January 17, 2017
Hospital Value-Based Payments: 2017 and Beyond

The fifth year of the Hospital Value-Based Program (VBP) will not be marked by revolutionary changes but, rather, incremental steps along the quality-and-savings continuum. The Hospital VBP Program adjusts what Medicare pays under the Inpatient Prospective Payment System (IPPS) based on the quality of care for inpatient stays in approximately 3,000 hospitals across the country. The implementation of VBP created upheaval in the way hospitals operate, but as the changes have settled in so, too, have the successes of the program.

This year, hospitals will continue efforts in the same vein as the previous four years, and the Centers for Medicare and Medicaid Services (CMS) will continue to tweak payments, penalties and rewards accordingly. Here’s what’s in store for 2017 and beyond.

Increases in incentives

For fiscal year (FY) 2017, the portion of Medicare payments available to fund the program’s value-based incentive payments are increasing from 1.75% to 2% of the base operating Medicare Severity Diagnosis-Related Group (MS-DRG) payment amounts for all participating hospitals. Thus, CMS is estimating that the amount available for incentive payments will be about $1.8 billion for performance in five domains:

  • Outcomes (25%)
  • Process (5%)
  • Patient and caregiver-centered experience of care/care coordination (25%)
  • Safety (20%)
  • Efficiency and cost reduction (25%)

Payment adjustments will depend on how well hospitals performed – compared to their peers – on important healthcare quality and resource use measures during a performance period, as well as how much they have improved the quality of care provided to patients over time. CMS expects that more hospitals will receive positive payment adjustments, indicating improved quality of care and healthier people.

MS-DRG payments going up

For FY 2017, more hospitals will have an increase (up to 0.5%) in their base operating MS-DRG payments than will have a decrease (up to -0.5%): Over 1,600 hospitals will have a positive payment adjustment. Because the Hospital VBP Program is budget-neutral, the payment reductions will be redistributed to hospitals as incentive payments based on their Total Performance Score (TPS). The actual amount earned by each hospital will depend on:

  • Its TPS
  • Its value-based incentive payment percentage
  • The total amount available (through reductions) for value-based incentive payments.

After accounting for the statutorily mandated 2%, the highest-performing hospital in FY 2017 will receive a net increase in payments of slightly more than 4%, and the lowest-performing hospital will see a net reduction of 1.83% percent, according to CMS estimations. However, hospitals that do not meet the minimum domain requirements do not have their payments adjusted in the corresponding fiscal year.

New program requirements for FY 2018

The measure set for the FY 2018 program year includes several changes. First, CMS is removing two measures from the Clinical Care – Process subdomain (the AMI-7a and IMM-2 measures) and is moving the remaining measure (PC-01) to the Safety domain. Next, increasing the focus on care coordination, CMS is adding a three-item Care Transition dimension, which is part of the Hospital Consumer Assessment of Hospital Providers and Systems (HCAHPS) survey, to the Patient and Caregiver Centered Experience of Care/Care Coordination domain.

For FY 2017, CMS had floated the idea of removing the Pain Management dimension, which is derived from the HCAHPS survey, from the Patient and Caregiver Centered Experience of Care/Care Coordination domain beginning with the FY 2018 VBP program year. CMS continues to believe that pain control is an appropriate part of routine patient care that hospitals should manage, and is an important concern for patients, their families and their caregivers. CMS is continuing the development and field testing of alternative questions related to provider communications and pain, and will solicit comment on these alternatives in future rulemaking.

Looking ahead, the FY 2018 Hospital VBP Program will include four equally-weighted domains:

  • Clinical care (25%)
  • Patient experience and caregiver-centered experience/care coordination (25%)
  • Safety (25%)
  • Efficiency and cost reduction (25%)

“As we more closely link patient outcomes and treatment costs to value-based hospital payment, the Hospital VBP Program not only aims for quality gains on paper, it also aims to promote a culture focused on the needs of patients,” writes CMS. “Value-based purchasing in Medicare continues to move ahead, improving healthcare for people with Medicare now and creating a healthcare system that will ensure better care, smarter spending, and healthier people for generations to come.”