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Finance Leaders Introduce Draft Bill to Link Medicare Hospital Payments to Quality of Care

By Mary Agnes Carey, CQ HealthBeat Associate Editor

November 19, 2008 -- Senate Finance Committee leaders Wednesday introduced a bipartisan draft of legislation that would link the level of Medicare payment to hospitals to the quality of medical care rather than the number of services provided.

In a news release, Senate Finance Committee Chairman Max Baucus, D-Mont., and the panel's ranking Republican, Charles E. Grassley of Iowa, said their proposal to establish "value-based purchasing" for inpatient hospital care "would re-focus the Medicare program on quality care, which will result in improved patient care and could lower costs throughout the entire health care system."

Many lawmakers and health care analysts have expressed support for the idea of linking Medicare reimbursement to the quality of care provided, also known as "pay-for-performance," as a way to improve health care quality and lower its cost. The senators' proposal would start the value-based purchasing program in fiscal 2012, phasing it in over five years with full implementation beginning in fiscal 2016. Payment levels would gradually increase from 1 percent in fiscal 2012 to 2 percent by fiscal 2016. The program would be budget-neutral and any savings would be kept in the hospital payment system in the form of increased payments to other hospitals, the lawmakers said.

Tom Nickles, senior vice president for federal relations for the American Hospital Association, said concerns his group has on the proposal include the level of discretion given to the secretary of Health and Human Services and the amount of money in play if the measures are not met. Chip Kahn, president of the Federation of American Hospitals, said the draft "includes all the right pieces of the puzzle but as it evolves it needs to be more specific . . . We really need to have everyone understand their roles."

The senators said their proposal builds upon a program created as part of the Medicare prescription drug benefit (PL 108-173) that gives more Medicare reimbursements to hospitals for tracking and reporting on a set of quality measures. The draft legislation introduced Wednesday also would link Medicare payment to how well the hospitals actually perform on the quality measures.

In most cases, Baucus and Grassley said, the measures will be chosen from a list that has been agreed upon by organizations including the National Quality Forum, as representing the best practices in inpatient hospital care. Initially, the program would measure performance in the treatment of heart attacks, heart failure, pneumonia, and surgical care. It also would measure overall patient satisfaction with hospital care. For example, the program would provide increased or decreased payment based on how frequently a heart attack patient receives aspirin upon admission to a hospital, according to the Finance news release.

Blair Childs, senior vice president of public affairs for the Premier Quality Alliance, said the draft legislation would "provide a framework for Congress as it continues to explore ways to financially reward hospitals for improved patient outcomes."

A pay-for-performance demonstration Premier has conducted with the Centers for Medicare and Medicaid Services (CMS) has proven "that a well-designed pay-for-performance program can improve quality and reduce costs," Childs said. In June, CMS awarded $24.5 million to the top performers in the first three years of a pay-for-performance demonstration project it conducted with Premier, a consortium of care providers.

The Finance committee will take comments on the draft bill until Dec. 15.

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