Unpacking the Hospital VBP Program | When IQR Goals Are Not Met

March 25, 2024


The IQR Program a Pay-for-Reporting Program:

The Hospital Inpatient Quality Reporting (IQR) Program, established by the Centers of Medicare & Medicaid Services (CMS), has been instrumental in enhancing healthcare quality since its passing in 2003 under the Medicare Prescription Drug, Improvement and Modernization Act (MMA). The IQR program is a pay-for-reporting quality program, and hospitals that fail to meet these requirements face a reduction in their Annual Payment Update (APU) under IPPS. This quality enhancement shift to reporting was not kept internal but was made publicly available on the Care Compare website through CMS.

One of the new quality measures introduced by CMS for the IQR program (impacting IPPS) is the Hospital Level Total Hip Arthroplasty/Total Knee Arthroplasty Patient-Reported Outcome Based Performance Measure (THA/TKA PRO-PM). This measure assesses the improvement in patients’ self-reported pain and function following elective primary THA/TKA procedures. The measure is anchored around two standardized surveys, the HOOS, JR. and the KOOS’ JR., that patients complete pre and post-op.

The THA/TKA PRO-PM measure is the first time that CMS will use patient-reported outcomes (PROs) to calculate hospital performance for the IQR program. It reflects CMS’s goal of promoting patient-centered care and shared decision-making between patients and providers. The measure aligns with CMS’s value-based purchasing programs, such as the Hospital VBP Program and HAARP, rewarding hospitals for the quality and efficiency of care delivery they provide. The goal is to improve the quality of care and patient satisfaction while reducing complaints, readmissions, and costs. Hospitals that fail to report or do not comply with these requirements face financial penalties that directly impact Medicare reimbursement rates. However, the consequence do not stop there. Hospitals that fail to report do or do not comply with the program requirements are excluded from the Hospital VBP Program.

Value-Based Purchasing a Pay-for-Performance Program:

The Deficit Reduction Act (DRA) of 2005, signed into law in February 2006, was a key piece of legislation that bridged the managed care models of the 90s and the Affordable Care Act. The DRA aimed to address budgetary challenges, reducing the federal deficit, and required the identification and reporting of high-cost or high-volume conditions that could reasonably have been prevented through evidence-based guidelines. The DRA is credited with setting the stage of Value-Based Purchasing prior to passing of ACA, formally marking the intention to transition from a fee-for-service to a value-based care model.

The ACA was signed into law March 2010 with the goal of improving healthcare quality, reducing costs, and enhancing patient outcomes. One such initiative was the Hospital VBP Program, which began providing value-based incentive payments beginning in FY2013. This program rewards acute care hospitals for delivering high-quality care during inpatient stays. Key features of the Hospital VBP Program include:

  • Incentive Payments: Hospitals receive incentive payments based on the quality of care provided.
  • Adjustment to Payments: Payments under the Inpatient Prospective Payment System (IPPS) are adjusted based on hospital performance in quality measures.
  • Quality Improvement Goals: Encourages hospitals to enhance efficiency, patient experience, safety and outcomes.
  • Transparency: Increasing transparency by sharing quality information with consumers, clinicians, and others.
  • Cost Considerations: Hospitals that provide high-quality care at a lower cost to Medicare are recognized.

The VBP program affects payment for inpatient stays in approximately 3,000 hospitals across the country (Note: participants vary by year, state, and other factors). Participation in the VBP program rewards acute care hospitals with incentive payments for the quality of care provided in the inpatient setting. The VBP program is mandatory for all hospitals paid under the Inpatient Prospective Payment System (IPPS), with few exceptions specified by law. The excluded include: psychiatric, rehabilitation, long-term-care, children’s hospitals, 11 prospective payment system cancer hospitals, critical access hospitals, and hospitals in Maryland.

VBP measures are designed to assess the quality and cost-effectiveness across four domains:

  1. Clinical Outcomes: Mortality Measures (AMI, COPD, HF, CABG, PN)
  2. Safety: Measures Healthcare-Associated Infection (HAI)
  3. Person and Community Engagement: HCAHPS Survey
  4. Efficiency and Cost Reduction: Medicare Spending per Beneficiary (MSPB)

*The score is calculated by weighting each domain equally at 25%

Speaking specifically to THA/TKA, the measure in question evaluates the occurrence of significant medical or surgical issues within a specific timeframe following hospitalization for an elective THA/TKA. This measure falls under the Clinical Outcome Domain under VBP. The assessment window for these issues varies depending on the specific issue, but the window would be within 30-day readmission and 90-day complication post surgery. The lower the complication rate, the more positive the hospital’s Total Performance Score (TPS) will be as it reflects patient outcomes and safety . The TPS score considers the hospital’s performance in preventing complications and managing adverse events and is evaluated based on their risk-adjusted complication rate for the THA/TKA procedure(s).

HVBP Blog clinical outcomes table

How VBP is Funded

The Hospital Value-Based Purchasing (VBP) Program is a budget-neutral initiative funded by reducing the base operating Diagnosis-Related Group (DRG) payments to participating hospitals by a specific percentage each fiscal year. Under the Inpatient Prospective Payment System (IPPS), hospitals receive a fixed amount for each patient stay, based on the DRG for the patient case. This system encourages hospitals to allocate resources effectively and reduce unnecessary costs, thereby maximizing the profitability of each DRG.

For FY24, the applicable percentage reduction is 2%, meaning that 2% of Medicare payments are withheld from their base operations MS-DRG (Medicare Severity Diagnosis-Related Group) payments. This withheld amount is later redistributed back to the hospitals as value-based incentive payments, tied to their performance in the VBP Program. The VBP Program is the one measure where your hospital can earn money – That is why meeting IQR measures matter!

The total amount of the reduced payments is then redistributed to the hospitals as incentive payments. These are based on their TPS scores, which is calculated by weighting the scores of each of the above four domains and applying the appropriate benchmarks and thresholds. Depending on their performance compared to their peers, hospitals can receive a positive, negative, or neutral payment adjustment.

budget infographic

The IPPS Connection

The Inpatient Prospective Payment System (IPPS) is intrinsically linked to Hospital Reporting (IQR) and Hospital Performance (VBP). The VBP program, rooted in IPPS, adjusts payments to hospitals based on their performance in quality and cost measures.

In the early 1980s, Medicare Part A was on the brink of insolvency.  To control Medicare inpatient costs, the Medicare IPPS was implemented in 1983. The IPPS Final Rule, established under Section 1886(o) of the Social Security Act, introduced  the Hospital Inpatient Value-Based Purchasing Program. The final rule defined the purpose of IPPS and established a payment system for the operating costs of acute care hospital inpatient stays under Medicare Part A. Under IPPS, hospitals receive a single payment for each inpatient case, determined by factors such as patient diagnosis, service provided, and severity of illness. The classification is assigned at discharge to the patients’ DRG.

Participation in certain programs under CMS IPPS 2024, such as the IQR Program, directly impacts the annual payment updates that hospitals receive. This creates the financial incentive for hospitals to engage actively in these programs, aiming to enhance their quality of care and patient outcomes. Under IPPS, CMS gives hospitals a financial incentive to report on the quality of their care services and to provide data to consumers to help them make informed healthcare decisions.

Hospitals in the IQR program must meet quarterly and annual quality submission deadlines. Non-compliance results in a one-fourth reduction of the applicable percentage increase in their annual payment update (APU) for the fiscal year. For THA/TKA  this means that hospitals are incentivized to improve the quality of their care, as a higher quality score can lead to higher payments.

The program adjusts payments to hospitals under IPPS on the quality of care they deliver. The goal is to take advantage of the program to achieve the followingImprove Quality of Care, Adopt Evidence-Based Care Standards, Enhance Patient Experience, Recognize Efficiency, Increase Transparency, Improve Documentation, Reduce Adverse Events, and Reduce Medical Errors.

The Bottom Line of IQR and VBP Compliance

Meeting the IQR reporting requirements is not only essential for avoiding financial penalties, but also for unlocking the potential of the VBP program. By complying with the IQR program and reporting on the THA/TKA PRO-PM measure, hospitals can demonstrate their commitment to quality improvement and patient-centered care. Moreover, they can benefit from the value-based incentive payments that reward their performance in quality and cost measures.

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