RESEARCH BRIEF                                            December 2014

Authored by:
Brian Roberson, MPA
Katie Reid, MPH

KEY FINDINGS                               Medicaid Services (CMS) has admin-
                                           istered three programs designed to
 • The Hospital Acquired Conditions        improve the quality and value of hospi-
                                                                                                               Research Methods
   Reduction Program creates               tal care through financial rewards and                              Building on previous research
   financial incentives for hospitals to   penalties: the Value-Based Purchasing                               on the distribution of incentives
   reduce hospital-acquired infections,    (VBP) Program, the Hospital Read­                                   in Affordable Care Act qual-
   injuries, and other adverse events.     missions Reduction Program (HRRP),                                  ity improvement programs, this
                                           and the Hospital Acquired Conditions                                analysis investigates whether the
 • The program’s application of            (HAC) Reduction Program.                                            Hospital Acquired Conditions
   penalties to certain add-on                                                                                 Reduction Program dispropor-
   payments could compound resource        Each of these incentive-based pro-                                  tionately penalizes certain types
   shortages at essential hospitals.       grams compares hospital performance                                 of hospitals. We also compared
                                           against national benchmarks. The VBP                                30-day mortality rates to discover
 • Previous findings show a similar        Program creates a performance-based                                 relationships between penalties
   impact by other incentive-based         payment model by rewarding high-                                    and outcomes.
   programs, such as the Value             performers with an incentive payment
   Based Purchasing and Hospital           funded by penalties assessed to low-                                In this cross-sectional study, we
   Readmissions Reduction programs.        performers in the program. Over time,                               employed chi-square analysis to
                                           the VBP Program will include addi-                                  examine bivariate relationships
 • Hospitals with more than 400 beds,      tional measures and the percentage of                               between program penalties and
   teaching hospitals, those treating      Medicare payments it puts at risk will                              size, teaching status, patient acu-
   highly complex patients, and            increase from 1 percent in fiscal year                              ity, and essential hospital status
   essential hospitals are more likely     FY) 2013 to 2 percent by FY 2017.1                                  for a national sample of 3,263
   to receive penalties.                                                                                       hospitals. T-tests were then used
                                           HRRP seeks to reduce the number of                                  to investigate differences between
 • There is no evidence penalties          avoidable readmissions. The program                                 mortality rates in penalized and
   aligned with outcomes at these          penalizes hospitals for an excess of                                nonpenalized hospitals.
   hospitals.                              readmissions that occur within 30
                                           days of index admissions. CMS will
                                           increase HRRP penalties to 3 per-                               hip arthroplasty (THA), and total knee
INCENTIVE-BASED QUALITY                    cent in FY 2015, from 2 percent in                              arthroplasty (TKA).2
IMPROVEMENT IN MEDICARE                    FY 2014 and 1 percent in FY 2013.
Many key policy changes in the             Initial applicable conditions included                          The HAC Reduction Program creates
Affordable Care Act (ACA) focus on         acute myocardial infarction (AMI),                              financial incentives for hospitals to
improving the quality of care delivered    heart failure (HF), and pneumonia in                            reduce hospital-acquired infections,
by the nation’s health care system.        fiscal years 2013 and 2014, and will be                         injuries, and other adverse events.
Since the ACA’s enactment in March         expanded to include chronic obstruc-                            The Centers for Disease Control and
2010, the Centers for Medicare &           tive pulmonary disease (COPD), total                            Prevention (CDC) has estimated that

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HAC REDUCTION PROGRAM PENALTIES: AN UNDUE BURDEN ON ESSENTIAL HOSPITALS?                                                                                 December 2014

HACs are responsible for 99,000                payments, HAC Reduction Program
deaths and up to $33 billion in health         penalties will apply to add-on pay-                             Putting DSH and IME
care costs nationally each year.3 For          ments, such as disproportionate share
FY 2015, which started October 1,              hospital (DSH) and indirect medi-                               payments at risk for HAC
2014, CMS will penalize hospitals              cal education (IME) payments. DSH                               Reduction Program penalties
that perform poorly on a subset of             ­payments compensate hospitals for
HAC measures (Figure 1) that will               costs associated with caring for low-                          raises serious questions for
include standardized infection ratios           income patients, who, on average, are                          essential hospitals.
(SIRs) for central line-associated              sicker and use more hospital resources
blood stream infection (CLABSI)                 at a higher cost than other patients.4
and catheter-associated urinary tract           IME payments are funds intended to                             The inclusion of these additional
infection (CAUTI), as well as Agency            offset the added costs of operating a                          penalties into the HAC Reduction
for Healthcare Research and Quality             teaching hospital.5                                            Program has the potential to com-
(AHRQ) patient safety indicator                                                                                pound resource shortages at these
90 (PSI 90), a composite measure               Putting DSH and IME payments at                                 essential hospitals, which already
that comprises eight submeasures               risk for HAC Reduction Program                                  typically operate with negative or near-
(Figure 1).                                    penalties raises serious questions for                          negative margins, creating a feedback
                                               essential hospitals—those that care for                         loop of inadequate resources for
HAC PROGRAM RAISES POLICY                      large volumes of uninsured and other                            improvement.6, 7 In light of these con-
CONCERNS                                       vulnerable patients and that often                              cerns, the HAC Reduction Program
Under the HAC Reduction Program,               serve as academic medical ­centers                              has come under scrutiny for includ-
the poorest performing 25 percent of           and teaching hospitals: Are they more                           ing measures that have already been
the nation’s hospitals will sustain pen-       likely to face penalties, and will penal-                       included in the VBP Program and for
alties equal to 1 percent of their total       ties be disproportionately larger as a                          its arbitrary penalization of 25 percent
Medicare inpatient payments. Unlike            percentage of income than for other                             of hospitals without regard for qual-
the VBP and HRRP programs, which               types of hospitals?                                             ity improvement nationwide. Further,
apply penalties only to base inpatient                                                                         many policy experts and hospital
                                                                                                               leaders argue that the program is not
                                                                                                               founded in adequately reliable mea-
FIGURE 1: BREAKDOWN OF HAC REDUCTION PROGRAM DOMAIN WEIGHTING                                                  sures that successfully differentiate
                                                                                                               high and low performers, leading to
                                                                                                               bias against larger hospitals, teaching
                                                                                                               hospitals, and those that treat more
 PSI 3 Pressure Ulcer Rate
                                                                                                               complex patients.8, 9, 10 These biases,
 PSI 6	Latrogenic Pneumothorax Rate                                                                           they contend, could lead to increased
 PSI 7	Central Venous Catheter-Related                                                                        disparities in care for patients who rely
        Blood Stream Infection Rate                                                                            on essential hospitals.
 PSI 8	Postoperative Hip Fracture Rate
 PSI 12	Postoperative Pulmonary                                                                               Further debate surrounding the HAC
         Embolism (PE) or Deep Vein                                                                            Reduction Program centers on the
         Thrombosis Rate (DVT)             Domain 1                                                            outcomes measures included within
 PSI 13	Postoperative Sepsis Rate        AHRQ PSI 90                                                          the program, particularly the PSI 90

                                                                                                               composite measure. As administra-
 PSI 14	Wound Dehiscence Rate
                                                                                                               tively derived data that is not clinically
 PSI 15	Accidental Puncture and                                                                               validated, its utility for comparisons
         Laceration Rate                                                 Domain 2                              between hospitals has been questioned
                                                                    CLABSI and CAUTI                           due to the influence of coding differ-
                                                                       SIR Rates                               ences among organizations.11 Also

                                                                       65%                                     included in PSI 90 are measures of
                                                                                                               pressure ulcer rates and accidental
                                                                                                               puncture, measures that have been
                                                                                                               linked to patients’ socioeconomic
                                                                                                               ­status and complexity.12, 13

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HAC REDUCTION PROGRAM PENALTIES: AN UNDUE BURDEN ON ESSENTIAL HOSPITALS?                                                                             December 2014

                                           spective payment system (IPPS)                                  A T-test measures the difference
Further debate surrounding                 proposed rules, including the FY 2014                           between two means and determines
                                           impact file; the American Hospital                              the likelihood that mere chance caused
the HAC Reduction Program                  Association (AHA) Annual Survey of                              the difference.
centers on the outcomes                    Members for FY 2012; and the CMS
                                           Hospital Compare July 2014 release.                             All p-values for statistical tests were
measures included within the               We gathered CMS-estimated HAC                                   two tailed and alpha was set at 0.01.
program, particularly the PSI              Reduction Program scores from the                               Analyses were performed using the
                                           FY 2015 IPPS proposed rule; infor-                              SAS statistical package version 9.4.
90 composite measure.                      mation on bed size and Council of
                                           Teaching Hospitals (COTH) affiliation                           RESULTS: DISPROPORTIONATE
A recent study by Gilman et al. ,
                               14          from the FY 2012 AHA survey; and                                PENALTIES ON ESSENTIAL
                                           DSH patient percentages and                                     HOSPITALS
published in the August 2014 edi-
                                           transfer-adjusted case mix indices                              Of the 3,263 hospitals in our sample,
tion of Health Affairs, examined the
                                           from the FY 2014 impact file.                                   743 were estimated to be penalized
likelihood of essential hospitals in
California incurring disproportionate                                                                      under the HAC Reduction Program
penalties under the VBP and HRRP           For the purpose of this analysis, we                            with a 1 percent reduction in CMS
programs. The study also looked at         categorized essential hospitals as those                        hospital payments. Penalties are
differences in 30-day mortality rates as   with a DSH patient percentage in the                            mandated to be applied to the worst-
measures of differences in the quality     top quartile of the sample. Hospitals                           performing 25 percent of hospitals
of care between those hospitals and        in the top quartile of case mix indi-                           nationally. However, we found that
hospitals that do not fill a safety net    ces were designated as treating                                 38.2 percent of hospitals with more
role. Findings showed that essential       patients with high-acuity conditions.                           than 400 beds were estimated to
hospitals had lower 30–day risk-           This allowed us to examine bivari-                              be penalized, compared with 20.33
adjusted mortality rates for AMI, HF,      ate relationships between program                               percent of hospitals with fewer beds.
and pneumonia than non-safety net          penalties and size, teaching status,                            Teaching hospitals, defined in our
hospitals, yet were more likely than       patient acuity, and essential hospital                          analysis as being a member of the
those other hospitals to be ­penalized     status for a national sample of 3,263                           COTH, faced penalties at a rate
under both the VBP and HRRP                hospitals. We used Pearson chi-square                           of 54.47 percent, while only 20.19
­programs.                                 tests to reveal any statistically signifi-                      percent of non-teaching hospitals
                                           cant differences in the proportion of                           faced penalties. Both of these find-
Building upon the research of Gilman       hospitals estimated to receive penalties                        ings represent statistically significant
et al., this analysis investigates         in each test group. This test compares                          ­differences.
whether certain types of hospitals         the observed proportion of penalized
nationally would be disproportion-         hospitals with the expected propor-
ately penalized by the HAC Reduction       tion, given a null relationship between                         Essential hospitals were nearly
Program. Specifically, we seek to          being a member of a particular
determine the likelihood that hospitals    group and receiving HAC Reduction                               8 percentage points more likely
having 400 or more beds, teaching          Program penalties.                                              to be penalized than those that
hospitals, those that serve complex
patients, and essential hospitals will     As a secondary goal of our analysis,                            do not care for large volumes of
receive penalties. By comparing this       we sought to determine whether any                              vulnerable patients.
likelihood against mortality rates as a    disparities in penalties under the
direct measure of health outcomes, we      HAC Reduction Program could be
can further investigate whether such       explained by disparities in health                              In addition, we found that patient
penalties are justified as indicators of   care outcomes at penalized hospitals.                           ­acuity and status as an essential
poor quality performance.                  We used mortality rates from CMS                                 hospital were associated with a higher
                                           Hospital Compare as our primary                                  proportion of penalties. Those that
METHODS BEHIND THIS STUDY                  outcomes indicator. Outcomes data                                treated patients with an average higher
Data from four sources were used           were available for 2,385 of our original                         acuity, were more than 10 percentage
in the course of this analysis: data       sample of 3,263 hospitals. T-tests were                          points more likely to be penalized than
released as part of CMS’ fiscal            used to test for significant differences                         those with a lower average patient
years 2014 and 2015 inpatient pro-         in group means within each test group.                           acuity. Essential hospitals were nearly

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HAC REDUCTION PROGRAM PENALTIES: AN UNDUE BURDEN ON ESSENTIAL HOSPITALS?                                                                                    December 2014

                                                                                                                increased likelihood of penalization
TABLE 1              PENALIZATION PROPORTIONS AMONG TEST GROUPS                                                 under the HAC Reduction Program.

                                                          PENALIZED                      P-VALUE                To further investigate any relation-
> 400 Beds                                                  38.20%                                              ship between program penalties and
HAC REDUCTION PROGRAM PENALTIES: AN UNDUE BURDEN ON ESSENTIAL HOSPITALS?                                                                                  December 2014

                                                age margins that often are lower than                           that these low-volume hospitals are
Systematic biases against                       2 percent.17 Accumulated financial                              under-represented in our sample.
                                                penalties assessed under ACA qual-                              However, we believe the effect of these
certain categories of hospitals                 ity initiatives, combined with other                            missing outcomes measures would
may serve to increase                           payment cuts from the ACA, likely                               be minimal due to the low volume of
                                                will limit the ability of these essential                       these hospitals.
socioeconomic disparities in                    hospitals to conduct quality improve-
care delivery.                                  ment activities, potentially leading to                         Second, due to the timing of this study,
                                                lower baseline performance measures                             we were forced to rely on estimates of
                                                and slower improvement on quality                               penalties in our analysis rather than
Our own analysis found similar results          measures.18 More concerning might be                            actual assessed penalties. The accuracy
when examining penalties assessed               that as penalties are applied to a larger                       of our analysis is limited to the accu-
by the HAC Reduction Program. We                portion of these hospitals’ income, the                         racy of these estimates.
found that even though mortality                resulting financial stress could lead
rates among essential hospitals were            hospitals to discontinue or limit ser-                          CONCLUSION
either lower or not statistically differ-       vices, which, in turn, could limit access                       As these programs mature, policy-
ent than those of other hospitals, they         to care for the vulnerable populations                          makers and researchers should give
were nearly 8 percentage points more            they serve.                                                     careful consideration to inequalities
likely to be penalized under the HAC                                                                            in the application of penalties in all
program. This calls into question the           STUDY LIMITATIONS TO CONSIDER                                   such improvement programs—and
ability of these programs to measure            Research on the impact of ACA quality                           in the HAC Reduction Program in
true differences in the quality of care         programs is still in the early stages and                       particular. Additional consideration
essential hospitals deliver.                    data collection methods are not as                              should be given to the unique needs of
                                                robust as we would like. As a result,                           vulnerable patients and the essential
Additionally, we found that teach-              our study has two main limitations.                             hospitals that care for them. Further
ing hospitals, hospitals with more              Outcomes data for the entire sample                             research is needed to more fully exam-
than 400 beds, and hospitals treat-             of hospitals eligible for the HAC                               ine the links between patient complex-
ing patients with high-acuity condi-            Reduction Program are not avail-                                ity and socioeconomic status and the
tions are significantly more likely to          able due to volume requirements for                             various measures the HAC Reduction
be penalized than other institutions.           hospital reporting of these measures.                           Program covers.
Systematic biases against certain               We chose not to limit our penalty
categories of hospitals may serve to            data to this smaller sample to provide
increase socioeconomic disparities in           the broadest possible examination of
care delivery. At risk are hospitals with       the penalty probabilities for our test
chronic resource constraints and aver-          groups. This creates the possibility


                               ACUTE MYOCARDIAL INFARCTION                              HEART FAILURE                                       PNEUMONIA
                                              Non-                                            Non-                                              Non-
                              Penalized     Penalized      P-Value          Penalized       Penalized        P-Value          Penalized       Penalized           P-Value
                   >400          14.77        14.85          0.418             10.97           11.34          0.024              11.42            11.49            0.695
Bed Size
                   ≤ 400         15.18         15.21        0.683              11.87           11.79          0.405              11.92            11.96            0.696
                   Yes          14.66         14.44           0.311           10.88             11.13         0.263              11.28             11.16           0.595
Teaching Status
                   No            15.15        15.20         0.528              11.82            11.76          0.557             11.92            11.94            0.838
                   High          15.15        15.26         0.384              11.28           11.28          0.990              11.89            11.84             0.816
                   Low          15.00          15.12          0.131             11.77          11.86          0.320              11.73            11.90            0.074
                   High          14.75        14.85         0.492              11.38           11.53          0.320              11.59             11.62           0.865
Case Mix Index
                   Low           15.21        15.24          0.743              11.74          11.78          0.700              11.89             11.97           0.476

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HAC REDUCTION PROGRAM PENALTIES: AN UNDUE BURDEN ON ESSENTIAL HOSPITALS?                                                                                     December 2014

                                                   8. Letter to Marilyn Tavenner, administrator,                   18. Werner RM, Goldman EG, Dudley RA.
                                                   Centers for Medicare & Medicaid Services,                       Comparison of Change in Quality of Care
                                                   from the American Hospital Association,                         between Safety-Net and Non-Safety-Net
1. QualityNet. Payments: Hospital Value-
                                                   June 26, 2013. http://www.aha.org/advocacy-                     Hospitals. The Journal of the American Medical
Based Purchasing (HVBP). https://www.
                                                   issues/letter/2014/140626-cl-1607-p-ipps.pdf.                   Association. 2008; 299(18): 2180-2187.
                                                   Accessed November 2014.
cid=1228772479353. Accessed November 2014.         9. Letter to Marilyn Tavenner, administrator,
                                                   Centers for Medicare & Medicaid Services,
2. Centers for Medicare & Medicaid Services.
                                                   from the Association of American Medical
Readmissions Reduction Program. August 4,
                                                   Colleges, June 25, 2013. https://www.
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                                                   Accessed November 2014.
Accessed November 2014.
                                                   10. Letter to Marilyn Tavenner, administrator,
3. Scott RD. The Direct Medical Costs of
                                                   Centers for Medicare & Medicaid Services, from
Healthcare-Associated Infections in U.S.
                                                   America’s Essential Hospitals, June 25, 2013.
Hospitals and the Benefits of Prevention.
Division of Healthcare Quality Promotion,
National Center for Preparedness, Detection,
and Control of Infectious Diseases, Coordinating
                                                   Accessed November 2014.
Center for Infectious Diseases, Centers for
Disease Control and Prevention. March 2009.        11. Romano PS, Schembri ME, Rainwater
http://www.cdc.gov/hai/pdfs/hai/scott_             JA. Can Administrative Data Be Used to
costpaper.pdf. Accessed November 2014.             Ascertain Clinically Significant Postoperative
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4. Davis PA, Hahn J, Morgan PC, et al. Medicare
                                                   Quality. 2002;17(4):145-54.
Provisions in the PPACA. Congressional
Research Service. April 23, 2010. http://          12. Saunders LL, Krause JS, Peters BA, et al.
www.ncsl.org/documents/health/mcprov.pdf.          The Relationship of Pressure Ulcers, Race, and
Accessed November 2014.                            Socioeconomic Conditions after Spinal Cord
                                                   Injury. Journal of Spinal Cord Medicine. 2010;
5. Centers for Medicare & Medicaid Services.
                                                   33(4): 387-395.
Fact Sheets: CMS Final Rule to Improve
Quality of Care During Hospital Inpatient          13. Kin C, Snyder K, Kiran RP, et al.
Stays. http://www.cms.gov/newsroom/                Accidental Puncture or Laceration in
mediareleasedatabase/fact-sheets/2013-fact-        Colorectal Surgery: A Quality Indicator or a
sheets-items/2013-08-02-3.html. Accessed           Complexity Measure? Diseases of the Colon
November 2014.                                     and Rectum. 2013; 56(2):219-25. doi: 10.1097/
6. Reid K, Roberson B, Laycox S, Linson
M. Essential Hospitals Vital Data:                 14. Gilman M. Adams EK, Hockenberry JM,
Results of America’s Essential Hospitals’          et al. California Safety-Net Hospitals Likely To
Annual Hospital Characteristics Survey,            Be Penalized By ACA Value, Readmission, and
FY 2012. America’s Essential Hospitals.            Meaningful-Use Programs. Health Affairs. 2014;
July 2014. http://essentialhospitals.org/          33(8): 1314-1322.
FullReport-20140804.pdf. Accessed November         15. Ibid.
2014.                                              16. Ross JS, Bernheim SM, Lin Z, et al. Based
7. Werner RM, Goldman EG, Dudley RA.               on Key Measures, Care Quality for Medicare
Comparison of Change in Quality of Care            Enrollees at Safety-Net and Non-Safety-Net
between Safety-Net and Non-Safety-Net              Hospitals Was Almost Equal. Health Affairs.
Hospitals. The Journal of the American Medical     2012; 31(8): 1739-1748.
Association. 2008; 299(18): 2180-2187.             17. Regenstein M, Huang J. Stresses to the Safety
                                                   Net: The Public Hospital Perspective. Kaiser
                                                   Family Foundation. May 30, 2005.

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