By John Reichard, CQ HealthBeat Editor

March 6, 2012 -- The acting administrator of the Centers for Medicare and Medicaid Services (CMS) told an audience of hospital executives early last week that in fiscal 2012 her agency will conduct a dry run of payments under the "Value-Based Purchasing" program.

Marilyn Tavenner indicated that will give hospitals a sense of how their payments will change under the program, which her agency is launching in fiscal 2013.

Congress instituted the program under the health law (PL 11-148, PL 111-152) to base Medicare payments on the quality and efficiency of treatment. Initially, payments will be based on quality, not efficiency.

The program to reward providers based on the quality of their care is the culmination of efforts that date back to early in the George W. Bush administration. Critics say the current payment system doesn't deliver good value because it fails to penalize providers if they deliver poor quality treatment. In fact, botched treatment leads to follow-up care and more revenue for providers, critics note.

Tavenner noted that in October, the start of fiscal 2013, the hospital Value-Based Purchasing (VBP) program "will distribute an estimated $850 million to hospitals based on their overall performance on a set of clinical quality measures that have been linked to improved clinical processes and patient satisfaction."

In order to "familiarize hospitals with how the program might affect them, we're going to do a dry run of the program" in 2012, she said at a public policy conference in Washington, D.C., sponsored by the Federation of American Hospitals. "The dry run will provide each eligible hospital with an example performance report based on historic CMS data for each hospital.

"This report will contain historic data of the hospital's performance against hospital value-based purchasing measures and a series of scores based on that performance and the estimated impact on the hospital's payment to give you a chance to look at it in advance, learn what we're thinking about doing, and give us feedback,'' she said.

Comments on 'Doc Fix,' State Exchanges

Tavenner told the group that she thinks they all agree that the current Medicare sustainable growth rate patch that will last until the end of the year "isn't sustainable and that we need a permanent fix." She added that "we also need to look at new and creative ways to run the physician payment programs." Tavenner didn't elaborate.

She also said that CMS would have some news in the next couple of weeks about insurance exchanges. The agency is expected to issue final regulations shortly on the creation of exchanges to provide the uninsured with health plan options starting in 2014 under the health law.

Tavenner was asked after her speech about whether exchange regulations might be issued as soon as this week. "Very soon," she replied.

As Tavenner was talking to hospital officials, Steve Larsen, director of the Office of Oversight at the Office of Consumer Information and Insurance Oversight, was telling members of America's Health Insurance Plans that administration officials have been working on the last details of the final exchange rules. "We're very, very close to putting those out in final form," Larsen said.

Tavenner was also pressed for details on a potential Senate confirmation hearing to consider her nomination by the Obama administration to become permanent administrator. "You're asking the wrong person!" she told a reporter. Senate Finance Committee Chairman Max Baucus, D-Mont., has yet to reveal what plans, if any, he has for a confirmation hearing.