All else equal, it would be wonderful if hospitals had an incentive to provide high quality care. It does not seem fair to pay the same amount of money to a hospital that does a great job of caring for its pneumonia patients and one that does a lousy job. For the most part, however, third party payers like insurance companies and Medicare pay hospitals for the volume of services they provide, or volume of patients they treat, not for the quality of the care they provide.
Inattention to quality is coming to an end. Hospitals are increasingly being paid in part for their performance. For example, in 2013 Medicare began a value-based purchasing program, or VBP. Under the program, Medicare withholds a percentage of payments throughout the year and then redistributes those dollars to hospitals that achieve the highest scores on a range of quality measures. In the first year of the program, this redistribution amounted to about $1 billion.
In theory, pay-for-performance makes a great deal of sense. But in practice, pay-for-performance is only as good as the quality measures used to determine performance. And Medicare’s measures, by placing significant weight on patient satisfaction scores, are hurting hospitals that disproportionately care for low income populations.
Let’s take a closer look at Medicare’s quality measures. Some are what healthcare experts call process measures, which identify whether hospitals do the right things at the right times to the right patients. When patients are admitted with heart attacks, for example, a process measure might assess how many of those patients receive aspirin and beta blockers upon discharge, or how many receive revascularization efforts in the cath lab within 30 minutes of arrival.