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Value-Based Purchasing: A Bad Deal for Safety-Net Hospitals?

Hospitals are facing more pressure to improve outcomes and deliver better care than ever before. In addition to the spread of performance-based reimbursement agreements, acute-care providers are also subject to regulatory programs, such as the value-based purchasing (VBP) and readmissions reduction programs, which penalize facilities with low quality scores. Since their introduction shortly after the signing of the ACA, the programs have naturally proven controversial. Some observers have questioned if they unfairly punish certain hospitals – specifically safety-net facilities, due to patient factors beyond their control. A new study published in the Journal of the American Medical Association found that while safety-net hospitals did suffer a disproportionate level of penalties under the VBP, their performance did improve over time, suggesting that the programs are effective and applicable to hospitals with unfavorable demographic factors.

The VBP is a fairly complicated program that assesses multiple aspects of hospital operations and patient care and combines them into a single score that can increase or decrease a facility’s Medicare reimbursement. The exact measures are adjusted each year, as are the weights given to each. Currently, the program’s measures cover clinical processes and outcomes, patient experience, patient safety, and cost efficiency. Hospitals are compared to each other as well as their own historical benchmarks, and while the bottom performers are penalized up to two percent of their Medicare reimbursement, the rest are given bonus payments equaling the total penalized amount.

Median Statistics, Safety-Net Hospitals Vs Others, VBP Program

Year Safety-Net Hospitals All Other Acute-Care Hospitals
Adjustment Est Penalty Adjustment Est Penalty
 2017  -0.07%  -$6,103  0.13%  $14,095
 2016 0.03% $4,061 0.17% $16,417
 2015 0.00% -$96 0.09% $8,542
 2014 -0.07% -$10,539 -0.01% -$1,586
 2013 -0.02% -2,878 0.03% $4,082

*Data from Definitive Healthcare

The data from Definitive Healthcare show that the median safety-net hospital, defined in this case as a facility within the top quartile for highest Medicaid payor mix in each state for 2016, was penalized during every year with the exception of 2016, whereas the median non-safety-net hospital was rewarded each year, except for 2014. The estimated annual gains/losses for individual hospitals are not particularly large, with medians ranging from negative $10,000 to positive $16,000 in both groups, though some hospitals lost as much as $1 million in a given year. The greater losses at safety-net hospitals can be explained in part by several unfavorable characteristics in their patient bases, compared to other facilities. Safety-net facilities have higher cases mixes (1.42 to 1.35), a greater rate of complicating conditions (55% to 52%), a higher share of Medicaid payors (18% to 4.6%), and slightly more uncompensated care compared to net revenue. Taken together, the statistics suggest that patients at safety-net hospitals are generally sicker and not as lucrative.

Safety-Net Hospitals Vs Others, Selected Median Characteristics, 2016

Safety-Net Hospitals All Other Acute-Care Hospitals
 Case Mix  1.42  1.35
 CC/MCC  55%  52%
 Discharges  4,767 2,050
 Staffed Beds  122 62
 Medicare Mix  34.6% 44.9%
 Medicaid Mix  18.0% 4.6%
 Private/Other  45.4% 48.5%
 Uncomp Care/Net Pat Rev Ratio  6.13% 5.49%

*Data from Definitive Healthcare

Despite the losses, the data does show that safety-net hospital performance in the VBP program has improved since 2013. While CMS penalized roughly the same number of safety-net facilities in 2017 as 2013, the VBP program is far more demanding in its current form than at launch. In addition to new measures, the weights have been adjusted towards outcomes and cost reduction rather than adherence to specific clinical processes, which now only contribute to 10 percent of the VBP score, compared to 70 percent in 2013. The authors of the JAMA study suggested that safety-net hospitals traditionally score better on outcomes rather than clinical processes. In addition, out of over 1,150 safety-net hospitals identified in the analysis, less than a tenth were penalized for all five years.

The relationship between safety-net status and lower VBP scores does lend credence to the argument that the facilities are unfairly targeted, but the fact that they’ve shown considerable improvement during the life of the program shouldn’t be ignored. It is possible that the unique characteristics of safety-net hospitals may dampen their VBP scores, but they also demonstrate the same general yearly trend as other facilities, with scores rising and falling in the same period. Barring another independent factor influencing the scores, it seems likely that the VBP program is working as intended.

Definitive Healthcare has the most up-to-date, comprehensive and integrated data on over 7,700 hospitals, 1.4 million physicians, and numerous other healthcare providers. Our databases include detailed profiles on all types of hospitals, featuring a wide variety of financial, clinical, and quality metrics.

For more information on the best and worst performers in the value-based purchasing program, download our featured list.

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