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Medicare Plan Would Give Bonuses for Superior Care

By Laurie McGinley, The Wall Street Journal

 May 27, 2003

In a new strategy to improve health care for its 40 million patients, Medicare is planning an experiment: Reward hospitals that provide superior care.

Given the size of Medicare, its entry into the "pay-for-performance" field adds momentum to the growing movement to use financial incentives to improve heath care in the U.S.

Medicare traditionally has paid hospitals the same fee for a procedure regardless of the outcome. But now, it is following the lead of private employers and managed-care plans that have begun paying hospitals and doctors more if they can show their patients fared better.

The agency that runs Medicare and Medicaid Services has already begun posting statistics on the quality of care at various nursing homes and home health agencies on the Medicare Web site ( and running ads in local newspapers. On the Web site, consumers can check the percent of residents with bed sores, for example, or check inspection results and pertinent staff information.

Under the latest pilot project by Medicare, hospitals would submit data on patients with eight medical conditions -- including stroke, heart attack, hip surgery, pneumonia and heart failure -- that are common among Medicare's patients. A hospital might, for instance, report how quickly patients with pneumonia get antibiotics, which increases the likelihood of a speedy recovery. Or it might report what percentage of heart-attack patients get beta blockers at discharge, which help prevent future heart attacks. Those results would likely be posted publicly.

As proposed by Medicare, hospitals with top scores on quality would get a small bonus -- 1% or 2% -- added to their regular Medicare payments. Under the initial plan, the lowest performers wouldn't be affected, while the top hospitals would get additional funds for all three years of the project.

"There's no question that pay for performance will work," said Thomas Scully, head of the federal Centers for Medicare and Medicaid Services, the agency that oversees Medicare.

Mr. Scully has championed provider "report cards," saying that they give consumers important information and prod providers to change their behavior. "If you fly into Washington, D.C., you can figure out the best restaurant, the best hotel and the best cab service, but not which hospital does the best hip replacements," he said at a recent conference.

There is still some debate over how to set up the program to provide patients with the most benefits. The White House Office of Management and Budget has insisted that low performers lose a small portion of their funds in the third year.

The budget office, Mr. Scully said, "is worried about the precedent" of paying bonuses to high-performing hospitals, while not reducing payments to those that don't score high on quality measures. An OMB spokesman said the agency supports the idea of "pay for performance" but wants to review the project carefully.

Medicare officials estimate that the three-year pilot project could save the government $5 million or cost it $5 million -- or somewhere in between, Mr. Scully said. He argues it would save money because high-quality care can reduce complications and readmissions to hospitals.

He said that the OMB is estimating that the project may not cost the government anything, or could cost it as much as $25 million.

But some in the hospital industry worry that the data collected on hospitals aren't sophisticated or ample enough yet to use as a basis for reimbursement -- or punitive damages for alleged poor performance.

The Medicare pay-for-performance experiment is separate from another project announced last year by big hospital groups to encourage members to voluntarily report outcomes of 10 quality measures and post information on the Internet beginning this summer. That effort, which is also backed by Medicare, doesn't call for bonuses.

Medicare's three-year project depends on the cooperation of Premier Inc., an alliance owned by more than 200 independent hospitals and health-care systems that operate, or are affiliated with, nearly 1,500 hospitals and other health-care sites.

Premier, based in San Diego, operates an elaborate data-collection system critical to the Medicare project. And while it has expressed enthusiasm for the plan, it has also expressed concern over the possibility of punishment of low performers with a loss of funds.

Though Premier has yet to sign off on changes sought by the OMB, said Mr. Scully, he is confident the group will participate and the project will move forward. Officials are hoping as many as 400 hospitals will participate.

"We haven't seen any details from OMB's review," said a Premier official. "However, we believe the incentives for hospitals to participate to be favorable, not punitive."

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