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Does the Value-Based Purchasing Program Unfairly Reward Some Hospitals?

Since its launch in 2014, CMS’ Value-Based Purchasing program has come under criticism for unfairly punishing certain hospitals, especially safety-net facilities that treat poorer and sicker patients. However, a less common complaint is that it may unfairly reward hospitals that have substandard quality. As a new GAO report on the program suggests, CMS’ scoring methodology poses unique problems, as it creates disincentives to fully participate to the benefit of hospitals which may not provide high-quality care.

Before explaining the potential flaws of VBP as identified by the GAO, it’s important to understand the design and purpose of the initiative itself. Primarily, VBP is intended to improve care quality through a system of rewards and penalties. Hospitals are scored based upon their respective performances in several metrics compared to that of all other participating hospitals, which numbered close to 3,000 as of 2017. The metrics are divided into four categories with different weighted scores: Patient Experience (25 percent), Safety (20 percent), Efficiency and Cost Reduction (25 percent), and Clinical Care (30 percent), which is subdivided into two groups, outcomes (25 percent) and processes (5 percent). Hospitals whose final score ranks above the national median receive a percentage bonus to their Medicare reimbursements in the following year, which is paid for by penalizing hospitals with scores below the median.

While it seems straightforward, complications arise when hospitals either fail or choose not to submit data on any of the categories. Recognizing that not all hospitals had the capability or patient volume to report the necessary performance data, CMS only required facilities to send information on two or more categories for 2015 and 2016. Each category’s weight would be adjusted to calculate the hospital’s final score and compensate for the missing data. While the decision likely increased participation in VBP, it effectively meant that not all hospitals were being held to the same standards, and that organizations that fully reported all data would be at a disadvantage. A hospital with strong performance in three out of four categories, for instance, would rank lower than a hospital with equivalent scores but which didn’t submit data for the fourth category, as the weight of their three reported groups would be scaled upward.

Another effect of the limited reporting requirement is that some hospitals’ overall scores don’t reflect the quality of their care. The GAO analysis suggests that certain facilities receive bonuses due to high Efficiency and Cost Reduction scores, even though they have low or missing quality scores. While the Outcomes and Safety categories include several metrics directly associated with quality, the Efficiency and Cost Reduction score is determined entirely by a hospital’s Medicare spending per beneficiary. VBP gives resource use a comparatively small overall weight, only 25 percent, but the omission of other categories gives it substantially more influence over a hospital’s overall score.

2017 Value-Based Purchasing Performance

Number Percent Awarded Bonus Median Efficiency Score Median Clinical Care Outcome Score Median Safety Score
 All Hospitals  2,932  54%  3  9  8.7
 Completed Scores  2,221  50%  3 10 8.5
 Omitted at Least One Category Score  707  69%  9 8 11.85
 Omitted Clinical Care Outcomes Data  299  81%  9 11.9
 Omitted Safety Data  604  68%  14 8

Based on Definitive Healthcare data

A look at Definitive Healthcare data confirms that hospitals that failed to submit information in one category in 2017, a year in which three were required, tended to have better performance than those that fully participated. Roughly 3,000 hospitals were scored under VBP in 2017, and nearly all of them submitted scores in Efficiency and Cost Reduction, Patient Experience, and Clinical Care Processes. Roughly 300 and 600 did not report data for Clinical Care Outcomes and Safety, respectively (reporting the Clinical Care Processes subgroup counted as participation, bringing the total hospitals only reporting three categories to around 700.) Of the hospitals that omitted data, 69 percent received a bonus under VBP, whereas only 50 percent of the facilities with complete scores earned rewards. In addition, the median weighted Efficiency and Cost Reduction score for hospitals with incomplete scores was nine, compared to the other group’s three. The GAO analysis reported similar trends in hospital VBP scores in 2015 and 2016.

CMS is aware of the issue, and is considering making appropriate adjustments, according to a Q&A session held in February 2017. Some solutions may include requiring all categories to be reported, which may eliminate some hospitals from the program but would restore the integrity of its scoring. It could also lower the weight of the Efficiency and Cost Reduction score, though it is currently scheduled to remain at 25 percent for 2018. However, it is also possible that CMS will make no changes. Though the program affects the majority of acute care hospitals, the median estimated payment only totaled about $85,000 for those that received penalties. While a hospital may not like getting a penalty and could have a valid case against the program’s methodology, the sums involved are fairly minor, and CMS is likely more concerned with encouraging as many hospitals as possible to adopt quality programs and at least attempting to improve care. In the long run, that may be more important.

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 feature current and historical data on a variety of CMS initiatives and programs, including clinical and quality measures.

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