Policy flaws negatively impact Medicare hospital reimbursements

April 7, 2015

Current methods used to measure hospital quality are fraught with problems that have large consequences for how hospitals are reimbursed by Medicare, according to a new study published in the March edition of The American Journal of Accountable Care.

Current methods used to measure hospital quality are fraught with problems that have large consequences for how hospitals are reimbursed by Medicare, according to a new study published in the March edition of The American Journal of Accountable Care.

Lead author Sylvia Brandt, associate professor of resource economics at from the University of Massachusetts Amherst, and colleagues, detail how they analyzed hospitalization in Massachusetts over an eight-year period and show that the rate of repeat hospitalization was determined by what health conditions were included in the index rather than underlying quality of the hospital or provider. Therefore, which conditions are included in any measurement of quality and the frequency of individuals that are admitted to any individual hospital will thus determine a hospital’s reimbursement from Medicare.

“Medicare currently uses the rate of repeat hospitalization as a measure of hospital quality and ties reimbursements to that measure,” Brandt says. “We found that the rate of repeat hospitalization was determined by what health conditions were included in the index rather than underlying hospital or provider quality.”

Related:Extending hospitals stays by one day can reduce readmissions

Brandt and the researchers calculated rates of potentially preventable repeat admissions for 13 conditions and five composite measures for hospitalizations in Massachusetts over 1997 to 2000. For each measuring index, they compared the demographics of patients with potential preventable repeat admissions to the general Massachusetts adult population. They  estimated a multivariate logistic model where the outcome variable was an indicator of whether the patient was readmitted in the following two years, and where the covariates were the characteristics of the patient as of his/her first admission.

They found that there was a 20-fold difference between the health condition with the lowest and the health condition with the highest repeat hospitalizations.

“There was a clear pattern that individuals from lower-income neighborhoods have a higher probability of repeat admission than similar individuals from higher income neighborhoods,” she says. “Hospitals that serve those populations would therefore be penalized by the current Medicare reimbursement system. Our study shows that which health conditions are included in any measurement of quality and the frequency of individuals that are admitted to any individual hospital will determine a hospital’s reimbursement from Medicare.”

 

NEXT: Penalized for excessive readmissions

 

Massachusetts has been among the states with the highest penalties for repeat hospitalizations as currently calculated by Medicare. The researchers believe that the study¹s findings are important because Medicare uses a hospital¹s rate of repeat hospitalizations to determine payments. Their results suggest that tying reimbursements to the rate of repeat hospitalizations as currently measured does not optimize efficiency, and that changes in the quality scoring mechanisms could save Massachusetts hospitals significant sums every year.

“Hospitals that serve low-income populations are disadvantaged by reimbursement systems that use a single metric of repeat admissions as a measure of hospital quality,” Brandt says.

Between 2003 and 2004, 34% of Medicare patients discharged from a hospital were readmitted within 90 days, the authors explain in the study, citing previous research. PPRs estimated $12 billion cost to Medicare led the Centers for Medicare & Medicaid Services (CMS) to enact provisions in the Affordable Care Act tying a hospital’s payments to its PPR rate. The rate may be measured by different indexes, which include or exclude admissions for a variety of medical conditions; CMS presently measures PPRs with a three-condition composite that counts readmissions for acute myocardial infarction, congestive heart failure and pneumonia.

Related:Readmissions decline in wake of CMS program

In October 2012, Medicare penalized more than 2,000 hospitals (about 71% of those reviewed) for excessive readmissions, with fines totaling more than $280 million.

“With the Senate’s recent reforms to Medicare reimbursements, how healthcare quality is determined will be increasingly under debate,” Brandt says. “There is no consensus in the academic literature on what is the best method to measure hospital quality.”

The excitement over the recent passage of a bill to reform how Medicare payments are calculated might be short-lived, according to Brandt.

“The central idea of the bill is to implement a payment system based on incentives in order to promote high quality healthcare,” she says. “To be effective, the so-called ‘Merit Based Incentive Payment System,’ needs to measure the quality of care and assess whether resources are used appropriately. While intuitively appealing, the practical aspects of measuring these complicated issues bring forth methodological difficulties that are sure to lead to large disputes. One has only to look to the problems of evaluating hospitals using the rate of repeat hospitalizations.”