1. Value Based Purchasing Harry Holmes, Ph.D. Senior Policy Advisor Harris County Healthcare Alliance October 11, 2012 The Board-Leadership and Management Student Association, UTSPH

2. Statutory Basis for Value Based Purchasing (VBP) Required by the Affordable Care Act, which added Section 1886(o) to the Social Security Act Quality incentive program built on the Hospital Inpatient Quality Reporting (IQR) measure reporting infrastructure (www.hospitalcompare.hhs.gov) Next step in promoting higher quality care for Medicare; pays for care that rewards better value and patient outcomes, instead of just volume of services Funded by a 1% reduction from participating hospitals’ base operating diagnosis-related group (DRG) payments for FY 2013, increasing to 2% by FY 2017 Uses measures that have been specified under the Hospital IQR Program and results published on Hospital Compare for at least one year

3. Hospitals in VBP How is “hospital” defined for this program? The Hospital VBP Program applies to subsection (d) hospitals: Section 1886(o)(1)(C)(i)(d) of the Affordable Care Act If you want the text of the actual law: http://www.gpo.gov/fdsys/pkg/PLAW- 111publ148/pdf/PLAW-111publ148.pdf

4. Exemptions Hospitals excluded from Inpatient Prospective Payment System (IPPS): Psychiatric, Rehabilitation, Long-term care, Children’s, Cancer and Critical access hospitals Hospitals that pose immediate jeopardy to the health or safety of patients Hospitals without the minimum number of cases, measures, or surveys in the performance period Hospitals that have an exemption from the Secretary of the Department of Health and Human Services (HHS) – For example: Maryland received a waiver for the FY 2013 Program Year through this process, but they must re-submit their exemption request annually Hospitals excluded from the Hospital VBP Program will not be subject to the base operating DRG reduction for the applicable fiscal year

5. Summary of Scoring Process Two domains: – Clinical Process of Care (12 measures) – Patient Experience of Care (8 HCAHPS dimensions) Hospitals are given points for Achievement and Improvement for each measure or dimension, with greater of set of points used Points are added across all measures to reach the Clinical Process of Care domain score Points are added across all dimensions and are added to the Consistency Points to reach the Patient Experience of Care domain score Weighting: – 70% of Total Performance Score based on Clinical Process of Care measures – 30% of Total Performance Score based on Patient Experience of Care dimensions

6. Minimum Scoring Base Hospitals receive a Clinical Process of Care domain score if they have at least 10 cases for each of at least 4 applicable measures during the Performance Period. Hospitals with at least 100 completed Hospital Consumer Assessment Healthcare Providers and System (HCAHPS) surveys during the Performance Period receive a Patient Experience of Care domain score.

7. 12 Clinical Process of Care Measures

8. 8 Patient Experience of Care Dimensions (surveys from patients )

9. Total Performance Score

10. Scoring Curve with Threshold and Benchmark

12. Achievement

13. Achievement Points

14. Performance

15. Performance Points

16. Baseline and Performance Periods and 2013 Reports

18. Payment Summary Report

20. Clinical Measures Report

21. Clinical Measures (2)

22. Patient Experience

23. Appeals Process Appeals Process: Allows hospitals to seek corrections for errors that may have been introduced during the TPS calculations that may affect a hospital’s payment Extends to hospitals’ Total Performance Score and its performance assessment with respect to performance standards, not directly to incentive payments Requires that hospitals must first submit a corrections request prior to submitting an appeal

24. Information Becomes Public Hospitals’ performance information will be posted, including: – Measure rates – Condition-specific scores – Domain-specific scores – Total Performance Scores (TPS) CMS anticipates posting hospital performance information on the Hospital Compare website in April 2013 Incentive adjustment postings on Hospital Compare will be addressed in future rulemaking

25. Converting Total Performance Score (TPS) into a value based multiplier for reimbursement : Estimate each hospital’s total annual base operating DRG payment amount using Medicare inpatient claims data Calculate the total annual estimated base operating DRG payment amount reduction across all eligible hospitals Calculate the linear exchange function slope Calculate each hospital’s value-based incentive payment percentage (also known as percent of base operating DRG earned back) Compute the net percentage change in the hospital’s base operating DRG payment amount for each Medicare discharge Compute the value-based multiplier (also known as the value-based incentive payment adjustment factor)

27. Following slides were not in presentation due to time constraints Detail on Converting Total Performance Score to a Value-Based Incentive Payment Adjustment Factor

28. Converting Total Performance Score to a Value- Based Incentive Payment Adjustment Factor (1) Estimate each hospital’s total annual base operating DRG payment amount Add Estimated Base Operating DRG Payment Amount for Each Medicare Discharge in the Fiscal Year (calculated using the most recently available MedPAR files) Example Result – Hospital’s estimated total annual base operating DRG payment amount = $1,000,000

29. Value-Based Incentive Payment Adjustment Factor (2) Calculate the total annual estimated base operating DRG payment amount reduction across all eligible hospitals Example Hospital Base Operating DRG Payment Amount × Applicable Percent Reduction for Program Year $1,000,000 × 1.0% (for FY13) = $10,000 Sum across all hospitals: Sum [Base Operating DRG Payment Amount × 1.0% (for FY13)] Hospital’s Estimated FY13 Base Operating DRG Payment Amount Reduction = $10,000 Example Result: Hospital’s Estimated FY13 Base Operating DRG Payment Amount Reduction = $10,000 Total Annual Estimated Base Operating DRG Payment Amount Reduction Across All Hospitals = $1 billion (Assumption from example)

30. Value-Based Incentive Payment Adjustment Factor (3) Calculate the Linear Exchange Function Slope Example Result Linear Exchange Function Slope = 2.0

31. Value-Based Incentive Payment Adjustment Factor (4) Calculate each hospital’s Value-Based Incentive Payment Percentage Applicable Percent Reduction for Program Year × Hospital’s TPS/100 × Linear Exchange Function Slope 0.01 (for FY13) × 71/100 (for this example hospital) × 2.0 = 0.0142, or 1.42% – Note: This hospital’s TPS = 71. TPS is expressed as a decimal (71/100 = 0.71). Result for This Example Hospital: – 0.0142 or 1.42% Value-based Incentive Payment Percentage

32. Value-Based Incentive Payment Adjustment Factor (5) Compute the net percentage change in the hospital’s base operating DRG payment amount for each discharge Hospital’s Value-based Incentive Payment Percentage – Applicable Percent Payment Reduction – 1.42% – 1.00% = 0.42% Result for this Example Hospital: – 0.42% Net Change in Base Operating DRG Payment Amount OR – 0.42% × $1,000,000 = $4,200 FY13 Estimated Net Change

33. Value-Based Incentive Payment Adjustment Factor (6) Compute the hospital’s Value-Based Multiplier – 1.0 + Net Percentage Change in Base Operating DRG Payment Amount – 1.0 + 0.42/100 = 1.0042 Result for this Example Hospital: – 1.0042 FY13 Estimated Value-Based Multiplier