The Medicare IPPS 40 Years Later: Lessons Learned and What to Do Next.

The 1983 implementation of the Medicare Inpatient Prospective Payment System (IPPS) was successful in controlling Medicare inpatient costs because it was designed as a clinically credible management tool that facilitated real behavior change and performance improvement. The next phase of IPPS should expand the inpatient payment bundle to a hospital episode-of-care performance bundle that explicitly links episode cost and quality. A uniform, comparable, and transparent episode performance bundle that highlights the tradeoffs between episode cost and quality can expand the incentives to control costs and provide hospitals the management information to improve performance.

Impact of Socioeconomic Status on Delivery System Effectiveness.

The socioeconomic status (SES) component of the Social Vulnerability Index ranks US counties based on the SES of county residents and was used to evaluate the impact of SES on the performance of the health care delivery system. Using Medicare fee-for-service data, the performance of the health care delivery system was evaluated based on population measures such as per capita hospital admissions, quality of care measures such as surgical mortality, postacute care measures such as readmissions, and service volume measures such as posthospitalization nursing home and rehabilitation admissions. Substantial differences in delivery system performance across SES populations were observed.

A Middle-Ground Proposal for Making Health Care Premiums More Affordable.

Passage of any health care reform that addresses the rising cost of health care in the United States will be a difficult political challenge unless a middle-ground compromise between government control of health care insurance and free market approaches can be found. On the basis of the competitive market for Medicare supplemental insurance, a Medicare Adherence Policy insurance option is proposed that would leverage Medicare's authority to set prices to create a practical middle-ground reform that can strike a balance between the role of government and the free market.

Will Hospital Peer Grouping by Patient Socioeconomic Status Fix the Medicare Hospital Readmission Reduction Program or Create New Problems?

BACKGROUND: In 2016 the U.S. Congress directed the Centers for Medicare & Medicaid Services (CMS) to implement the 21st Century Cures Act to fix a flaw in the Hospital Readmissions Reduction Program (HRRP). One section of the Act is intended to remove bias in calculating penalties for hospitals treating large percentages of low socioeconomic status (SES) patients. A study was conducted to analyze the effect of the introduction of SES hospital peer groups on the number and distribution of the hospitals being penalized. METHODS: The CMS analysis files for the fiscal year 2017 HRRP final rule and Disproportionate Share Hospital adjustments were used to assign hospital peer groups. The median excess readmission ratios for hospital peer groups were calculated, and the resulting pattern of hospital penalties within peer groups was analyzed. RESULTS: The findings suggest that because CMS assigns individual HRRP penalties on six clinical conditions but proposes to assign hospitals to a single SES peer group based on all admissions, it will ignore substantial differences in the distribution of peer group medians across these conditions. For surgical cases, as expected, hospitals with fewer patients had higher readmission rates, while for medical cases, hospitals with fewer patients had fewer readmissions. These findings may result in distortion of the peer group adjustment intended to correct for SES. CONCLUSION: Hospital peer groups may create unintended redistributions of penalties through distortion of peer group medians. An observed relationship between lower-volume hospitals and fewer readmissions for medical conditions requires additional research to establish its basis.

Is the CMS Hospital-Acquired Condition Reduction Program a Valid Measure of Hospital Performance?

In October 2014, the Centers for Medicare & Medicaid Services began reducing Medicare payments by 1% for the bottom performing quartile of hospitals under the Hospital-Acquired Condition Reduction Program (HACRP). A tight clustering of HACRP scores around the penalty threshold was observed resulting in 13.2% of hospitals being susceptible to a shift in penalty status related to single decile changes in the ranking of any one of the complication or infection measures used to compute the HACRP score. The HACRP score also was found to be significantly correlated with several hospital characteristics including hospital case mix index. This correlation was not confirmed when an alternative method of measuring hospital complication performance was used. The sensitivity of the HACRP penalties to small changes in performance and correlation of the HACRP score with hospital characteristics call into question the validity of the HACRP measure and method of risk adjustment.

Quality Improvement Initiatives Need Rigorous Evaluation: The Case of Pressure Ulcers.

The Partnership for Patients (PfP) and the Agency for Healthcare Research and Quality (AHRQ) have reported a 23.5% decline in hospital-acquired pressure ulcers (HAPU) over 4 years resulting in a cumulative cost savings of more than $10 billion and 49 000 averted deaths, claiming that this significant decline may have been spurred in part by Medicare payment incentives associated with severe (stage 3 or 4) HAPUs. Hospitals with a high rate of severe HAPUs have a payment penalty imposed, creating a financial disincentive to report severe HAPUs, possibly contributing to the magnitude of the reported decline. Despite the financial disincentive to report, the number of severe HAPUs found in claims data over the corresponding 4-year period did not decline but instead remained unchanged. The results from claims data, combined with some flaws in estimating HAPUs, call into question the validity of the decline in HAPUs reported by PfP and AHRQ.

Rethinking Medicare Payment Adjustments for Quality.

Payment reforms aimed at linking payment and quality have largely been based on the adherence to process measures. As a result, the attempt to pay for value is getting lost in an overly complex attempt to measure value. The "Incentivizing Health Care Quality Outcomes Act of 2014" (HR 5823) proposes to replace the existing patchwork of process and outcomes quality measures with a uniform, coordinated, and comprehensive outcomes-based quality measurement system. The Outcomes Act represents a shift in payment policy toward getting value instead of an increasingly complex attempt to measure value.

Comparison of the Properties of Regression and Categorical Risk-Adjustment Models.

Clinical risk-adjustment, the ability to standardize the comparison of individuals with different health needs, is based upon 2 main alternative approaches: regression models and clinical categorical models. In this article, we examine the impact of the differences in the way these models are constructed on end user applications.

Distributing shared savings for population health management.

Lessons from outcomes-based fee-for-service payment models that can be applied to population health management models include the following: Focus on outcomes, not processes. Limit the number of outcomes measures used. Ensure that the amount distributed is substantial enough to motivate behavior change. Communicate results clearly and transparently. Ensure that the financial consequence of poor performance is proportional to the cost increase it generates. Focus on reducing the rate of excess preventable outcomes.

Adjusting Medicaid managed care payments for changes in health status.

Risk adjustment of managed care organization (MCO) payments is essential to avoid creating financial incentives for MCOs adopting enrollee selection strategies. However, all risk-adjustment methods have an inherent structural flaw that rewards preventable deterioration in enrollee health status and improved coding of disease burden. We propose a payment adjustment to offset this flaw. We use a database of 1,237,528 continuously enrolled beneficiaries to quantify the payment impact of change in enrollee health status over time for enrollees with two common chronic illnesses, hypertension and diabetes. The payment impact caused by the change in enrollee health status across MCOs ranged from +3.67% to -7.27% for enrollees with diabetes and from +5.25% to -7.69% for enrollees with hypertension. The MCO payment impact for diabetes and hypertension ranged from +0.19% to -0.31%. This difference can be used as the basis for creating payment incentives for MCOs to reduce the long-term costs of chronically ill enrollees.

Bundling post-acute care services into MS-DRG payments.

OBJECTIVE: A bundled hospital payment system that encompasses both acute and post-acute care has been proposed as a means of creating financial incentives in the Medicare fee-for-service system to foster care coordination and to improve the current disorganized system of post care. The objective of this study was to evaluate the statistical stability of alternative designs of a hospital payment system that includes post-acute care services to determine the feasibility of using a combined hospital and post-acute care bundle as a unit of payment. METHODS: The Medicare Severity-Diagnosis Related Groups (MS-DRGs) were subdivided into clinical subclasses that measured a patient's chronic illness burden to test whether a patient's chronic illness burden had a substantial impact on post-acute care expenditures. Using Medicare data the statistical performance of the MS-DRGs with and without the chronic illness subclasses was evaluated across a wide range of post-acute care windows and combinations of post-acute care service bundles using both submitted charges and Medicare payments. RESULTS: The statistical performance of the MS-DRGs as measured by R(2) was consistently better when the chronic illness subclasses are included indicating that MS-DRGs by themselves are an inadequate unit of payment for post-acute care payment bundles. In general, R(2) values increased as the post-acute care window length increased and decreased as more services were added to the post-acute care bundle. DISCUSSION: The study results suggest that it is feasible to develop a payment system that incorporates significant post-acute care services into the MS-DRG inpatient payment bundle. This expansion of the basic DRG payment approach can provide a strong financial incentive for providers to better coordinate care potentially leading to improved efficiency and outcome quality.

Inappropriate use of payment weights to risk adjust readmission rates.

In this article, the authors demonstrate that the use of relative weights, as incorporated within the National Quality Forum-endorsed PacifiCare readmission measure, is inappropriate for risk adjusting rates of hospital readmission.

A new approach to reducing payments made to hospitals with high complication rates.

This article proposes a redesign of the Medicare inpatient prospective payment system to reduce payments made to hospitals with high complication rates. We compute risk-adjusted, expected complication rates for hospitals and compare them to actual complication rates in order to determine the number of excess complications. Hospital payment reductions then are computed based on the number of excess complications in a hospital. Medicare hospital payment could be reduced by approximately 8% (8.5 billion dollars) if hospitals were held to a "best practice" standard and if payments made for excess complications were eliminated.

Paying for outcomes, not performance: lessons from the Medicare Inpatient Prospective Payment System.

Drawing on lessons learned from the implementation of the Medicare Inpatient Prospective Payment System (IPPS), the authors propose principles for the design and implementation of a hospital payment system based on paying for outcomes.

Impact of the transition to ICD-10 on Medicare inpatient hospital payments.

OBJECTIVE: On October 1, 2013, the reporting of diagnoses and procedures in the U.S. will transition from the clinical modification of the ninth revision of the International Classification of Diseases (ICD-9-CM) to the tenth revision (ICD-10). We estimate the impact of conversion to ICD-10 on Medicare MS-DRG payments to hospitals using 2009 Medicare data. METHODS: Using the ICD-9-CM MS-DRG v27 (FY 2010), the converted ICD-10 MS-DRG v27, and the ICD-10 to ICD-9-CM Reimbursement Map for fiscal year 2010, we estimate the impact on aggregate payments to hospitals and the distribution of payments across hospitals. RESULTS: Although the transition from the ICD-9-CM to the ICD-10 version of MS-DRGs resulted in 1.68 percent of the patients being assigned to a different MS-DRG, payment increases and decreases due to the changes in MS-DRG assignment essentially netted out, resulting in a minimal impact on aggregate payments to hospitals (+0.05 percent) and on the distribution of payments across hospital types (-0.01 to +0.18 percent). Mapping ICD-10 data back to ICD-9-CM, and using the ICD-9-CM MS-DRGs, resulted in 3.66 percent of patients being assigned to a different MS-DRG, a modest decrease in aggregate payments to hospitals (-0.34 percent), and modest changes in the distribution of payments across hospital types (-0.14 to -0.46 percent). DISCUSSION: As demonstrated by MS-DRGs, a direct conversion of an application to ICD-10 can produce consistent results with the ICD-9-CM version of the application. However, the use of mappings between ICD-10 and ICD-9-CM will produce less consistent results, especially if the mapping is not tailored to the specific application.

Achieving cost control, care coordination, and quality improvement through incremental payment system reform.

The healthcare reform goal of increasing eligibility and coverage cannot be realized without simultaneously achieving control over healthcare costs. The reform of existing payment systems can provide the financial incentive for providers to deliver care in a more coordinated and efficient manner with minimal changes to existing payer and provider infrastructure. Pay for performance, best practice pricing, price discounting, alignment of incentives, the medical home, payment by episodes, and provider performance reports are a set of payment reforms that can result in lower costs, better coordination of care, improved quality of care, and increased consumer involvement. These reforms can produce immediate Medicare annual savings of $10 billion and create the framework for future savings by establishing financial incentives for long-term provider behavior changes that can lead to lower costs.