide venture around value-based purchasing is still early on in its journey. And making adjustments like those that the GAO has suggested, not only make sense, but will be extremely important in getting buy-in from all of the stakeholders around the table. So I sincerely hope that federal healthcare officials heed the advice of the GAO on this and take action. Doing so will be beneficial for everyone, and will contribute to overall support in the industry for change.

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