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Medicare Penalties: The search for value-based care

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Medicare Penalties: The search for value-based care

Picture of Jenna Flannigan

Jenna Flannigan is a senior editor at and a freelance writer. This story was produced as a project for the California Health Journalism Fellowship, a program of the USC Annenberg School for Communication and Journalism.

Other stories in this series include:

Medicare penalties take heavier toll on hospitals with the most vulnerable patients

Medicare Penalties: What causes hospital readmissions?

Medicare Penalties: Trying to stop hospital infections

Healthline News
Sunday, September 20, 2015

The surgeon operated with calm, controlled movements as he stared through a giant microscope positioned over the patient’s spine.

Beside him, a technician stood next to a tray stacked with gleaming medical instruments.

“The surgeon never has to take his eyes away from the microscope,” Kelly Doyle, R.N., chief executive officer of Rothman Orthopaedic Specialty Hospital (ROSH) in Bensalem, Pennsylvania, told Healthline.

“He just needs to go like this,” Doyle gestured with an open hand, “and the technician will put the new instrument in his hand. He never loses focus.”

Doyle explained that at ROSH, surgeons usually work with the same team when they operate, and whole teams focus on specific procedures, like spinal surgeries or joint replacements.

In this efficient system, technicians and nurses learn to recognize what the surgeon needs without being told.

This system also decreases the risk of medical complications because patients are on the operating table, and under anesthesia, for as little time as possible.

By comparison, Doyle said there are still surgeons at some large hospitals who practice general orthopedics — one day working on a shoulder, another day working on a knee. In a general operating room, the same nurse might work on an abdominal case in the morning and a knee fracture in the afternoon.

ROSH’s higher level of efficiency is one reason the hospital is winning when it comes to Medicare’s Value-Based Purchasing program.

Push to Improve Quality

Created under the Affordable Care Act, the program is one of three Medicare “pay-for-performance” programs that use financial penalties to push hospitals to improve quality.

More than 3,000 acute care hospitals are subject to the programs.

However, the penalties are taking a heavier toll on hospitals that care for the most vulnerable patients.

Research suggests that two types of hospitals tend to fare worse than others. They are major teaching hospitals, which tend to care for the sickest patients, and safety net hospitals, which care for the poorest patients.

According to Healthline’s analysis, about 70 percent of hospitals that act as both major teaching and safety net hospitals were penalized in the Value-Based Purchasing program. By comparison, less than half of other hospitals were penalized.

Small hospitals, like ROSH, tend to fare better in the programs, especially if they don’t treat a high percentage of the sickest and poorest patients.

How Medicare Measures Hospital Value

ROSH has 24 beds and offers exclusively orthopedic surgeries. The hospital wasn’t penalized in any of Medicare’s pay-for-performance programs. And in Value-Based Purchasing, it tied for the highest bonus in the country — a 2 percent top-up on its Medicare in-patient reimbursements.

All three Medicare programs levy penalties on low-performing hospitals, based on certain quality data. When a hospital is penalized, it loses a small percentage of what Medicare would otherwise pay for in-patient care. In 2015, hospitals could lose up to 1.5 percent of those payments through the Value-Based Purchasing program alone.

Value-Based Purchasing is the only program that also provides bonuses. The funds that some hospitals lose through penalties create a pool — totaling more than $1.5 billion in 2015 — for other hospitals to get rewards.

Hospitals are scored in four areas:

  • patient satisfaction, judged by surveys
  • patient outcomes, such as death or injury for specific conditions
  • process of treatment, which refers to the use of certain evidence-based practices
  • efficiency, meaning the cost of treatment per patient

Medicare uses a complex calculation to determine which hospitals should receive penalties and bonuses. Hospitals are essentially competing against each other for the best scores, but they also get significant credit for improving on their own past performances.

The program is part of Medicare’s efforts to ensure it is paying for high quality of care, rather than volume of care alone. In the past, Medicare was criticized for paying for services based on volume, which gives doctors an incentive to order unnecessary tests.

In contrast, Medicare’s pay-for-performance programs are criticized for giving hospitals incentives to “cherry-pick” patients. By only taking the healthiest patients, hospitals can potentially improve their quality metrics.

At ROSH, Doyle uses a different term: “demand matching.”

“I do not have an ICU, I do not have an intensivist,” Doyle explained. “If you’re somebody who has an extensive cardiac history, taking lots of medications, you may need 24-hour monitoring after anesthesia. You’re going to need a higher level of care.”

In that case, she would refer the patient to Thomas Jefferson Hospital in Philadelphia, which has partial ownership in ROSH.

That hospital was penalized in two of Medicare’s penalty programs, but it received a small bonus in the Value-Based Purchasing program.

Doyle doesn’t spend much time comparing ROSH to Thomas Jefferson Hospital.

“Since we are a specialty hospital, we compare ourselves to other specialty hospitals,” she said, showing Healthline the detailed spreadsheets of quality metrics that ROSH uses.

When asked why Doyle doesn’t compare ROSH’s quality metrics to larger hospitals, she explained: “Because I have an unfair advantage. I don’t have an emergency room. I don’t have 900 beds. Could they get these scores?” She paused, looking contemplative. “With the right leadership, I suppose. But I have an advantage. I’m smaller. I can almost see the ball before it drops. You can’t do that in a larger organization.”

It’s a challenge that major teaching and safety net hospitals face in the Value-Based Purchasing program. They tend to be large facilities, with emergency rooms, that care for high volumes of patients with a broad spectrum of conditions.

And although they tend to fare worse in the program, they may not actually provide poorer care.

In a 2014 study, researchers at Emory University found that safety net hospitals were more likely to be penalized in the Value-Based Purchasing program compared to other hospitals. This was true even though patients at safety net hospitals had slightly better survival scores for some conditions counted in the program — heart attacks, heart failure, and pneumonia.

The Emory researchers have argued the program should put more weight on mortality rates. This change might allow safety net hospitals to score better.

“We found that once mortality was added into the Value-Based Purchasing algorithm, the gap between the probabilities of penalties for safety net hospitals, versus non-safety net, shrank a lot,” said Jason Hockenberry, Ph.D., associate professor at Rollins School of Public Health, Emory University, who coauthored the study.

Does Patient Satisfaction Mean Better Quality Care?

Photo by Christoph Chris (Own work) [CC BY-SA 4.0 via Wikimedia Commons]

ROSH’s high performance in the Value-Based Purchasing program also comes, in part, from its top performance on patient satisfaction surveys, which made up 30 percent of a hospital’s total score in 2015.

The surveys ask a broad range of questions — such as whether the patient’s pain was always well-controlled, whether their bathroom was always clean, and if they would rate the hospital a 9 or 10 out of 10.

The surveys set high standards. Some reports have argued that they encourage hospitals to invest in niceties — such as valet parking and concierge services — instead of focusing dollars on improving patient care.

While there are no signs that ROSH skimps on patient safety or quality elsewhere, the hospital does advertise its private “hotel-like” rooms and “gourmet meals.”

Such frills make it hard for safety net hospitals to compete. Even if they are able to offer high quality of care, their scores on patient experience surveys might knock them into penalty territory.

“We have nice facilities, but we don’t have the nicest facilities,” said Michael Norby, executive vice president and chief financial officer of the Harris Health System, which operates three safety net hospitals in Houston, Texas.

The largest of these facilities, Ben Taub Hospital, has nearly 600 beds. It also has one of only two level I trauma centers in the region — a place where someone might be taken after a serious accident.

In the Value-Based Purchasing program, Harris Health only faced a small penalty. But Norby suspects if patient surveys were not part of the equation, the organization might have received a small bonus.

Harris Health runs a patient satisfaction training program that has improved how doctors and nurses communicate with patients, Bryan McLeod, director of communications, told Healthline. But when it comes to facilities, the organization is at a disadvantage.

“We still have four-bed wards in some parts of our hospitals,” McLeod explained. “That means patients share an environment with three other people and one bathroom. The perception is always going to be that if one of my roommates has used the restroom, it’s not clean for me.”

“We are not the Ritz-Carlton,” Norby added. “To the extent the survey is bent toward rewarding the nicest facilities and best amenities, we are never going to win that ball game.” 

[This story was originally published by Healthline News.]