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Medicare Tightens Link Between Hospital Payment and Quality

By John Reichard, CQ HealthBeat Editor

April 14, 2008 – The Centers for Medicare and Medicaid Services (CMS) announced a proposed regulation Monday that steps up demands on hospitals for data on the quality of their inpatient care and stiffens financial penalties for facilities found to be sloppy in their treatment practices.

"Medicare can and should take the lead in encouraging hospitals to improve the safety and quality of care and make better practices a routine part of the care they provide, not just to people with Medicare, but to every patient they treat," said acting CMS Administrator Kerry Weems in a news release announcing the regulation.

The provisions on quality of care are part of a proposal that would in effect boost fiscal 2009 inpatient payment rates by 2.3 percent for many facilities starting Oct. 1, the start of the fiscal year.

The proposal presumes a 3 percent increase in fiscal 2009 in the "market basket" of goods and services used to set payments. However, the proposal subtracts 0.9 of a percentage point because of assumed mistakes hospitals will make—in their favor—in classifying patients for payment purposes in a new system meant to tie payment more closely to the severity of a patient's illness or injury.

That leaves the proposed increase at 2.1 percentage points; other technical adjustments boost the increase to 2.3 percentage points. However, if a hospital fails to report data on 30 different quality measures in fiscal 2008, the fiscal 2009 increase drops by 2 percentage points. Thus the 2.3 percent hike would turn into an 0.3 percent hike. Few hospitals will fail to report the quality data, however.

The new proposal ups the ante for fiscal 2010. To get the full inflation update that year, hospitals would have to report data on 73 measures, a total the hospital industry says is unreasonable. Failure to report on all measures would mean a loss of 2 percentage points in any payment hike.

Among the proposed new quality measures are those assessing the degree to which a facility readmits patients, viewed by policy analysts as a sign of substandard care. The Medicare Payment Advisory Commission (MedPAC) recommended last week that facilities with relatively high readmission rates get lower payments. The proposal announced Monday would tie payment not to actual readmission rates, but to reporting data on those rates. Thus, those with relatively high rates would be off the hook for fiscal 2009 anyway.

The proposal also affects payments for patients who get infections or suffer from other medical conditions acquired in the hospital. Hospitals currently get paid for treating those conditions for which their substandard care is to blame. But starting Oct. 1, that won't be true for eight conditions, such as bedsores and objects left in the patient's body after surgery. CMS is proposing to add nine more such conditions, including surgical site infections and "extreme blood sugar derangement."

Don May, vice president of policy at the American Hospital Association, said "the additional 43 measures goes way beyond a reasonable increase for 2010." A number of those measures haven't been vetted by the standard consensus-building process used to implement previous measures, he said. May added that CMS may not be equipped to handle all of the data involved. He added that AHA has many questions about how the agency would go about assessing relatively high readmission rates were it to eventually follow the MedPAC recommendation.

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