Penalties chip away at hospitals

February 1, 2013

Hospitals have not gotten a break in the budget battles but few are changing their financial strategy

New pay rates under Medicare’s Hospital Value-Based Purchasing Program kicked in this year with more than 1,550 hospitals receiving bonus pay and more than 1,400 receiving reductions. The maximum amount at stake is 1% in either direction.

For many of the penalized facilities, the sting comes soon after Medicare’s separate financial penalties for hospitals that have too many avoidable readmissions. Also at a maximum 1% reduction, the penalties were assessed to 2,217 hospitals in October 2012. The small percentages can add up quickly in real dollars.

“My sense is that the readmission’s penalty and some of the other cuts to hospitals are not big enough to change financial models or to affect access, but they definitely got hospital’s attention on the need to fundamentally evaluate care management processes and redesign how they manage patient care,” says Allan Baumgarten, an independent research consultant based in Minneapolis.

He says fledgling ACOs are conducting operational and care-delivery reviews and redesigning care to maximize performance payments, or possibly to avoid penalties.

Systems have also seen additional coding reductions enacted under the American Taxpayer Relief Act of 2012. For example, Erie County Medical Center in New York estimates collective reductions of $12 million over a 10-year period as a result of the fiscal-cliff deal.

“Don’t think hospitals have gotten a break in budget battles-they’ve taken some cuts, certainly more than physicians, who I think have enjoyed some protection, even if it only arrives at the 11th hour each year,” Baumgarten says.

In 2015, Medicare also will begin a quality payment program for physician groups of 100 or more, later expanding it to all physicians.