Tuesday, 07 April 2015 20:11

Revenue Meets Quality: It’s Complicated

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s coolidgeRevenue and quality have both been key components of every healthcare institution's success for as long as they have existed. However, they historically have been independent, parallel success factors. Revenue was concrete, the easy one to measure, while quality was more elusive and difficult to measure.

Quality began to gain prominence about 10 years ago with the IHI 100,000 Lives Campaign and the subsequent 5 Million Lives Campaign. Several of the initiatives to reduce harm and deaths from those campaigns are still with us today in the Centers for Medicare & Medicaid Services (CMS) elements of performance within the pay-for-performance (P4P) program.

The more direct relationship between quality and revenue grew out of the Patient Protection and Affordable Care Act, which mandates reduced payments to hospitals based on negative performance across three quality programs bundled into the CMS P4P program. Since 2012, revenue and quality are no longer on separate yet distantly related tracks. Now, revenue is becoming dependent on quality, and by 2020 it is likely that this dependence will be increased dramatically. In January the U.S. Department of Health and Human Services (HHS) secretary announced "measureable goals and a timeline to move the Medicare program and the healthcare system at large toward paying providers based on quality rather than the quantity of care they give patients."

The measureable goal is to have 85 percent of all traditional Medicare payments tied to quality or value by 2016, and 90 percent tied to quality or value by 2018.

With this pattern of revenue being dependent on quality, healthcare systems need to start asking some key questions. For example, are the CFO and the chief quality officer joined at the hip to improve quality and maximize revenue through the P4P programs? Observation of my colleagues across the country has led me to conclude that the answer is no – at least not yet. This dynamic is new, the program is complicated, and the revenue impact is not sufficient to generate large-scale changes.

How Complicated is it?

  • There are 40-plus performance criteria across the three different P4P programs: value-based purchasing (VBP), readmission reduction, and hospital-acquired conditions (HACs).
  • Performance criteria can and do change with each new federal fiscal year.
  • The relative weights of performance criteria can and do change from year to year, with outcomes and safety trumping process as years advance.
  • Final penalties and rewards are based heavily on an individual hospitals' performance compared to all other eligible hospitals. The performance bar moves higher as hospitals improve overall.
  • There are "double jeopardy" criteria which are measured in the calculated performance for both the VBP and HAC programs.
  • Two of the three P4P programs (HACs and readmission reduction) are strictly penalty-based programs reducing the base operating DRG payments to hospitals.
  • One program, VBP, is a redistribution of 1.5 percent of total DRG payments to eligible hospitals based on a combination of individual hospital improvement and achievement compared to all other hospitals.
  • Performance periods used to measure results are historical, resulting in performance from two or three years in the past determining the current year's penalty or reward. 2017 revenue is impacted by performance in 2015.

This list of program components is not exhaustive by any means and does not address the complex calculation of total performance scores that eventually determine revenue impact.

Is The Revenue Impact Sufficient?

In these early years the revenue impact likely is not sufficient, as demonstrated in the chart below.

  Program At-Risk Funds from CMS
FFY 2015 VBP
Readmissions
HACs
Up to 1.5 percent
Up to 3 percent
1 percent for lowest-performing 25%
FFY 2017 VBP
Readmissions
HACs
Up to 2 percent
Up to 3 percent
1 percent for lowest-performing 25%

Since very few hospitals are performing at the lowest levels across all performance criteria, penalties for individual hospitals generally do not reach maximum levels. As reported in an earlier article, an average penalty for a hospital of 400 beds is $1.2 million, and for hospitals with less than 200 beds the average penalty is $131,000. For a large hospital generating $1 billion or more in net revenue, the penalties are relatively small. When viewed through the lens of possibility, the available dollars become more significant. Through that lens the hospital would assess its base DRG payment with no readmission and no HAC penalty, with VBP performance in the top 5 percent of all hospitals. This assessment yields a different and larger change in net revenue as well as patient outcome and safety results. Achieving these results may be seen as unlikely or impossible by some.

A final note to remember: as more and more Medicare payments are tied to quality in 2018 and beyond, performance now, in 2015, will likely be a baseline in determining payments in the future.

About the Author

Sylvia Coolidge Moore is an experienced hospital executive (COO) leading operations across a range of organizations from large to medium size for over 20 years. As the COO she has led organizations to adopt performance improvement and patient safety as key organizational priorities. She has guided boards, executives, management and staff through education and understanding of High Reliability No Harm Health Care, Pay For Performance Requirements and the financial rewards and penalties imposed by CMS. She has led the adoption of a High Reliability No Harm Health Care culture commitment, organizational assessment and cultural change priorities and actions. Additionally she has led organizations to significant improvement in Value Based Purchasing, HAC and Readmission Reduction parameters of the CMS Pay For Performance System. Most recently she has established a private consultancy service (FE3 Catalytics) focusing on her two passions in healthcare: High Reliability No Harm Healthcare and Patient Experience.

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Last modified on Tuesday, 07 April 2015 16:53

Sylvia Coolidge Moore is an experienced hospital executive (COO) leading operations across a range of organizations from large to medium size for over 20 years. As the COO she has led organizations to adopt performance improvement and patient safety as key organizational priorities. She has guided boards, executives, management and staff through education and understanding of High Reliability No Harm Health Care, Pay For Performance Requirements and the financial rewards and penalties imposed by CMS. She has led the adoption of a High Reliability No Harm Health Care culture commitment, organizational assessment and cultural change priorities and actions. Additionally she has led organizations to significant improvement in Value Based Purchasing, HAC and Readmission Reduction parameters of the CMS Pay For Performance System. Most recently she has established a private consultancy service (FE3 Catalytics) focusing on her two passions in healthcare: High Reliability No Harm Healthcare and Patient Experience.