Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

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Value-Based Care Penalties Spark Greater Quality Improvements

Value-based care programs that use financial penalties are more likely to motivate hospitals to reduce readmissions, states study.

By Jacqueline LaPointe

- Financial penalties may be the key to advancing value-based care goals, such as reducing hospital admissions, according to a recent study in the American Journal of Managed Care.

Value-based care penalties drive hospital efforts to reduce hospital readmissions

Almost two-thirds of hospital leaders stated that the Hospital Readmissions Reduction Program, which financially penalizes hospitals for excess readmissions, had a significant or great impact on boosting their hospital’s efforts to decrease readmissions compared to two CMS-sponsored programs that preceded it.

In comparison, only 36.1 percent of hospital leaders reported that public reporting of readmissions rates was effective at changing hospital goals, while 23.7 percent said public reporting of discharge planning had an impact.

“This observation, that financial incentives alter behavior to a greater degree than public reporting alone, is consistent with prior observations and may explain why the HRRP [Hospital Readmissions Reduction Program] has been associated with improvements in readmission rates whereas public reporting was not,” wrote the authors of the study.

“This experience may suggest that policy makers should move more rapidly to financially reward or penalize hospitals for desired outcomes rather than merely reporting them publicly.”

READ MORE: How to Prepare for Alternative Payment Model Implementation

CMS started to reduce Medicare reimbursements for hospitals with above-average hospital readmissions in 2012 in an effort to further improve patient outcomes and decrease healthcare spending from readmissions.

The Hospital Readmissions Reduction Program was designed to build on the modest success of public reporting systems that began in 2007, but only stabilized readmission rates at 20 percent.

To encourage hospitals to focus on specific value-based care goals, CMS reported that hospitals could face a three percent reduction in their base Medicare diagnosis-related group (DRG) reimbursements if the organization could not improve readmission rates.

The study showed that receiving a financial penalty substantially affected a hospital’s efforts to achieve value-based care goals. Leaders at hospitals that received a financial penalty through the program were much more likely to state that the Hospital Readmissions Reduction Program had influenced their efforts to reduce admissions.

In response to the value-based care initiative, 26.6 percent of leaders said that their hospital was more than moderately likely to increase the use of observation status to improve their perceived readmissions performance. However, almost 16 percent also reported that their organization was likely to avoid high-risk patients.

READ MORE: Best Practices for Value-Based Purchasing Implementation

While financial penalties effectively shifted hospital goals, many leaders still reported challenges with the value-based reimbursement model. Nearly 67 percent stated that the Hospital Readmissions Reduction Program’s penalties were “much too large.” Over three-quarters said that financial penalties would be more accurate if CMS accounted for socioeconomic differences between hospitals.

Other critiques of the value-based care initiative included inadequate weighing of medical complexity (75.9 percent) and the lack of recognition that hospitals have a limited ability to influence patient adherence (64.1 percent).

A majority of study participants also said that other alternative payment models were more likely to improve care quality, including pay-for-performance programs (52.6 percent) and accountable care organizations (45.6 percent). Only 42.5 percent of hospital leaders stated that the Hospital Readmissions Reduction Program was likely to boost quality.

The financial penalty system, however, was more effective than bundled payments at 32 percent, reported hospital leaders.

Despite the lack of confidence in improving care quality, the majority of hospital leaders (54.8 percent) said that the Hospital Readmissions Reduction Program was the most likely to drive down healthcare costs compared to other alternative payment models.

READ MORE: Engaging Providers Key to Value-Based Reimbursement Adoption

Additionally, the study showed that reducing readmissions was not a top priority for hospitals despite the Hospital Readmissions Reduction program’s influence on implementing value-based care initiatives. Other alternative payment models, especially those with value-based incentives or shared savings, may motivate hospitals to focus on other care quality measures.

Hospital leaders said their organizations prioritized boosting patient safety, improving patient experience, and reducing hospital-acquired infections. Participants listed reducing hospital readmissions as the fifth highest priority goal.

However, as CMS develops more value-based care programs, especially those with incentive payments, hospitals may start to reprioritize hospital readmission rates, researchers noted.

“Additionally, as the number of Medicare programs that reward readmissions as components of performance continues to grow—not only in ACOs, but also including the Physician Value-Based Modifier and the coming pay-for-performance programs in the dialysis and post-acute care settings—it is feasible that inpatient facilities may prioritize readmission reduction more highly,” the study stated.

“These findings may be useful for policymakers contemplating future iterations of the HRRP and other programs using readmissions as a quality metric that may have a synergistic effect on improving patient care.”

Dig Deeper:

Preparing the Healthcare Revenue Cycle for Value-Based Care

How Value-Based Care Payment Improves Patient Outcomes


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