Medicare Test Pays for Hospital Performance

By JANE ZHANG

WASHINGTON—A pilot project by Medicare that links hospital payments to the quality of care has helped prevent infections in pneumonia patients and cut death rates in heart-attack patients, according to data to be released Monday.

In the project, hospitals compete for cash incentives from Medicare, the government insurance program for the elderly and disabled. On Monday, Medicare officials are expected to announce that 225 hospitals will divide $12 million in bonuses; three poor performers will be penalized.

Some lawmakers see the experiment, which began in 2003, as a model as they debate ways to overhaul the nation's health-care system.

In the four years ended Sept. 30, 2007, the hospitals saw about 4,700 fewer deaths among heart-attack patients than if they hadn't been participating in the program, said Premier Inc., a health-information company that is Medicare's contractor on the project. That was among more than 30 quality measures in which hospitals scored higher, Premier said. It said, for example, that 92.6% of the pneumonia patients during the period received antibiotics, flu vaccines or other recommended treatments to prevent acquiring other infections in the hospital, up from 69.3%.

The lesson is that "financial incentives can increase quality of care," said Tim Love, director of the research office at the Centers for Medicare and Medicaid Services, the federal agency that manages Medicare.

Senate Finance Chairman Max Baucus (D., Mont.) has said he wanted to establish a hospital pay-for-performance program partly based on the Medicare pilot project. An aide said the committee hasn't settled on any specifics yet as it drafts its proposal for health-care legislation. Lawmakers in the House are also discussing the idea.

The American Hospital Association supports the Medicare project, but Beth Feldpush, the group's senior associate director for policy, urged caution in expanding the voluntary program nationwide, especially when hospitals are already suffering from the recession. "There are costs involved every time you beef up a program," she said.

There are other caveats. The hospitals participating in the voluntary pilot project tend to be highly motivated, and their performance might not be a precise indicator of other hospitals' performance under a similar system. Some hospitals and advocates have expressed concern that the bonuses Medicare hands out to top performers come from other health-care providers, instead of from additional federal funding. The bonus system means hospitals that maintain their existing quality of care but are ranked low on the list could lose some funding.

Doctors and hospital officials who participate in the project also say Medicare needs to overhaul its current payment system to control costs and boost quality across the board. The current fee-for-service payment system compensates doctors and hospitals more for providing more care, but it doesn't pay for many measures aimed at improving quality of care, such as coordinating with other providers and visiting homes of patients with chronic illnesses. Hospitals say these measures cost money to implement.

"Quality is not without cost," said Michael Goler, chief medical officer at the Cleveland County HealthCare System, whose hospital in Shelby, N.C., is a top performer in the Medicare project. "People are doing this because they feel this is the right thing to do, but they are doing that despite the economic burdens."

The hospital, for example, hired 1 1/2 full-time-equivalent nurses to track quality data and also bought new beds that helped reduce infections. Its success in keeping heart-failure patients from returning to the hospital—readmission rates dropped 37% over three years—actually cost the hospital money because fewer admissions meant less reimbursement from Medicare, hospital officials said.

Write to Jane Zhang at Jane.Zhang@wsj.com