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The Centers for Medicare & Medicaid Services (CMS) reported today that quality of care has improved significantly in hospitals participating in the Premier Hospital Quality Incentive demonstration, a groundbreaking Medicare pay-for-performance demonstration project.

“We are seeing that pay-for-performance works,” said CMS Administrator Mark B. McClellan, MD, PhD.  “We are seeing increased quality of care for patients, which will mean fewer costly complications – exactly what we should be paying for in Medicare.”

Medicare is awarding $8.85 million to hospitals that showed measurable improvements in care during the first year of the program.  Improvement in these evidence-based quality measures is expected to provide long term savings, because of their demonstrated relationship to improved patient health, fewer complications and fewer hospital readmissions.

This is the first time that Medicare has awarded actual monetary bonuses to health care providers in a pay-for-performance demonstration, and it provides statistical evidence that this model works to improve the quality of health care.

Quality of care improved in all of the five clinical areas for which quality was measured.

Composite quality scores improved between the first and last quarters of the first year of the demonstration:

• From 87 percent to 91 percent for patients with acute myocardial infarction (heart attack).
• From 65 to 74 percent for patients with heart failure.
• From 69 percent to 79 percent for patients with pneumonia.
• From 85 percent to 90 percent for patients with coronary artery bypass graft.
• From 85 percent to 90 percent for patients with hip and knee replacement.

In the Premier demonstration, top performing hospitals received bonuses based on their performance of evidence-based quality measures for inpatients with the five conditions.  A hospital received a bonus in its Medicare payments based on how well it met the quality measures related to each condition.

Hospitals in the top 10 percent for a given condition were given a 2 percent bonus on their Medicare payments for that condition.  Hospitals in the second 10 percent were given a 1 percent bonus.  Hospitals in the remainder of the top percent got recognition for their quality but no bonus.

Composite quality scores were calculated for each demonstration hospital by combining individual measures into an overall quality score for each clinical condition.  CMS categorized the distribution of hospital quality scores into deciles to identify top performers for each condition.

At the end of the first year, baselines were set for the bottom 20 and bottom 10 percent.  If any hospitals are below the 10 percent baseline in the third year of the demonstration, they will get a 2 percent reduction in Medicare payments for the clinical area involved. And those between 20 and 10 percent will get a 1 percent reduction.  However, we anticipate that most hospitals will exceed the baseline level and that few, if any, hospitals would get a payment reduction.

The $8,851,000 in bonuses included $1,756,000 distributed to 49 hospitals for heart attack care; $1,818,000 to 52 hospitals for heart failure; $1,139,000 to 52 hospitals for pneumonia; $2,078,000 to 27 hospitals for heart bypass; and $2,061,000 to 43 hospitals for hip and knee replacement.

There is a wide variety of the top performers.  Two hospitals were in the top two deciles for all five clinical conditions: Hackensack University Medical Center , NJ , and McLeod Regional Medical Center , SC.   Other hospitals that were consistently excellent include Fairview Lakes Medical Center , MN (top decile for all three conditions they were measured for).

The top hospital for heart attack care improvement was Fairview Lakes Hospital , Minn.   Top hospital for heart failure was Lourdes Hospital , Ky.   Top hospital for pneumonia was St. Francis Hospital at Broken Arrow , OK .  Top hospital for CABG was Greenville Hospital , SC.   Top hospital for hip and knee replacement was Bone and Joint Hospital , Oklahoma City.

The largest award will go to Hackensack University Medical Center in New Jersey at $326,000 for bypass patient care.  Hackensack also earned awards in other areas, so their total awards will total about $847,000.

The second largest award went to the Bone and Joint Hospital , which will get $249,000 for care of hip and knee replacements.

There were 39 hospitals in the demonstration with fewer than 100 beds.  Several smaller hospitals proved that they provide excellent acute care and will receive incentive awards. Smaller hospitals were also included.  Watauga Medical Center, NC will get an award of $4,400 for care of AMI patients, St. Francis Hospital in Broken Arrow, OK will get $2,000 for care of heart failure patients and  an award for the care of pneumonia patients, and Mariner's Hospital in Florida will get an award of $6,000 for the care of pneumonia patients.

“We are examining the first year data and working with our partners in the quality improvement community to share and apply the lessons learned,” McClellan said.  “But the major early finding is that the project did substantially improve important areas of health care quality at the participating hospitals.”

The demonstration began in October 2003, with more than 260 hospitals voluntarily participating.  It is scheduled to end in September 2006.

The reports of quality improvement are in line with preliminary results reported in May, but have been verified by CMS in this report.

Preliminary information from the second year of the demonstration shows that quality scores are continuing to improve at the hospitals in the demonstration in each of the five clinical conditions.  Notably, the scores of the poorest performing hospitals are improving the most so the variance between the top and the bottom performers is decreasing. CMS will continue to monitor the demonstration to determine if the improvement trends continue.

Premier, Inc. is a nationwide alliance of about 1,500 organizations of not-for-profit hospital facilities.