Daniel Blumenthal, MD, MBA

Hospital Eligibility for VBP

All acute care hospitals in the United States (excluding Maryland) that are not psychiatric hospitals, rehabilitation hospitals, long‐term care facilities, children's hospitals, or cancer hospitals are eligible to participate in VBP in FY 2013 (full eligibility criteria is outlined in Table 1). For FY 2013, CMS chose to incentivize measures in just 2 care domains: (1) clinical processes of care and (2) patient experience of care. To be eligible for VBP in FY 2013, a hospital must report at least 10 cases each in at least 4 of 12 measures included in the clinical processes of care domain (Table 2), and/or must have at least 100 completed Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS). Designed and validated by CMS, the HCAHPS survey provides hospitals with a standardized instrument for gathering information about patient satisfaction with, and perspectives on, their hospital care.[12] HCAHPS will be used to assess 8 patient experience of care measures (Table 3).

Participation in the program is mandatory for eligible hospitals, and CMS estimates that more than 3000 facilities across the United States will participate in FY 2013. Roughly $850 million dollars in VBP incentives will be paid out to these participating hospitals in FY 2013. The program is being financed through a 1% across‐the‐board reduction in FY 2013 diagnosis‐related group (DRG)‐based inpatient payments to participating hospitals. On December 20, 2012, CMS publically announced FY 2013 VBP incentives for all participating hospitals. Each hospital's incentive is retroactive and based on its performance between July 1, 2011 and March 31, 2012.

All data used for calculating VBP incentives is reported to CMS through its Hospital Inpatient Quality Reporting (Hospital IQR) Program, a national program instituted in 2003 that rewards hospitals for reporting designated quality measures. As of 2007, approximately 95% of eligible US hospitals were using the Hospital IQR program.[1] Measures evaluated via chart abstracts and surveys reflect a hospital's performance for its entire patient population, whereas measures assessed with claims data reflect hospital performance only for Medicare patients.

Evaluation of Hospitals

In FY 2013, hospital VBP incentive payments will be based entirely on performance in 2 domains: (1) clinical processes of care (weighted 70%) and (2) patient experience of care (weighted 30%). For each domain, CMS will evaluate each hospital's improvement over time as well as achievement compared to other hospitals in the VBP program. By assessing and rewarding both achievement and improvement, CMS will ensure that lower‐performing hospitals will still be rewarded for making substantial improvements in quality. To evaluate the first metricimprovement over timeCMS will compare a hospital's performance during a given reporting period with its baseline performance 2 years prior to this block of time. A hospital receives improvement points for improving its performance over time. To assess the second metricachievement compared to other hospitals in the VBP programCMS will compare each hospital's performance during a reporting period with the baseline performance (eg, performance 2 years prior to reporting period) of all other hospitals in the VBP program. A hospital is awarded achievement points if its performance exceeds the 50th percentile of all hospitals during the baseline performance period. Improvement scores range from 0 to 9, whereas achievement scores range from 0 to 10. The greater of a hospital's improvement and achievement scores on each VBP measure are used to calculate each hospital's total earned clinical care domain score and total earned HCAHPS base score. Hospitals that lack baseline performance data, which is required to assess improvement, will be evaluated solely on the basis of achievement points.[1] The total earned clinical care domain score is multiplied by 70% to reach the clinical care domain's contribution to a hospital's total performance score.

Each hospital's total patient experience domain, or HCAHPS performance, score consists of 2 components: a total earned HCAHPS base score as described above and a consistency score. The consistency score evaluates the reliability of a hospital's performance across all 8 patient experience of care measures (Table 3). If a hospital is above the 50th percentile of all hospital scores during the baseline period on all 8 measures, then it receives 100% of its consistency points. If a hospital is at the 0 percentile for a given measure, then it receives 0 consistency points for all measures. This provision promotes consistency by harshly penalizing hospitals with extremely poor performance on any 1 specific measure. If 1 or more measures are between the 0 and 50th percentiles, then it will receive a consistency score that takes into account how many measures were below the 50th percentile and their distance from this threshold. Each hospital's total HCAHPS performance score (the sum of total earned HCAHPS base points and consistency points) is then multiplied by 30% to arrive at the patient experience of care domain's contribution to a hospital's total performance score.

Importantly, CMS excluded from its VBP initiative 10 clinical process measures reported in the Hospital IQR Program because they are topped out; that is, almost all hospitals already perform them at very high rates (Table 4). Examples of these topped out process measures include administration of aspirin to all patients with AMI on arrival at the hospital; counseling of patients with AMI, CHF, and pneumonia about smoking cessation; and prescribing angiotensin‐converting enzyme inhibitors or angiotensin receptor blockers to patients with CHF and left ventricular dysfunction.[1]

Calculation of VBP Incentives and Public Reporting

A hospital's total performance score for FY 2013 is equal to the sum of 70% of its clinical care domain score and 30% of its total HCAHPS performance score. This total performance score is entered into a linear mathematical formula to calculate each hospital's incentive payment. CMS projects that VBP will lead to a net increase in Medicare payments for one‐half of hospitals and a net decrease in payments for the other half of participating facilities.[1]

In December 2012, CMS publicly disclosed information about the initial performance of each hospital in the VBP program. Reported information included: (1) hospital performance for each applicable performance measure, (2) hospital performance by disease condition or procedure, and (3) hospital's total performance score. Initial analyses of this performance data revealed that 1557 hospitals will receive bonus payments under VBP in FY 2013, whereas 1427 hospitals will lose money under this program. Treasure Valley Hospital, a 10‐bed physician‐owned hospital in Boise, Idaho, will receive a 0.83% increase in Medicare payments, the largest payment increase under VBP in 2013. Conversely, Auburn Community Hospital in upstate New York, will suffer the most severe payment reduction: 0.9% per Medicare admission. The penalty will cost Auburn Hospital about $100,000, which is slightly more than 0.1% of its yearly $85 million operating budget.[13] For almost two‐thirds of participating hospitals, FY 2013 Medicare payments will change by <0.25%.[13] Additional information about VBP payments for FY 2013, including the number of hospitals who received VBP incentives and the size and range of these payments, is now accessible to the public through CMS' Hospital Compare Web site (http://www.hospitalcompare.hhs.gov).

Rigorous and Continuous Evaluation of VBP Programs

The main premise of using VBP to incentivize hospitals to deliver high‐quality cost‐effective care is that the process measures used to determine hospital quality do impact patient outcomes. However, it is already well established that improvements in measures of process quality are not always associated with improvements in patient outcomes.[14, 15, 16] Moreover, incentivizing specific process measures encourages hospitals to shift resources away from other aspects of care delivery, which may have ambiguous, or even deleterious, effects on patient outcomes. Although incentives ideally push hospitals to shift resources away from low‐quality care toward high‐quality care, in practice this is not always the case. Hospital resources may instead be drawn away from areas that are not yet incented by VBP, but for which improvements in quality of care are desperately needed. The same empirical focus behind using VBP to incentivize hospitals to improve patient outcomes efficiently should be used to evaluate whether VBP is continually meeting its stated goals: reducing overall patient morbidity and mortality and improving patient satisfaction at ideally lower cost. The experience of the US education system with public policies designed to improve student testing performance may serve as a cautionary example here. Such policies, which provide financial rewards to schools whose students perform well on standardized tests, can indeed raise testing performance. However, these policies also lead educators to teach to the test, and to neglect important topics that are not tested on standardized exams.[17]

Prioritization of Process Measures

As payment incentives for VBP currently stand, process measures are weighted equally regardless of the clinical benefits they generate and the resources required to achieve improvements in process quality. For instance, 2 process measures, continuing home ‐blocker medications for patients with coronary artery disease undergoing surgery and early percutaneous coronary intervention for patients with AMI, may be weighted equally as process measures although both their clinical benefits and the costs of implementation are very different. Some hospitals responding to VBP incentives may choose to invest in areas where their ability to earn VBP incentive payments is high and the costs of improvement are low, although those areas may not be where interventions are most needed because clinical outcomes could be most improved. Recognizing that process measures have heterogeneous benefits and costs of implementation is important when prioritizing their reimbursement in VBP.

Measuring Improvements in Hospital Quality

Tying hospital financial compensation to hospital quality implies that measures of hospital quality should be robust. To incentivize hospitals to improve quality not only relative to other hospitals but to themselves in the past, the VBP program has established a baseline performance for each hospital. Each hospital is compared to its baseline performance in subsequent evaluation periods. Thus, properly measuring a hospital's baseline performance is important. During a given baseline period, some hospitals may have better or worse outcomes than their steady state due to random variation alone. Some hospitals deemed to have a low baseline will experience improvements in quality that are not related to active efforts to improve quality but through chance alone. Similarly, some hospitals deemed to have a high baseline will experience reductions in quality through chance. Of course, neither of these changes should be subject to differences in reimbursement because they do not reflect actual organizational changes made by the hospitals. The VBP program has made significant efforts to address this issue by requiring participating hospitals to have a large enough sample of cases such that estimated rates of process quality adherence meet a reliability threshold (ie, are likely to be consistent over time rather than vary substantially through chance alone). However, not all process measures exhibit high reliability, particularly those for which adverse events are rare (eg, foreign objects retained after surgery, air embolisms, and blood incompatibility). Ultimately, CMS's decision to balance the need for statistically reliable data with the goal of including as many hospitals as possible in the VBP program will require ongoing reevaluation of this issue.

Choosing Hospital Comparators Appropriately

In the current VBP program, hospitals will be evaluated in part by how they compare to hospitals nationally. However, studies of regional variation in healthcare have demonstrated large variations in practice patterns across the United States,[18, 19, 20] raising the question of whether hospitals should, at least initially, be compared to hospitals in the same geographic area. Although the ultimate goal of VBP should be to hold hospitals to a national standard, local practice patterns are not easily modified within 1‐ to 2‐year timeframes. Initially comparing hospitals to a national rather than local standard may unfairly penalize hospitals that are relative underperformers nationally but overperformers regionally. Although CMS's policy to reward improvement within hospitals over time mitigates issues arising from a cross‐sectional comparison of hospitals, the issue still remains if many hospitals within a region not only underperform relative to other hospitals nationally but also fail to demonstrate improvement. More broadly, this issue extends to differences across hospitals in factors that impact their ability to meet VBP goals. These factors may include, for example, hospital size, profitability, patient case and insurance mix, and presence of an electronic medical record. Comparing hospitals with vastly different abilities to achieve VBP goals and improve quickly may amount to inequitable policy.

Continual Evaluation of Topped‐Out Measures

Process measures that are met at high rates at nearly all hospitals are not used in evaluations by CMS for VBP. An assumption underlying CMS' decision to not reward hospitals for achieving these topped‐out measures is that once physicians and hospitals make cognitive and system‐level improvements that improve process quality, these gains will persist after the incentive is removed. Thus, CMS hopes and anticipates that although performance incentives will make it easier for well‐meaning physicians to learn to do the right thing, doctors will continue to do the right things for patients after these incentives are removed.[21, 22] Although this assumption may generally be accurate, it is important to continue to evaluate whether measures that are currently topped out continue to remain adequately performed, because rewarding new quality measures will necessarily lead hospitals to reallocate resources away from other clinical activities. Although we hope that the continued public reporting of topped‐out measures will prevent declines in performance on these measures, policy makers and clinicians should be aware that the lack of financial incentives for topped‐out measures may result in declines in quality. To this point, an analysis of 35 Kaiser Permanente facilities from 1997 to 2007 demonstrated that the removal of financial incentives for diabetic retinopathy and cervical cancer screening was associated with subsequent declines in performance of 3% and 1.6% per year, respectively.[23]

Will VBP Incentives Be Large Enough to Change Practice Patterns?

The VBP Program's ability to influence change depends, at least in part, on how the incentives offered under this program compare to the magnitude of the investments that hospitals must make to achieve a given reward. In general, larger incentives are necessary to motivate more significant changes in behavior or to influence organizations to invest the resources needed to achieve change. The incentives offered under VBP in FY 2013 are quite modest. Almost two‐thirds of participating hospitals will see their FY 2013 Medicare revenues change by <0.25%, roughly $125,000 at most.[13, 24] Although these incentives may motivate hospitals that can improve performance and achievement with very modest investments, they may have little impact on organizations that need to make significant upfront investments in care processes to achieve sustainable improvements in care quality. As CMS increases the size of VBP incentives over the next 2 to 4 years, it will also hold hospitals accountable for a broader and increasingly complex set of outcomes. Improving these outcomes may require investments in areas such as information technology and process improvement that far surpass the VBP incentive reward.

Moreover, prior research suggests that financial incentives like those available under VBP may contribute only slightly to performance improvements when public reporting already exists. For example, in a 2‐year study of 613 US hospitals implementing pay‐for‐performance plus public reporting or public reporting only, pay for performance plus public reporting was associated with only a 2.6% to 4.1% increase in a composite measure of quality when compared to hospitals with public reporting only.[9] Similarly, a study of 54 hospitals participating in the CMS pay for performance pilot initiative found no significant improvement in quality of care or outcomes for AMI when compared to 446 control hospitals.[25] A long‐term analysis of pay for performance in the Medicare Premier Hospital Quality Incentive Demonstration found that participation in the program had no discernible effect on 30‐day mortality rates.[10] Finally, a study of physician medical groups contracting with a large network healthcare maintenance organization found that the implementation of pay for performance did not result in major before and after improvements in clinical quality compared to a control group of medical groups.[26]

Hospital Eligibility for VBP

All acute care hospitals in the United States (excluding Maryland) that are not psychiatric hospitals, rehabilitation hospitals, long‐term care facilities, children's hospitals, or cancer hospitals are eligible to participate in VBP in FY 2013 (full eligibility criteria is outlined in Table 1). For FY 2013, CMS chose to incentivize measures in just 2 care domains: (1) clinical processes of care and (2) patient experience of care. To be eligible for VBP in FY 2013, a hospital must report at least 10 cases each in at least 4 of 12 measures included in the clinical processes of care domain (Table 2), and/or must have at least 100 completed Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS). Designed and validated by CMS, the HCAHPS survey provides hospitals with a standardized instrument for gathering information about patient satisfaction with, and perspectives on, their hospital care.[12] HCAHPS will be used to assess 8 patient experience of care measures (Table 3).

Participation in the program is mandatory for eligible hospitals, and CMS estimates that more than 3000 facilities across the United States will participate in FY 2013. Roughly $850 million dollars in VBP incentives will be paid out to these participating hospitals in FY 2013. The program is being financed through a 1% across‐the‐board reduction in FY 2013 diagnosis‐related group (DRG)‐based inpatient payments to participating hospitals. On December 20, 2012, CMS publically announced FY 2013 VBP incentives for all participating hospitals. Each hospital's incentive is retroactive and based on its performance between July 1, 2011 and March 31, 2012.

All data used for calculating VBP incentives is reported to CMS through its Hospital Inpatient Quality Reporting (Hospital IQR) Program, a national program instituted in 2003 that rewards hospitals for reporting designated quality measures. As of 2007, approximately 95% of eligible US hospitals were using the Hospital IQR program.[1] Measures evaluated via chart abstracts and surveys reflect a hospital's performance for its entire patient population, whereas measures assessed with claims data reflect hospital performance only for Medicare patients.

Evaluation of Hospitals

In FY 2013, hospital VBP incentive payments will be based entirely on performance in 2 domains: (1) clinical processes of care (weighted 70%) and (2) patient experience of care (weighted 30%). For each domain, CMS will evaluate each hospital's improvement over time as well as achievement compared to other hospitals in the VBP program. By assessing and rewarding both achievement and improvement, CMS will ensure that lower‐performing hospitals will still be rewarded for making substantial improvements in quality. To evaluate the first metricimprovement over timeCMS will compare a hospital's performance during a given reporting period with its baseline performance 2 years prior to this block of time. A hospital receives improvement points for improving its performance over time. To assess the second metricachievement compared to other hospitals in the VBP programCMS will compare each hospital's performance during a reporting period with the baseline performance (eg, performance 2 years prior to reporting period) of all other hospitals in the VBP program. A hospital is awarded achievement points if its performance exceeds the 50th percentile of all hospitals during the baseline performance period. Improvement scores range from 0 to 9, whereas achievement scores range from 0 to 10. The greater of a hospital's improvement and achievement scores on each VBP measure are used to calculate each hospital's total earned clinical care domain score and total earned HCAHPS base score. Hospitals that lack baseline performance data, which is required to assess improvement, will be evaluated solely on the basis of achievement points.[1] The total earned clinical care domain score is multiplied by 70% to reach the clinical care domain's contribution to a hospital's total performance score.

Each hospital's total patient experience domain, or HCAHPS performance, score consists of 2 components: a total earned HCAHPS base score as described above and a consistency score. The consistency score evaluates the reliability of a hospital's performance across all 8 patient experience of care measures (Table 3). If a hospital is above the 50th percentile of all hospital scores during the baseline period on all 8 measures, then it receives 100% of its consistency points. If a hospital is at the 0 percentile for a given measure, then it receives 0 consistency points for all measures. This provision promotes consistency by harshly penalizing hospitals with extremely poor performance on any 1 specific measure. If 1 or more measures are between the 0 and 50th percentiles, then it will receive a consistency score that takes into account how many measures were below the 50th percentile and their distance from this threshold. Each hospital's total HCAHPS performance score (the sum of total earned HCAHPS base points and consistency points) is then multiplied by 30% to arrive at the patient experience of care domain's contribution to a hospital's total performance score.

Importantly, CMS excluded from its VBP initiative 10 clinical process measures reported in the Hospital IQR Program because they are topped out; that is, almost all hospitals already perform them at very high rates (Table 4). Examples of these topped out process measures include administration of aspirin to all patients with AMI on arrival at the hospital; counseling of patients with AMI, CHF, and pneumonia about smoking cessation; and prescribing angiotensin‐converting enzyme inhibitors or angiotensin receptor blockers to patients with CHF and left ventricular dysfunction.[1]

Calculation of VBP Incentives and Public Reporting

A hospital's total performance score for FY 2013 is equal to the sum of 70% of its clinical care domain score and 30% of its total HCAHPS performance score. This total performance score is entered into a linear mathematical formula to calculate each hospital's incentive payment. CMS projects that VBP will lead to a net increase in Medicare payments for one‐half of hospitals and a net decrease in payments for the other half of participating facilities.[1]

In December 2012, CMS publicly disclosed information about the initial performance of each hospital in the VBP program. Reported information included: (1) hospital performance for each applicable performance measure, (2) hospital performance by disease condition or procedure, and (3) hospital's total performance score. Initial analyses of this performance data revealed that 1557 hospitals will receive bonus payments under VBP in FY 2013, whereas 1427 hospitals will lose money under this program. Treasure Valley Hospital, a 10‐bed physician‐owned hospital in Boise, Idaho, will receive a 0.83% increase in Medicare payments, the largest payment increase under VBP in 2013. Conversely, Auburn Community Hospital in upstate New York, will suffer the most severe payment reduction: 0.9% per Medicare admission. The penalty will cost Auburn Hospital about $100,000, which is slightly more than 0.1% of its yearly $85 million operating budget.[13] For almost two‐thirds of participating hospitals, FY 2013 Medicare payments will change by <0.25%.[13] Additional information about VBP payments for FY 2013, including the number of hospitals who received VBP incentives and the size and range of these payments, is now accessible to the public through CMS' Hospital Compare Web site (http://www.hospitalcompare.hhs.gov).

Rigorous and Continuous Evaluation of VBP Programs

The main premise of using VBP to incentivize hospitals to deliver high‐quality cost‐effective care is that the process measures used to determine hospital quality do impact patient outcomes. However, it is already well established that improvements in measures of process quality are not always associated with improvements in patient outcomes.[14, 15, 16] Moreover, incentivizing specific process measures encourages hospitals to shift resources away from other aspects of care delivery, which may have ambiguous, or even deleterious, effects on patient outcomes. Although incentives ideally push hospitals to shift resources away from low‐quality care toward high‐quality care, in practice this is not always the case. Hospital resources may instead be drawn away from areas that are not yet incented by VBP, but for which improvements in quality of care are desperately needed. The same empirical focus behind using VBP to incentivize hospitals to improve patient outcomes efficiently should be used to evaluate whether VBP is continually meeting its stated goals: reducing overall patient morbidity and mortality and improving patient satisfaction at ideally lower cost. The experience of the US education system with public policies designed to improve student testing performance may serve as a cautionary example here. Such policies, which provide financial rewards to schools whose students perform well on standardized tests, can indeed raise testing performance. However, these policies also lead educators to teach to the test, and to neglect important topics that are not tested on standardized exams.[17]

Prioritization of Process Measures

As payment incentives for VBP currently stand, process measures are weighted equally regardless of the clinical benefits they generate and the resources required to achieve improvements in process quality. For instance, 2 process measures, continuing home ‐blocker medications for patients with coronary artery disease undergoing surgery and early percutaneous coronary intervention for patients with AMI, may be weighted equally as process measures although both their clinical benefits and the costs of implementation are very different. Some hospitals responding to VBP incentives may choose to invest in areas where their ability to earn VBP incentive payments is high and the costs of improvement are low, although those areas may not be where interventions are most needed because clinical outcomes could be most improved. Recognizing that process measures have heterogeneous benefits and costs of implementation is important when prioritizing their reimbursement in VBP.

Measuring Improvements in Hospital Quality

Tying hospital financial compensation to hospital quality implies that measures of hospital quality should be robust. To incentivize hospitals to improve quality not only relative to other hospitals but to themselves in the past, the VBP program has established a baseline performance for each hospital. Each hospital is compared to its baseline performance in subsequent evaluation periods. Thus, properly measuring a hospital's baseline performance is important. During a given baseline period, some hospitals may have better or worse outcomes than their steady state due to random variation alone. Some hospitals deemed to have a low baseline will experience improvements in quality that are not related to active efforts to improve quality but through chance alone. Similarly, some hospitals deemed to have a high baseline will experience reductions in quality through chance. Of course, neither of these changes should be subject to differences in reimbursement because they do not reflect actual organizational changes made by the hospitals. The VBP program has made significant efforts to address this issue by requiring participating hospitals to have a large enough sample of cases such that estimated rates of process quality adherence meet a reliability threshold (ie, are likely to be consistent over time rather than vary substantially through chance alone). However, not all process measures exhibit high reliability, particularly those for which adverse events are rare (eg, foreign objects retained after surgery, air embolisms, and blood incompatibility). Ultimately, CMS's decision to balance the need for statistically reliable data with the goal of including as many hospitals as possible in the VBP program will require ongoing reevaluation of this issue.

Choosing Hospital Comparators Appropriately

In the current VBP program, hospitals will be evaluated in part by how they compare to hospitals nationally. However, studies of regional variation in healthcare have demonstrated large variations in practice patterns across the United States,[18, 19, 20] raising the question of whether hospitals should, at least initially, be compared to hospitals in the same geographic area. Although the ultimate goal of VBP should be to hold hospitals to a national standard, local practice patterns are not easily modified within 1‐ to 2‐year timeframes. Initially comparing hospitals to a national rather than local standard may unfairly penalize hospitals that are relative underperformers nationally but overperformers regionally. Although CMS's policy to reward improvement within hospitals over time mitigates issues arising from a cross‐sectional comparison of hospitals, the issue still remains if many hospitals within a region not only underperform relative to other hospitals nationally but also fail to demonstrate improvement. More broadly, this issue extends to differences across hospitals in factors that impact their ability to meet VBP goals. These factors may include, for example, hospital size, profitability, patient case and insurance mix, and presence of an electronic medical record. Comparing hospitals with vastly different abilities to achieve VBP goals and improve quickly may amount to inequitable policy.

Continual Evaluation of Topped‐Out Measures

Process measures that are met at high rates at nearly all hospitals are not used in evaluations by CMS for VBP. An assumption underlying CMS' decision to not reward hospitals for achieving these topped‐out measures is that once physicians and hospitals make cognitive and system‐level improvements that improve process quality, these gains will persist after the incentive is removed. Thus, CMS hopes and anticipates that although performance incentives will make it easier for well‐meaning physicians to learn to do the right thing, doctors will continue to do the right things for patients after these incentives are removed.[21, 22] Although this assumption may generally be accurate, it is important to continue to evaluate whether measures that are currently topped out continue to remain adequately performed, because rewarding new quality measures will necessarily lead hospitals to reallocate resources away from other clinical activities. Although we hope that the continued public reporting of topped‐out measures will prevent declines in performance on these measures, policy makers and clinicians should be aware that the lack of financial incentives for topped‐out measures may result in declines in quality. To this point, an analysis of 35 Kaiser Permanente facilities from 1997 to 2007 demonstrated that the removal of financial incentives for diabetic retinopathy and cervical cancer screening was associated with subsequent declines in performance of 3% and 1.6% per year, respectively.[23]

Will VBP Incentives Be Large Enough to Change Practice Patterns?

The VBP Program's ability to influence change depends, at least in part, on how the incentives offered under this program compare to the magnitude of the investments that hospitals must make to achieve a given reward. In general, larger incentives are necessary to motivate more significant changes in behavior or to influence organizations to invest the resources needed to achieve change. The incentives offered under VBP in FY 2013 are quite modest. Almost two‐thirds of participating hospitals will see their FY 2013 Medicare revenues change by <0.25%, roughly $125,000 at most.[13, 24] Although these incentives may motivate hospitals that can improve performance and achievement with very modest investments, they may have little impact on organizations that need to make significant upfront investments in care processes to achieve sustainable improvements in care quality. As CMS increases the size of VBP incentives over the next 2 to 4 years, it will also hold hospitals accountable for a broader and increasingly complex set of outcomes. Improving these outcomes may require investments in areas such as information technology and process improvement that far surpass the VBP incentive reward.

Moreover, prior research suggests that financial incentives like those available under VBP may contribute only slightly to performance improvements when public reporting already exists. For example, in a 2‐year study of 613 US hospitals implementing pay‐for‐performance plus public reporting or public reporting only, pay for performance plus public reporting was associated with only a 2.6% to 4.1% increase in a composite measure of quality when compared to hospitals with public reporting only.[9] Similarly, a study of 54 hospitals participating in the CMS pay for performance pilot initiative found no significant improvement in quality of care or outcomes for AMI when compared to 446 control hospitals.[25] A long‐term analysis of pay for performance in the Medicare Premier Hospital Quality Incentive Demonstration found that participation in the program had no discernible effect on 30‐day mortality rates.[10] Finally, a study of physician medical groups contracting with a large network healthcare maintenance organization found that the implementation of pay for performance did not result in major before and after improvements in clinical quality compared to a control group of medical groups.[26]

Hospital Eligibility for VBP

All acute care hospitals in the United States (excluding Maryland) that are not psychiatric hospitals, rehabilitation hospitals, long‐term care facilities, children's hospitals, or cancer hospitals are eligible to participate in VBP in FY 2013 (full eligibility criteria is outlined in Table 1). For FY 2013, CMS chose to incentivize measures in just 2 care domains: (1) clinical processes of care and (2) patient experience of care. To be eligible for VBP in FY 2013, a hospital must report at least 10 cases each in at least 4 of 12 measures included in the clinical processes of care domain (Table 2), and/or must have at least 100 completed Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS). Designed and validated by CMS, the HCAHPS survey provides hospitals with a standardized instrument for gathering information about patient satisfaction with, and perspectives on, their hospital care.[12] HCAHPS will be used to assess 8 patient experience of care measures (Table 3).

Participation in the program is mandatory for eligible hospitals, and CMS estimates that more than 3000 facilities across the United States will participate in FY 2013. Roughly $850 million dollars in VBP incentives will be paid out to these participating hospitals in FY 2013. The program is being financed through a 1% across‐the‐board reduction in FY 2013 diagnosis‐related group (DRG)‐based inpatient payments to participating hospitals. On December 20, 2012, CMS publically announced FY 2013 VBP incentives for all participating hospitals. Each hospital's incentive is retroactive and based on its performance between July 1, 2011 and March 31, 2012.

All data used for calculating VBP incentives is reported to CMS through its Hospital Inpatient Quality Reporting (Hospital IQR) Program, a national program instituted in 2003 that rewards hospitals for reporting designated quality measures. As of 2007, approximately 95% of eligible US hospitals were using the Hospital IQR program.[1] Measures evaluated via chart abstracts and surveys reflect a hospital's performance for its entire patient population, whereas measures assessed with claims data reflect hospital performance only for Medicare patients.

Evaluation of Hospitals

In FY 2013, hospital VBP incentive payments will be based entirely on performance in 2 domains: (1) clinical processes of care (weighted 70%) and (2) patient experience of care (weighted 30%). For each domain, CMS will evaluate each hospital's improvement over time as well as achievement compared to other hospitals in the VBP program. By assessing and rewarding both achievement and improvement, CMS will ensure that lower‐performing hospitals will still be rewarded for making substantial improvements in quality. To evaluate the first metricimprovement over timeCMS will compare a hospital's performance during a given reporting period with its baseline performance 2 years prior to this block of time. A hospital receives improvement points for improving its performance over time. To assess the second metricachievement compared to other hospitals in the VBP programCMS will compare each hospital's performance during a reporting period with the baseline performance (eg, performance 2 years prior to reporting period) of all other hospitals in the VBP program. A hospital is awarded achievement points if its performance exceeds the 50th percentile of all hospitals during the baseline performance period. Improvement scores range from 0 to 9, whereas achievement scores range from 0 to 10. The greater of a hospital's improvement and achievement scores on each VBP measure are used to calculate each hospital's total earned clinical care domain score and total earned HCAHPS base score. Hospitals that lack baseline performance data, which is required to assess improvement, will be evaluated solely on the basis of achievement points.[1] The total earned clinical care domain score is multiplied by 70% to reach the clinical care domain's contribution to a hospital's total performance score.

Each hospital's total patient experience domain, or HCAHPS performance, score consists of 2 components: a total earned HCAHPS base score as described above and a consistency score. The consistency score evaluates the reliability of a hospital's performance across all 8 patient experience of care measures (Table 3). If a hospital is above the 50th percentile of all hospital scores during the baseline period on all 8 measures, then it receives 100% of its consistency points. If a hospital is at the 0 percentile for a given measure, then it receives 0 consistency points for all measures. This provision promotes consistency by harshly penalizing hospitals with extremely poor performance on any 1 specific measure. If 1 or more measures are between the 0 and 50th percentiles, then it will receive a consistency score that takes into account how many measures were below the 50th percentile and their distance from this threshold. Each hospital's total HCAHPS performance score (the sum of total earned HCAHPS base points and consistency points) is then multiplied by 30% to arrive at the patient experience of care domain's contribution to a hospital's total performance score.

Importantly, CMS excluded from its VBP initiative 10 clinical process measures reported in the Hospital IQR Program because they are topped out; that is, almost all hospitals already perform them at very high rates (Table 4). Examples of these topped out process measures include administration of aspirin to all patients with AMI on arrival at the hospital; counseling of patients with AMI, CHF, and pneumonia about smoking cessation; and prescribing angiotensin‐converting enzyme inhibitors or angiotensin receptor blockers to patients with CHF and left ventricular dysfunction.[1]

Calculation of VBP Incentives and Public Reporting

A hospital's total performance score for FY 2013 is equal to the sum of 70% of its clinical care domain score and 30% of its total HCAHPS performance score. This total performance score is entered into a linear mathematical formula to calculate each hospital's incentive payment. CMS projects that VBP will lead to a net increase in Medicare payments for one‐half of hospitals and a net decrease in payments for the other half of participating facilities.[1]

In December 2012, CMS publicly disclosed information about the initial performance of each hospital in the VBP program. Reported information included: (1) hospital performance for each applicable performance measure, (2) hospital performance by disease condition or procedure, and (3) hospital's total performance score. Initial analyses of this performance data revealed that 1557 hospitals will receive bonus payments under VBP in FY 2013, whereas 1427 hospitals will lose money under this program. Treasure Valley Hospital, a 10‐bed physician‐owned hospital in Boise, Idaho, will receive a 0.83% increase in Medicare payments, the largest payment increase under VBP in 2013. Conversely, Auburn Community Hospital in upstate New York, will suffer the most severe payment reduction: 0.9% per Medicare admission. The penalty will cost Auburn Hospital about $100,000, which is slightly more than 0.1% of its yearly $85 million operating budget.[13] For almost two‐thirds of participating hospitals, FY 2013 Medicare payments will change by <0.25%.[13] Additional information about VBP payments for FY 2013, including the number of hospitals who received VBP incentives and the size and range of these payments, is now accessible to the public through CMS' Hospital Compare Web site (http://www.hospitalcompare.hhs.gov).

Rigorous and Continuous Evaluation of VBP Programs

The main premise of using VBP to incentivize hospitals to deliver high‐quality cost‐effective care is that the process measures used to determine hospital quality do impact patient outcomes. However, it is already well established that improvements in measures of process quality are not always associated with improvements in patient outcomes.[14, 15, 16] Moreover, incentivizing specific process measures encourages hospitals to shift resources away from other aspects of care delivery, which may have ambiguous, or even deleterious, effects on patient outcomes. Although incentives ideally push hospitals to shift resources away from low‐quality care toward high‐quality care, in practice this is not always the case. Hospital resources may instead be drawn away from areas that are not yet incented by VBP, but for which improvements in quality of care are desperately needed. The same empirical focus behind using VBP to incentivize hospitals to improve patient outcomes efficiently should be used to evaluate whether VBP is continually meeting its stated goals: reducing overall patient morbidity and mortality and improving patient satisfaction at ideally lower cost. The experience of the US education system with public policies designed to improve student testing performance may serve as a cautionary example here. Such policies, which provide financial rewards to schools whose students perform well on standardized tests, can indeed raise testing performance. However, these policies also lead educators to teach to the test, and to neglect important topics that are not tested on standardized exams.[17]

Prioritization of Process Measures

As payment incentives for VBP currently stand, process measures are weighted equally regardless of the clinical benefits they generate and the resources required to achieve improvements in process quality. For instance, 2 process measures, continuing home ‐blocker medications for patients with coronary artery disease undergoing surgery and early percutaneous coronary intervention for patients with AMI, may be weighted equally as process measures although both their clinical benefits and the costs of implementation are very different. Some hospitals responding to VBP incentives may choose to invest in areas where their ability to earn VBP incentive payments is high and the costs of improvement are low, although those areas may not be where interventions are most needed because clinical outcomes could be most improved. Recognizing that process measures have heterogeneous benefits and costs of implementation is important when prioritizing their reimbursement in VBP.

Measuring Improvements in Hospital Quality

Tying hospital financial compensation to hospital quality implies that measures of hospital quality should be robust. To incentivize hospitals to improve quality not only relative to other hospitals but to themselves in the past, the VBP program has established a baseline performance for each hospital. Each hospital is compared to its baseline performance in subsequent evaluation periods. Thus, properly measuring a hospital's baseline performance is important. During a given baseline period, some hospitals may have better or worse outcomes than their steady state due to random variation alone. Some hospitals deemed to have a low baseline will experience improvements in quality that are not related to active efforts to improve quality but through chance alone. Similarly, some hospitals deemed to have a high baseline will experience reductions in quality through chance. Of course, neither of these changes should be subject to differences in reimbursement because they do not reflect actual organizational changes made by the hospitals. The VBP program has made significant efforts to address this issue by requiring participating hospitals to have a large enough sample of cases such that estimated rates of process quality adherence meet a reliability threshold (ie, are likely to be consistent over time rather than vary substantially through chance alone). However, not all process measures exhibit high reliability, particularly those for which adverse events are rare (eg, foreign objects retained after surgery, air embolisms, and blood incompatibility). Ultimately, CMS's decision to balance the need for statistically reliable data with the goal of including as many hospitals as possible in the VBP program will require ongoing reevaluation of this issue.

Choosing Hospital Comparators Appropriately

In the current VBP program, hospitals will be evaluated in part by how they compare to hospitals nationally. However, studies of regional variation in healthcare have demonstrated large variations in practice patterns across the United States,[18, 19, 20] raising the question of whether hospitals should, at least initially, be compared to hospitals in the same geographic area. Although the ultimate goal of VBP should be to hold hospitals to a national standard, local practice patterns are not easily modified within 1‐ to 2‐year timeframes. Initially comparing hospitals to a national rather than local standard may unfairly penalize hospitals that are relative underperformers nationally but overperformers regionally. Although CMS's policy to reward improvement within hospitals over time mitigates issues arising from a cross‐sectional comparison of hospitals, the issue still remains if many hospitals within a region not only underperform relative to other hospitals nationally but also fail to demonstrate improvement. More broadly, this issue extends to differences across hospitals in factors that impact their ability to meet VBP goals. These factors may include, for example, hospital size, profitability, patient case and insurance mix, and presence of an electronic medical record. Comparing hospitals with vastly different abilities to achieve VBP goals and improve quickly may amount to inequitable policy.

Continual Evaluation of Topped‐Out Measures

Process measures that are met at high rates at nearly all hospitals are not used in evaluations by CMS for VBP. An assumption underlying CMS' decision to not reward hospitals for achieving these topped‐out measures is that once physicians and hospitals make cognitive and system‐level improvements that improve process quality, these gains will persist after the incentive is removed. Thus, CMS hopes and anticipates that although performance incentives will make it easier for well‐meaning physicians to learn to do the right thing, doctors will continue to do the right things for patients after these incentives are removed.[21, 22] Although this assumption may generally be accurate, it is important to continue to evaluate whether measures that are currently topped out continue to remain adequately performed, because rewarding new quality measures will necessarily lead hospitals to reallocate resources away from other clinical activities. Although we hope that the continued public reporting of topped‐out measures will prevent declines in performance on these measures, policy makers and clinicians should be aware that the lack of financial incentives for topped‐out measures may result in declines in quality. To this point, an analysis of 35 Kaiser Permanente facilities from 1997 to 2007 demonstrated that the removal of financial incentives for diabetic retinopathy and cervical cancer screening was associated with subsequent declines in performance of 3% and 1.6% per year, respectively.[23]

Will VBP Incentives Be Large Enough to Change Practice Patterns?

The VBP Program's ability to influence change depends, at least in part, on how the incentives offered under this program compare to the magnitude of the investments that hospitals must make to achieve a given reward. In general, larger incentives are necessary to motivate more significant changes in behavior or to influence organizations to invest the resources needed to achieve change. The incentives offered under VBP in FY 2013 are quite modest. Almost two‐thirds of participating hospitals will see their FY 2013 Medicare revenues change by <0.25%, roughly $125,000 at most.[13, 24] Although these incentives may motivate hospitals that can improve performance and achievement with very modest investments, they may have little impact on organizations that need to make significant upfront investments in care processes to achieve sustainable improvements in care quality. As CMS increases the size of VBP incentives over the next 2 to 4 years, it will also hold hospitals accountable for a broader and increasingly complex set of outcomes. Improving these outcomes may require investments in areas such as information technology and process improvement that far surpass the VBP incentive reward.

Moreover, prior research suggests that financial incentives like those available under VBP may contribute only slightly to performance improvements when public reporting already exists. For example, in a 2‐year study of 613 US hospitals implementing pay‐for‐performance plus public reporting or public reporting only, pay for performance plus public reporting was associated with only a 2.6% to 4.1% increase in a composite measure of quality when compared to hospitals with public reporting only.[9] Similarly, a study of 54 hospitals participating in the CMS pay for performance pilot initiative found no significant improvement in quality of care or outcomes for AMI when compared to 446 control hospitals.[25] A long‐term analysis of pay for performance in the Medicare Premier Hospital Quality Incentive Demonstration found that participation in the program had no discernible effect on 30‐day mortality rates.[10] Finally, a study of physician medical groups contracting with a large network healthcare maintenance organization found that the implementation of pay for performance did not result in major before and after improvements in clinical quality compared to a control group of medical groups.[26]