Fix For A Sick System - InformationWeek

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Fix For A Sick System

Pilot data-analysis program aims to offer higher Medicare reimbursements to hospitals that provide better patient care

It's not good business to pay a supplier that misses deadlines and ships incomplete orders the same fee that you'd pay one with a sterling reputation for on-time delivery and accurate service. But that's the approach the federal government takes in reimbursing health-care organizations for their treatment of Medicare patients. The fee is the same whether a person leaves the hospital on his own two feet or in, shall we say, a more horizontal position. In Medicare's traditional fee-for-service system, hospitals and doctors are even penalized for doing a good job, because healthier patients mean fewer visits and lower reimbursements.

Something has to change. The federal government's Centers for Medicare and Medicaid Services, known as CMS, has begun a data-analysis project with Premier Inc., a health-care services company. The project is aimed at boosting reimbursements to hospitals that show they offer better patient care and reducing payments to those that fall below certain thresholds. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, signed into law last week by President Bush, also emphasizes the value of data reporting and analysis in arriving at best-care practices. It offers higher Medicare reimbursements to hospitals that agree to share with CMS data about the outcomes of their heart-attack, heart-failure, and pneumonia cases.

Transforming the almost 40-year-old Medicare program, which accounts for more than half of some hospitals' revenue, is as much a financial necessity as a health-care imperative. Medicare has grown as a percentage of total health expenditures, which added up to $1.4 trillion in 2001, from 10.5% in 1970 to 17% in 2001, says The Commonwealth Fund, a health- and social-research foundation. The Medicare budget is projected to more than double from $239.5 billion in 2000 to $599.1 billion in 2025, according to a January 2001 report from the Urban Institute, a nonpartisan research organization.

The Hospital Quality Incentive Demonstration Project was launched last summer by CMS and Premier's Healthcare Informatics group, which offers data-analysis services to support hospitals' quality- and cost-improvement efforts. The project likely will cost the government between $7 million and $8 million in financial incentives over the three years of the pilot. Two-hundred-eighty hospitals, including Premier affiliates and non-Premier care providers that subscribe to its services, are participating in the program. Collectively, Medicare sends billions of dollars annually in reimbursements to those hospitals, says Mark Wynn, a CMS research analyst with Medicare's demonstration programs group. The potential to save billions of dollars by promoting best practices that reduce patient complications and readmissions more than makes up for paying out a few million in incentives, he says.

Larry Grandia-- Photo by Lance W. Clayton

Rewarding hospitals for providing quality care will keep health-care costs down, says Grandia, Premier's CTO.

Photo of Larry Grandia by Lance W. Clayton
"If you reward for quality, everyone has an incentive to improve quality, and that helps keep costs down in the bigger picture," says Larry Grandia, Premier's chief technology officer.

Some health-insurance companies have similar ideas and are starting to analyze patient outcomes at member hospitals. But "no one insurance company has the volume to drive massive changes in behavior of health-care providers," says Ed Howe, president of Aurora Health Care, a not-for-profit provider in eastern Wisconsin that's participating in the program. "The government does have that volume to drive change," not just in Medicare reimbursements but in the industry at large, he says.

Participants in the CMS project began providing data in five clinical areas--pneumonia acquired outside the hospital, coronary artery bypass grafts, heart attacks, heart failures, and hip and knee replacements--in October and will continue to do so for a year. At that point, CMS will analyze the first year's data and set performance benchmarks for the remaining two years of the pilot. It's too soon to tell whether this will result in the rollout of a national incentive program, but there's strong support behind the initiative, starting at the top with the Bush administration, CMS's Wynn says.

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