Value-based purchasing may not be encouraging much improvement

To improve the Value-Based Purchasing (VBP) program CMS should address four concerns, according to a report by David Muhlestein, Ph.D., J.D., of Leavitt Partners. CMS should (1) empirically evaluate whether penalties are large enough to lead providers to make changes across the four domains; (2) structure quality measures so that only meaningful differences in performance lead to meaningful differences in payments; (3) decrease the measurement volatility by increasing the number of cases for each of the metrics and creating an alternative VBP program for low-case volume hospitals; and (4) consider urging Congress to reconsider combining the VBP program with the readmission and hospital-acquired conditions (HAC) reduction to better align measures across programs, the report recommended.

Background

The VBP program was implemented by CMS in 2013 under Section 3001 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-14) as one of three value-based programs for hospitals. The VBP program is different from its counterparts in that it is structured to be revenue neutral, allowing some hospitals to receive bonus payments while others receive penalties for inpatient payments. It also evaluates performance across four weighted domains: clinical process of care (10 percent), patient experience of care (25 percent), clinical outcomes (40 percent), and efficiency (25 percent).

Estimated impact on financial performance

For hospitals involved in the VBP program, an average of 35.4 of discharges are paid for by Medicare, and 46.1 percent of revenue comes from inpatient care. Because the VBP modifier only affects Medicare inpatient care, the modifier can only affect about one-sixth of hospital revenue. The report estimates that, for FY 2016, the VBP modifier will affect a hospital’s income with a maximum 0.35 percent decrease in total revenue or a maximum 0.8 percent increase in total revenue. However, the report estimates that only 4.9 percent of hospitals will see a penalty or bonus payment that exceeds 0.25 percent of net revenue. Of those hospitals, only 8.3 percent will be penalized.

Performance over time

Hospitals may improve their performance each year. The report shows that, between 2015 and 2016, 45 percent of hospitals received bonuses in both 2015 and 2016, while 30 percent were penalized both years. About 25 percent of hospitals made a change between the two categories, with 11 percent moving from bonus to penalty and 14 percent moving from penalty to bonus. The report also classified hospitals into quintiles based on their 2015 and 2016 performance and found a surprising amount of movement between the quintiles, with 40 percent moving up or down one quintile, 13 percent moving two quintiles, 4 percent moving three quintiles, and 1 percent moving four quintiles.

Policy implications

While the VBP program is intended to give incentives for hospitals to improve their quality of care, the relatively small financial incentives may not be sufficient enough to justify the high investment required to implement significant changes for many hospitals, especially considering that the potential for return is unknown. More work needs to be done, the report stated, to determine whether hospitals that had higher penalties improved more than those with smaller penalties or bonuses. To encourage improvement, the report suggested moving toward measures that have clear pathways for improvement, with such measures weighted higher than those with a more nebulous pathway toward improvement. To allow hospitals clearer performance benchmarks, the report also suggested limiting measures used in the program to those where there is a meaningful distribution of performance, limiting the number of potential scores in each category to those that are substantially different.

Volatility

High levels of volatility in VBP program results may indicate that the program is not adequately measuring true underlying quality and that program measures may be susceptible to random variation, as opposed to a hospital actually alternating between worsening and improving every year. Because smaller facilities tended to be more volatile, the report suggested creating an alternative program for those smaller hospitals to allow better monitoring of changes in quality.

Overlap with other Medicare initiatives

Measures within the VBP program, the Hospital Readmissions Reduction Program (HRRP) and the Hospital Acquired Conditions (HAC) reduction program are not fully coordinated, the report noted. Rather than administering separate programs, the report suggested urging Congress to combine the programs into one to better align all quality and performance measures across programs, allowing hospitals to be better-positioned to prioritize their efforts.