Hospital Costs Decline in Pay-for-Performance Demo Program

It appears the Centers for Medicare and Medicaid Services’ new merit system to lower healthcare cost and improve patient health is working. CMS announced recently that hospitals participating in its pay for performance demonstration project are improving quality while reducing costs and patient mortality rates of its beneficiaries.

According to CMS and hospital consortium Premier Inc., its joint partner in the project, the median hospital cost per patient declined on average by $1,000 during the first three years of the project. The median mortality rate dropped 1.87 percent, Premier said.

“The findings from this analysis clearly suggest that, through the reliable delivery of basic care processes, improving clinical quality and safely reducing costs is attainable for all hospitals across the country," Richard Norling, Premier’s president and chief executive officer said in a news release.

Premier’s analysis suggests that if all hospitals nationwide were to achieve the same three-year cost mortality improvements as the demonstration project, they could save nearly 70,000 more lives a year and reduce hospital costs by as much as $4.5 billion annually.

CMS began its pay for performance demonstration project with hospitals in October 2003. The first of its kind, the project is designed to determine if financial incentives are effective at improving the quality of inpatient hospital care. CMA pays health care providers for meeting certain performance standards and improving the outcomes in certain clinical conditions, such as pneumonia, heart bypass, heart attack, heart failure and hip and knee replacement.

More than 250 hospitals have participated, with clinical quality and outcome measures improving an average of 17.3 percent between October 2003 and June 2007. Premier said the 1.1 million patient records represented in its analysis accounts for 8.5 percent of all patients nationally within the five clinical areas studied.

So far, CMS has paid out at least $8.7 million to the 115 hospitals that performed the best. The next phase of project, which runs through 2009, will test two new pay for performance models – one for hospitals that meet a given standard and another for hospitals that improve the most. CMS has said it will award $12 million in incentive payments to the 20 percent of hospitals that improve the most in the next phrase of the demonstration

The project’s success is leading some private insurers to adopt similar payment models that seek to reward healthcare providers for quality and patient outcomes.