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Demo Finds Hospitals Lowering Costs, Improving Outcomes

By Reed Cooley, CQ Staff

February 1, 2008 -- Hospitals participating in a Medicare pay-for-performance demonstration project are improving quality while reducing costs and patient mortality, officials said Thursday.

The demonstration project, a joint venture between the Centers for Medicare and Medicaid Services (CMS) and the hospital consortium Premier Inc., found if all hospitals achieved the three-year cost and mortality improvements that project participants did, an estimated 70,000 lives per year could be saved and hospital costs could be cut by more than $4.5 billion annually.

On average, the median hospital cost per patient declined by $1,000 during the first three years of the project, while the median mortality rate decreased by 1.87 percent. The 250 participating hospitals reported data on 30 evidence-based clinical quality measures. In February, CMS extended the Premier demo for an additional three years.

"The findings from this analysis provide evidence that improvements in quality do lead to reductions in costs," Stephanie Alexander, senior vice president and general manager of Premier Healthcare Informatics, said.

Achieving a higher quality of health care also will bring financial benefits to the hospitals involved. CMS promises to award $12 million in incentive payments to the 20 percent of hospitals that improved the most.

Blair Childs, senior vice president of public affairs at Premier, said the demonstration shows that "pay for performance clearly is an added ingredient that makes a big difference . . . When you create a system like this that really becomes an engine for improvement, you can start adding in more things that improve the quality as well as the efficiency. It all translates, ultimately, to cost."

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