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MEDICARE PAY-FOR-PERFORMANCE DEMONSTRATION SHOWS SIGNIFICANT QUALITY OF CARE IMPROVEMENT AT PARTICIPATING HOSPITALS

Quality of care has improved significantly in hospitals participating in a groundbreaking Medicare pay-for-performance demonstration project, according to preliminary reports from more than 270 participating hospitals on their experience during the project’s first year, Mark B. McClellan, M.D., Ph.D., administrator of the Centers for Medicare & Medicaid Services (CMS), announced today.

“These early returns demonstrate that using financial incentives to reward better quality patient care works to deliver better care and avoid costly complications for our patients,” Dr. McClellan said.  “We are seeing improvements across the board, regardless of a hospital’s initial performance on the quality measures.”

In a speech to the American Hospital Association’s annual membership meeting today, Dr. McClellan described the results of the preliminary analysis of the Premier Hospital Quality Incentive Demonstration.

The demonstration tracks hospital performance on a set of 34 widely-accepted measures of processes and outcomes of care for five common clinical conditions.  The 17 measures included in Medicare’s national hospital quality reporting program are a subset of these measures.

The preliminary analysis shows improvement in all five clinical areas being tracked in the three-year demonstration.  The analysis was done by Premier Inc., whose member hospitals are participants in the demonstration.

The preliminary analysis of first-year performance found median quality scores for hospitals improved:

• From 90 percent to 93 percent for patients with acute myocardial infarction (heart attack).
• From 86 percent to 90 percent for patients with coronary artery bypass graft.
• From 64 percent to76 percent for patients with heart failure.
• From 85 percent to 91 percent for patients with hip and knee replacement.
• From 70 percent to 80 percent for patients with pneumonia.

Overall, these conditions account for a substantial portion of Medicare costs.  By achieving improvements in aspects of care that are proven to help patients avoid complications, patients are less likely to require more costly follow-up care for such conditions, and they are more likely to have a better quality of life. Hospitals participating in the project cared for more than 400,000 patients in the five conditions during the first year.

During the life of the three-year demonstration project, which began in October 2003, Medicare will reward high performers with bonuses totaling $7 million per year for a total of $21 million.   Poorly performing hospitals may face financial penalties in the third year.

Under the Premier demonstration, a hospital can receive bonuses in its Medicare payments based on how well it meets the quality measures. Hospitals are scored on measures for each condition, and those in the top 10 percent for a given condition will be given a 2 percent bonus on their Medicare payments for that condition.  Hospitals in the second 10 percent will be given a 1 percent bonus.  Hospitals in the remainder of the top 50 percent get recognition for their quality but no bonus.

At the end of the first year, baselines will be set for the bottom 20 percent and the bottom 10 percent.  These levels remain static, and CMS and Premier expect that all hospitals will be above the baselines by the final year of the demonstration.  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.

“The preliminary results of this demonstration suggest that limited performance-based payments not only provide real support for Medicare for improving care, but also can lead to better health outcomes for our beneficiaries and lower Medicare costs as well,” Dr. McClellan said.  “For example, there should be fewer unnecessary hospital readmissions if there is better care in the initial patient stay.  But most of all, the patients are going to benefit through better care and better health.”

The project data remain preliminary until CMS completes a rigorous auditing and validation process.  Once that process is completed, hospitals in the top 20 percent in each clinical area will receive the incentive payments from Medicare.  Incentive payments will be paid annually.  CMS expects to make payments for first-year results in September 2005.

Premier, a nationwide alliance of about 1,500 not-for-profit hospital facilities, has conducted site visits with top-performing hospitals to document best practices.  Under the demonstration, the results of the site visits will be shared with other participants and the rest of the health care industry to help achieve further significant improvements.