New Rules for Value-Based Purchasing, Readmission Penalties, Admissions


The View from

Looking for more information to formulate a plan of attack? SHM offers a variety of HVBP resources to orient hospitalists and hospital leaders. The “What Every Hospitalist Should Know About Hospital Value-Based Purchasing” webinar and SHM’s free resource library (www.hospitalmedicine.org/hvbp) offer basic orientation on what to expect on pay-for-performance-related issues. The HVBP resource center also provides multiple case studies from various hospitals across the country, with success stories related to reducing readmissions, increasing evidence-based care focus, and enhancing performance on core measures.

In order to proactively address CMS’ new 30-day readmissions criteria for COPD, SHM’s COPD Resource Center (www.hospitalmedicine.org/copd) provides hospitalists with the most up-to-date guidelines, reviews, and peer-reviewed clinical trials that define evidence-based practice for the care of the COPD patient.

Hospitalists not only are under pressure to help improve hospital-level performance, but also will need to begin reporting physician-level measures. Beginning in 2015, CMS’s Physician Quality Reporting System (PQRS) will apply a penalty to all physicians who do not satisfactorily report data on quality measures for covered professional services.

The time to act is now. Reporting during the 2013 PQRS program year will be used to determine whether a 1.5% penalty applies in 2015. SHM has partnered with CECity to offer discounted access to PQRIwizard, a tool that facilitates PQRS reporting through SHM’s Learning Portal (www.shmlearningportal.org).

October is the beginning of a new year—in this case, fiscal-year 2014 for the Centers for Medicare & Medicaid Services (CMS). It’s a time when the new rules kick in. This month, we’ll look at some highlights, focusing on the new developments affecting your practice. Because you are held accountable for hospital-side performance on programs such as hospital value-based purchasing (HVBP) and the Readmissions Reduction Program, a working knowledge of the 2014 edition of the programs is crucial.

Close the Loop on HVBP

How will your hospital get paid under the 2014 version of HVBP? This past July, your hospital received a report outlining how its Medicare payments will be affected based on your hospital’s performance on process of care (heart failure, pneumonia, myocardial infarction, and surgery), patient experience (HCAHPS), and outcomes (30-day mortality for heart failure, pneumonia, and myocardial infarction).

Here are two hypothetical hospitals and how their performance in the program affects their 2014 payment. As background, in 2014, all hospitals have their base diagnosis related group (DRG) payments reduced by 1.25% for HVBP. They can earn back some, all, or an amount in excess of the 1.25% based on their performance. Payment is based on performance during the April 1 to Dec. 31, 2012, period. Under HVBP, CMS incentive payments occur at the level of individual patients, each of which is assigned a DRG.

Let’s look at two examples:

Hospital 1

  • Base DRG payment reduction: 1.25% (all hospitals).
  • Portion of base DRG earned back based on performance (process/patient experience/outcome metrics): 1.48%.
  • Net change in base DRG payment: +0.23%.

Hospital 2

  • Base DRG payment reduction: 1.25% (all hospitals).
  • Portion of base DRG earned back based on performance (process/patient experience/outcome metrics): 1.08%.
  • Net change in base DRG payment: -0.17%.

Hospital 1 performed relatively well, getting a bump of 0.23% in its base DRG rate. Hospital 2 did not perform so well, so it took a 0.17% hit on its base DRG rate.

In order to determine total dollars made or lost for your hospital, one multiplies the total number of eligible Medicare inpatients for 2014 times the base DRG payment times the percent change in base DRG payment. If Hospital 1 has 10,000 eligible patients in 2014 and a base DRG payment of $5,000, the value is 10,000 x $5,000 x 0.0023 (0.23%) = $115,000 gained. Hospital 2, with the same number of patients and base DRG payment, loses (10,000 x $5,000 x 0.0017 = $85,000).

Readmissions and Penalties

For 2014, CMS is adding 30-day readmissions for COPD to readmissions for heart failure, pneumonia, and myocardial infarction for its penalty program. CMS added COPD because it is the fourth-leading cause of readmissions, according to a recent Medicare Payment Advisory Commission report, and because there is wide variation in the rates (from 18% to 25%) of COPD hospital readmissions.

For 2014, CMS raises the ceiling on readmission penalties to a maximum of 2% of reimbursement for all of a hospital’s Medicare inpatients. (The maximum hit during the first round of readmission penalties, which began in October 2012, was 1%.) More than 2,200 U.S. hospitals will face some financial penalty for excess 30-day readmissions.

Disappointingly, CMS did not add a risk adjustment for socioeconomic status despite being under pressure to do so. There is growing evidence that these factors have a major impact on readmission rates.1,2

New Definition of an Admission

Amidst confusion from many and major blowback from beneficiaries saddled with large out-of-pocket expenses for observation stays and subsequent skilled-nursing-facility stays, CMS is clarifying the definition of an inpatient admission. The agency will define an admission as a hospital stay that spans at least two midnights. If a patient is in the hospital for a shorter period of time, CMS will deem the patient to be on observation status, unless medical record documentation supports a physician’s expectation “that the beneficiary would need care spanning at least two midnights” but unanticipated events led to a shorter stay.

Plan of Attack

For HVBP, make contact with your director of quality to understand your hospital’s performance and payment for 2014. If you have incentive compensation riding on HVBP, make sure you understand how your employer or contracted hospital is calculating the payout (because, for example, the performance period was in 2012!) and that your hospitalist group understands the payout calculation.

For COPD readmissions prevention, ensure patients have a home management plan; appropriate specialist follow-up and that they understand medication use, including inhalers and supplemental oxygen; and that you consider early referral for pulmonary rehabilitation for eligible patients.

For the new definition of inpatient admission, work with your hospital’s physician advisor and case management to ensure your group is getting appropriate guidance on documentation requirements. You are probably being held accountable for your hospital’s total number of observation hours, so remember to track these metrics following implementation of the new rule, as they (hopefully) should decrease. If they do, take some of the credit!


  1. Joynt KE, Orav EJ, Jha AK. Thirty-day readmission rates for Medicare beneficiaries by race and site of care. JAMA. 2011;305(7):675-681.
  2. Lindenauer PK, Lagu T, Rothberg MB, et al. Income inequality and 30 day outcomes after acute myocardial infarction, heart failure, and pneumonia: retrospective cohort study. BMJ. 2013;346:f521.

Dr. Whitcomb is medical director of healthcare quality at Baystate Medical Center in Springfield, Mass. He is co-founder and past president of SHM. Email him at wfwhit@comcast.net.

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