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Premier P4P Demo Shows Better Care Cuts Health Costs

June 20, 2006 -- Instituting a series of basic and widely accepted care measures for 75,000 patients undergoing care for pneumonia and heart bypass surgery would have reduced hospital costs for those patients by as much as $1 billion, according to a study released Tuesday.

The results of the "pay-for-performance" demonstration conducted by Premier Inc. and the Centers for Medicare and Medicaid Services (CMS) also concluded that providing that level of care would have resulted in 3,000 fewer deaths, 6,000 fewer medical complications, 6,000 fewer hospital readmissions, and 500,000 fewer days in the hospital. Premier is a nationwide alliance of not-for-profit hospital facilities and health care systems, and the study's findings were presented at a Webcast from a Premier conference in Orlando, Fla.

"This is compelling proof that improving the process of care can reduce costs while improving outcomes," said Premier President and Chief Executive Officer Richard A. Norling. "These findings benefit patients, hospitals, and those who pay the bills."

For pneumonia, the quality measures included checking the oxygen level in patients' blood to determine if they are breathing properly and making sure blood cultures were taken before antibiotics were administered. For heart attack bypass patients, measures evaluated included whether aspirin was prescribed at discharge and what antibiotics were selected for surgical patients and when they were administered.

The CMS-Premier partnership, launched in October 2003, is the first national pay-for-performance demonstration to test the idea that monetary incentives and market recognition can improve the quality of care. The demonstration encompassed 260 hospitals in 38 states, and in November Medicare paid $8.9 million to 123 hospitals that showed measurable improvements during the first year of the demonstration.

Pay-for-performance or "P4P" pays a hospital or other health provider more for higher scores on specific measures of performance, such as the percentage of heart attack patients who have been prescribed lifesaving beta-blocker drug therapy when they leave the hospital. Federal officials and policy wonks are touting pay-for-performance as a way to improve medical care for Medicare beneficiaries and spend federal health care dollars more efficiently.

Improvement in evidence-based quality measures is expected to save Medicare money over time because of the demonstrated relationship to improved patient health, fewer complications, and fewer hospital readmissions.

The results discussed Tuesday found that 2004 hospital costs for pneumonia patients were $10,298 for patients who received a low number of the care measures and $8,412 for those who received a high amount. Hospital costs for heart bypass surgery patients also varied widely, with those receiving a low number of measures costing $41,539 while those who had the highest amount cost $30,061.

In a statement, Arnold Milstein, medical director at Pacific Business Group on Health and U.S. health care thought leader at Mercer Human Resource Consulting, said the study is "important early evidence regarding a question that is central to the sustainability of both public and private health benefits plans, whether efforts to improve quality actually improve or worsen the affordability of care. The predominant answer emerging from these results could not be more encouraging—better care can indeed improve affordability."

CMS officials are evaluating the results to determine how they might be implemented for the entire Medicare program, said Mark Wynn, director of the division of payment policy demonstrations in CMS' Office of Research, Development and Information. As part of the budget savings bill (PL 109-171) President Bush signed into law in February, CMS must develop a plan for hospital value based purchasing beginning in fiscal 2009.

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