Healthcare Real Estate Developer | The Perks of Value Based Purchasing
A healthcare reimbursement model that more and more health systems area aligning with is what’s called value based purchasing (VBP). G. Richards Hastings, soon to be retiring as CEO of Saint Luke’s Health Systems, was recently featured in the Kansas City Business Journal mentioning how Saint Luke’s is going down this very path. From Mr. Hastings point of view, he wasn’t optimistic.
Value Based Purchasing is a supplement to Saint Luke’s current reimbursement system, diagnosis related groups (DRGs). This in essence means that Medicare pays a flat fee to the hospital based on the patient’s symptoms, age, sex, discharge status, and the presence of complications. As Mr. Hastings said, “It doesn’t matter how much it cost us, it doesn’t matter how many days you stay in the hospital, it doesn’t matter how many services you use, that’s all we’re going to get paid.”
What VBP means is that DRGs are still in place, but incentives can be reached based on how well the hospital performs on certain quality measures, or how much the hospital’s performance improves compared to its performance during a baseline period. There are 25 measures that determines performance including: patients’ communication between physicians and nurses, hospital staff responsiveness, patients’ pain management and hospital cleanliness. The higher the performance the higher the incentive payment will be.
What’s the catch?
Via value based purchasing, the funds providing the incentives will be generated from a reduction in DRGs payments. Reductions begin by 1% in 2013 and will rise to 2% in 2017. If a hospital does not meet performance standards then they will not receive any bonus payments. Like Mr. Hastings said, “We’re going to have to hit the 91st percentile to get paid 70 percent of what we’re getting paid today.”
Though the cutback will impact hospitals’ bottom lines, it provides the opportunity to reward improvements in quality of patients’ health. Hospitals are competing to improve quality and health outcomes which I believe is a step in the right direction. A separate, but similar program, The Hospital Quality Incentive Demonstration (HQID) pilot project, was created to test incentives like these. HQID has been implementing economic incentives on quality for the past five years and participants’ quality has risen by an average of 18.3%. This provides qualitative reassurance that these measures are valid in the quality outcomes health systems are trying to attain.
A one size fits all approach to healthcare reimbursement is not likely. Reimbursement methods vary across health systems and only once the particular health system’s factors are thoroughly analyzed should a new reimbursement model be considered, be it ACO, strictly DRGs, VBP or the array of other existing models.
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