It used to be that hospitals billed Medicare for the services they provided, and Medicare – I know this is crazy! – simply paid the bills.
Those days are rapidly receding into history. Soon, a significant chunk of hospital revenue will be at risk, under a series of Medicare pay-for-performance programs. The idea behind P4P (as the cool kids call it) is simple. Third party payers, like insurance companies or the Medicare program, will monitor the quality of care offered by health care providers like hospitals. High quality providers will receive more money than low quality ones, thereby giving providers an incentive to improve the quality of care they provide.
Medicare has created several P4P programs which, unless they are halted by the Trump administration, are slowly coming into effect. By 2017, as I will show in a bit, these programs could put a sixth of Medicare payment at risk.
What are these programs?
One is the Hospital Value-Based Purchasing Program or (and you have to give Medicare folks kudos for their marketing prowess) VBP. Under VBP, Medicare monitors a bunch of quality measures, like the rate of hospital acquired infections, the number of patients falling while in the hospital, and even the risk adjusted mortality of hospitalized patients. Medicare scores each hospital based on how well it performs compared to other hospitals, and compared to its previous performance. This score determines part of a reward or punishment at the end of the year. By 2017, 2% of Medicare hospital payments will be redistributed according to VBP results, with money transferred from low to high performing hospitals.