All Content

Medicare Pays for Performance


The future of a Medicare-sponsored pay-for-performance model for hospitals rests on a three-year trial involving 268 hospitals and millions of dollars in bonuses.

The Centers for Medicare and Medicaid Services (CMS) has partnered with Premier, Inc., a nationwide alliance of not-for-profit hospitals, to undertake The Premier Hospital Quality Incentive Demonstration Project. Premier was selected for this demonstration project because each of its hospital members has a database system in place that allows tracking and reporting of data for 34 quality measures.

“This is the only [pay-for-performance project] for hospitals at this time,” says Mark Wynn, director of the Division of Payment Policy Demonstrations, CMS.

The project began in October 2003. At the end of each of the three years of the trial, top-performing hospitals are rewarded with cash bonuses from CMS. Performance is based on multiple evidence-based quality measures for inpatients with heart attack, heart failure, pneumonia, coronary artery bypass graft, and hip and knee replacements. The individual measures are compiled into an overall quality score for each clinical condition.

“The administration is extremely interested in pay for performance in general, and very pleased with the project,” says Wynn. “The administrator is interested in expanding pay for performance to other hospitals, but exact details on this are not available.”

Bill Proposes New Physician Payment System

The U.S. House of Representatives is currently reviewing a bill that would replace the current Medicare physician update formula with a new formula based on quality and efficiency metrics, which includes financial incentives. “The Medicare Value-Based Purchasing for Physicians’ Services Act of 2005” (H.R. 3617) was introduced by Nancy Johnson (R-Connecticut), and is strongly supported by SHM.

If passed, the bill will amend part B of title XVIII of the Social Security Act to provide for value-based purchasing in the payment for physicians' services under the Medicare Program, and for other purposes. For information on the bill, visit

Money Matters

The pay structure of the project rewards those Premier hospitals that rank highest for each quality measure: Hospitals that rank in the top 20% of quality for the five general clinical areas receive a bonus. Those in the top 10% for each of the quality measures will receive a 2% bonus of their Medicare payments for the measured condition; hospitals in the top 20% will receive a 1% bonus.

In the first year of the project, Medicare spent approximately $8.9 million in incentive bonuses, and bonuses per hospital ranged from $847,000 to $900,000. This money comes, in part, from savings earned by improved outcomes, including shorter hospital stays and fewer readmissions.

Overall, though, participants seem to believe that the real payoff is not in dollars, but in improved quality of care as well as public recognition of their outcomes. (CMS has agreed not to reveal the names of the 130 lowest-performing hospitals, but the top performers are enjoying positive publicity.)

“Quality is the key motivator,” says Bill M. Hazelwood, MD, FCCP, McLeod Regional Medical Center, Florence, S.C. “Money doesn’t do anything for me—I’m sure my administrators think differently. But our efforts have paid off in lives saved and in people getting home quicker.”

Indiana Law Requires Reporting of Medical Errors

Beginning January 1, 2006, Indiana hospitals were required by an executive order by Governor Mitch Daniels to implement the Medical Error Reporting and Quality Systems (MERS). Hospitals must report more than two dozen types of errors, which will be available for public review beginning in 2007. Indiana is the second state to implement mandatory error reporting; Minnesota was the first. Read the full text of the executive order 05-10 at

Winning Ways

Hackensack University Medical Center (N.J.) and McLeod Regional Medical Center each scored in the top 20% for all five clinical conditions. Hackensack earned the largest total bonus for the first year, receiving $848,000. A hospitalist from each of these institutions shares insights into their success.

Gerard A. Burns, MD, MBA, director of medical informatics at Hackensack University Medical Center, explains that meeting the quality measures set by Medicare for the project was not new. “Some are process measures like giving aspirin, and some are outcome measures, like our mortality rates,” he says. “Many are tried and true, and not totally foreign to all hospitals. We’ve seen these things before.”

A few of the measures require no additional work from staff. “Some are automatically calculated by the Premier databases,” says Dr. Burns. “There’s no data collection involved in some of these.”

Every week or month, each hospital downloads all of the coded data. The facility also receives results on how they are doing. “We get quarterly reports to see where we’re doing well and where we’re not doing well,” says Dr. Burns. “We may see too many re-admits, and ask, ‘What’s going on?’ We’ll take a closer look. Each time is a great opportunity to improve our scores.”

Many, if not most, of the participating hospitals saw immediate improvements for multiple quality measures. The problem is that now that the project is in its last year, it’s more difficult to find ways to improve.

“The big push from here on out is fine-tuning and finding new areas for improvement,” says Dr. Hazelwood. “We hope to plug in new information and improve outcomes. And, by its nature, we’ll have to increase the number of protocols. They help us in the hustle and bustle of daily practice.”

Meet Your Congressmen at Legislative Advocacy Day

Take advantage of the SHM 2006 Annual Meeting, held in Washington, D.C., May 3-5 and attend the first-ever SHM Legislative Advocacy Day. On Wednesday, May 3, pre-registered attendees can meet with members of Congress and their staffs to discuss important legislative initiatives affecting hospitalists and their patients. SHM staff will start the day with training, background information, and appointments with your legislators. Register to participate in Legislative Advocacy Day at

How Hospitalists Help

In a handful of top-ranked hospitals, hospitalists play an active role in helping to meet the quality measures.

“Our hospitalists contribute in three ways,” says Dr. Burns. “We have five full-time hospitalists in the emergency department to assist our ED physicians and admitting physicians. They use specific disease order sets with built-in processes for medications, etc. Using a hospitalist to assist or write these orders is one more layer on the team to ensure we do the right thing.”

In addition, hospitalists at Hackensack are often included in new multidisciplinary team rounds. “We have multidisciplinary teams of a physician—sometimes a hospitalist—along with a nurse manager, a case manager, a social worker, a nutritionist, and sometimes a pharmacist,” explains Dr. Burns. “The team discusses each patient and tries to facilitate the physician’s plan of care. They may have to bring in a coding person to help figure out the coding rules.”

And having hospitalists involved with patients admitted without primary care physicians is “a tremendous help,” according to Dr. Burns, “because they really focus on our care measures. And each month, we have new residents come in, and the hospitalists train them on the project.”

As for McLeod Regional Medical Center, Dr. Hazelwood says, “Hospitalists are big admitters to the hospital—especially for those unassigned patients. And like other physicians, we are involved in various physician-led committees that develop our protocol for change.”

Are top-ranking hospitals sharing their bonus earnings with participating hospitalists and other physicians? “As far as I know, that has not happened, and it will not happen,” says Charles Riccobono, MD, chairman of the Performance Improvement Department at Hackensack. “I would hope that [bonus] money will filter down to support other quality projects, but I don’t know if the funds have been earmarked for anything specific.”

The Future Impact

The outcome of The Premier Hospital Quality Incentive Demonstration Project will shape any pay-for-performance guidelines that Medicare sets for hospitals around the country, including new or revised protocols and data collection hospital-wide. Final information will be available soon after the project ends this fall. Meanwhile, all data collected on the quality measures is available on the CMS Web site at TH

Next Article:

   Comments ()