Medicare Dials Up Reimbursement Programs in 2015

Doctor's piggy bankThe federal government’s new fiscal year began this month and Medicare increased FY 2015 bonuses and penalties for three performance-based reimbursement programs. These include the Hospital Value-Based Purchasing (VBP), Hospital-Acquired Condition (HAC) Reduction and 30-Day Readmissions Reduction Programs  – all of which can have a major impact on hospitals’ bottom lines.

The increases in the maximum allowable bonuses and penalties put more weight behind the drive by the Centers for Medicare and Medicaid (CMS) to promote better healthcare. “The Affordable Care Act gave CMS many new tools to convert Medicare from a program that paid for decades on automatic pilot into one that deliberately pays to promote better health,” said Patrick Conway, CMS Chief Medical Officer, in reference to VBP.

Here’s a look at the FY 2015 changes in the maximum allowable bonuses and penalties for the three programs:

Hospital Value-Based Purchasing

For FY 2015, the Hospital Value-Based Purchasing Program withholds a larger percentage of revenues for the VBP “pool.” Medicare now withholds 1.5 percent of DRG base operating payments − up from 1.25 percent in FY 2014, to nearly 3,000 hospitals in the program. CMS is distributing up to 1.5 percent −1.25 percent was the maximum in FY 2014 −to the highest performing hospitals.

The bonus payments are based on measures of patient experience, process of care, outcomes, and efficiency. Depending on how well a hospital compares to its peers and its previous performance on the measures, it will break even, get a bonus, or get back less than it contributed to the VPB pool. According to Conway, CMS held back some 1.1 billion dollars in FY 2014 DRG base operating payments to hospitals. About half of the participating hospitals, some 1300, more or less broke even with the program, while 630 hospitals received a bonus greater than 0.2 percent and 778 received a decrease of more than 0.2 percent.

Readmissions Reduction Program

Medicare’s Readmissions Reduction Program cuts a hospital’s DRG base operating payments if that hospital’s 30-day readmissions rate is higher than the national average over a three-year period for specified treatments. For FY 2015, the maximum payment cut is 3 percent. In FY 2014, the maximum cut was 2 percent.

Dollar signsThe conditions measured in FY 2014 were acute myocardial infarction (AMI), heart failure (HF) and pneumonia (PN).  For 2015, the program also measures readmissions for chronic obstructive pulmonary diseases (COPD) and for hip and knee replacements.

Some 2,610 hospitals are seeing payments cuts, according to a report in Kaiser Health News. Medicare’s average fines will be higher, with 39 hospitals receiving the maximum 3 percent fine. The average FY 2015 penalty is 0.63 percent, up from 0.38 percent in FY 2014.

More than 1,400 hospitals are exempt from the penalties, including certain cancer hospitals and critical access hospitals, as well as facilities dedicated to specific services such as psychiatry or rehabilitation.

Hospital-Acquired Conditions Reduction Program

Beginning Oct. 1, Medicare has reduced affected hospital DRG base operating payments by one percent for the lowest ranking hospitals for hospital-acquired conditions. The Hospital-Acquired Condition Reduction (HAC) Program is mandated by the Affordable Care Act.

The lowest performing 25 percent of hospitals are receiving 99 percent of the payments that would otherwise apply to discharges. More than 750 hospitals, provisionally identified by CMS, are facing cuts estimated at a total of $330 million dollars. These are hospitals that scored lowest on four measures:

  1. Patient safety indicators composite measure
  2. Central line-associated bloodstream infections (CLASBI)
  3. Catheter-associated urinary tract infections (CAUTI)
  4. Rates of surgical site infections

Hospitals exempt from the HAC Reduction Program include critical access hospital, specially designated cancer hospitals and hospitals devoted to rehabilitation, children, long-term care and psychiatric treatment.

Medicare encourages the use of clinical decision support technologies and products to drive more evidence-based patient care, which is shown to improve outcomes—the ultimate goal of its performance-based reimbursement programs. ProVation Order Sets and ProVation Care Plans help hospitals overcome their performance-based payment challenges by giving them the evidence-based CDS solutions to succeed in the evolving reimbursement environment.


To learn more download our white paper, The Return on Investment of Evidence-based Order Sets, or our issue brief, How Evidence-based Care Plans Drive Value-based Purchasing Excellence.