Medicare Starts To Reward Quality, Not Quantity, Of Care

Dec 21, 2012
Originally published on December 21, 2012 11:16 am

It's no longer enough for hospitals to just send a bill to Medicare and get paid.

The nation's biggest insurer is starting to dole out bonuses and penalties to nearly 3,000 hospitals as it ties almost $1 billion in payments to the quality of care provided to patients.

In what amounts to a nationwide competition, Medicare compared hospitals on how faithfully they followed basic standards of care and how patients rated their experiences. Medicare disclosed on Thursday how individual hospitals will fare when the program, created by the federal health law, begins in January.

In many parts of the country, the hospitals that did the best are not the ones with the most outsize reputations, but regional and community hospitals instead. New York-Presbyterian in Manhattan and Massachusetts General Hospital in Boston, both dominant hospitals in their cities, will have their payments reduced.

Other leading names in the hospital industry, including the Cleveland Clinic and Intermountain Medical Center in Utah, will receive bonuses, although not the largest in their regions.

The biggest bonus is going to Treasure Valley Hospital, a physician-owned, 10-bed hospital in Boise, Idaho, that is getting a 0.83 percent increase in payment for each Medicare patient, the records show. Auburn Community Hospital, a nonprofit near Syracuse in upstate New York, is facing the biggest cut, losing 0.9 percent of every payment for Medicare patients.

"We know we started off at the bottom, but we are going to work our way to much more acceptable scores," said Thomas Filiak, Auburn's chief operating officer. The hospital has already replaced the squeaky wheels on its food carts, which led many patients to note loud noise during their stays, and focused teams of doctors and nurses on improving other areas on which the hospital is evaluated.

In all, Medicare is rewarding 1,557 hospitals with more money and reducing payments to 1,427 others, according to a Kaiser Health News analysis of the records. Most hospitals are seeing far smaller changes than Treasure Valley or Auburn. For many, the bonus or penalty is little more than a rounding error on their bottom lines.

It's not clear that the new payment program will significantly improve hospitals. Some studies of similar incentive programs have found that the improvements ended up not being any better than those of hospitals that weren't prodded financially. Nonetheless, the program is here to stay and is going to expand over the next few years, putting more money into play and adding new quality measures, including patient death rates.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.

Copyright 2012 Kaiser Health News. To see more, visit



And let's go now to a big change in the nation's health care. Starting in January, about half of the hospitals in America are going to see their payments from Medicare go down. That's because the care they offer is getting a low grade.


The other half of American hospitals will see their payments rise because they're meeting new standards. This is all according to the new federal health care law.

GREENE: The change affects the cash flow at countless hospitals, and this is the subject of today's business bottom line.

INSKEEP: Reporter Jordan Rau with Kaiser Health News has analyzed the data that Medicare just released on its hospital payments. He's with us.

Welcome to the program.

JORDAN RAU: Thanks for having me.

INSKEEP: OK. So what's Medicare trying to do?

RAU: Well, one thing that they're trying to do is actually get hospitals to do a better job. Right now, if you go in and get a knee surgery, they'll pay you the same amount whether they make a perfect knee or put a spatula in. And so they're trying to do that. And then down the line, this is part of the overhaul of the system. They're trying to get away from paying for every single thing. But in order to do that, you want to be able to track how good a job hospitals are doing.

INSKEEP: This is reminding me a little bit of the No Child Left Behind education law from years ago, where the top half of schools were going to get all kinds of benefits and the bottom half were going to be penalized.

RAU: Yeah. It has a lot of parallels to that. It's a lot less money. Initially, just 1 percent of Medicare payments are in play. But there are a lot of concerns, in fact, about this, that some of the hospitals that have less money to make improvements will keep on doing worse and worse, and the other hospitals will do better and better, and the gap will widen.

INSKEEP: Well, help me understand this. How do you determine whether a hospital is doing well with its patients or not?

RAU: Right now, they have some very rudimentary metrics, and they use two things. One are called process metrics, and this is literally just did you do a certain obviously right thing, like give a patient an antibiotic right before a surgery.

The second one is that they give - hospitals have been, for a long time, giving surveys to patients after they leave and asking them questions like: Did your doctor or nurse communicate well? Did you get the medications and were they explained to you? Was your room quiet and clean? And they're using those. And then they're compiling them all and rating all the hospitals against each other and in how much they improved over time.

INSKEEP: Customer satisfaction surveys, in effect.

RAU: Yeah, that's exactly right.

INSKEEP: So are we talking about a lot of money - many, many millions of dollars - that hospital could gain or lose here?

RAU: Initially, it's a total of about a billion dollars, but it's only about 1 percent of their Medicare payments. It's not that much. But over the course of several years, they're going to rise it incrementally, and they're also adding in other performance-based measures, like how many patients are readmitted. And if too many are readmitted, hospitals lose money.

So by the time that they're done with this and by the time that private insurers follow suit, a sizable amount of money is going to be affected by quality.

INSKEEP: Enough that even a really big hospital with a lot of income is really going to care.

RAU: Oh, yeah. They care now.

INSKEEP: Okay. So you're getting a look at which hospitals Medicare's going to pay a little bit more, which hospitals Medicare's going to penalize and pay a little bit less. Do you see any trends?

RAU: Well, one of the interesting things is that the hospitals that are the big names and that, you know, people love to send their people to don't necessarily do the best. For instance, in New York City, New York Presbyterian is losing money. In Los Angeles, Cedar Sinai is pretty much breaking even. So the big winners, some of them are very obscure. I mean, the biggest winner is a hospital in Boise, Idaho called Treasure Valley.

INSKEEP: Treasure Valley?

RAU: Treasure Valley. It's a 10-bed hospital.

INSKEEP: Okay. I guess they're doing very well on patient satisfaction. Is that what that means?

RAU: That actually is one of them. They actually send notes to their patients thanking them after they come in.

INSKEEP: I'm curious, though, if you're going to end up with the same kinds of complaints that people had about No Child Left Behind in education, that the schools that take on the tough kids end up having a tougher time getting good results, or hospitals that take on the tough cases or the big urban hospitals are going end up being penalized here.

RAU: There's some concern about that, particularly about the patient satisfaction surveys. And there's been some research that found that if you take a patient and keep him in the hospital for a long time and if they're depressed - which often goes along with very sick illnesses - then they're more likely to say, eh, I didn't have such a great time in that hospital. But Medicare is adjusting some of these to take some of that into account.

INSKEEP: Are hospitals doing anything to get their scores up?

RAU: Yes. They're doing a lot on the patient satisfaction side. Hospitals are scripting doctors now and nurses on what to say to patients. For instance, if you're in maternity care and you're moving off, the nurse might say, oh, you're going to nurse so and so. Well, she's a wonderful nurse. You're so lucky to have her.

Auburn Community Hospital in upstate New York has replaced the squeaky wheels on their food carts, because their scores are very low when patients are asked: How noisy was your room?

INSKEEP: So changing the old saying, the squeaky wheel gets less money.

RAU: Exactly.

INSKEEP: Okay. Thanks, very much. That's Jordan Rau of Kaiser Health News. Thanks for coming by.

RAU: Thank you.

INSKEEP: He brings us today's business bottom line. Transcript provided by NPR, Copyright National Public Radio.