Annals of Long Term Care

Of the dozen or so pay-for-performance demonstration and pilot projects the Centers for Medicare & Medicaid Services (CMS) now has underway or on the drawing board, there are two of particular relevance to long-term care. One, which will involve home health agencies, starts this month. Another, involving nursing homes, is awaiting final approval by the Office of Management and Budget and is expected to begin sometime later this year.

The pay-for-performance (P4P) approach—also known as “value-based purchasing”—offers participants monetary incentives for meeting designated quality standards. The intent is to both improve quality and boost cost-effectiveness by, among other things, preventing complications and unnecessary hospitalizations. Private industry has long employed P4P and other reward or incentive programs. Now Medicare is showing increasing interest, not only with demonstration projects, but also with programs like the Physician Quality Reporting Initiative (PQRI), which offers incentive bonuses to physicians who report their progress meeting specified quality measures. Given the growing interest in P4P, it’s important to keep current on Medicare’s new programs—which could significantly influence policy regarding long-term care.

The first of the two major long-term care P4P projects, the two-year Home Health Pay-for-Performance Demonstration Project, will include home health agencies in Connecticut, Massachusetts, Alabama, Georgia, Tennessee, Illinois, and California. Agencies will be eligible for incentive payments if their quality improvement efforts result in either significant improvements in patient outcomes, or their achieving specified performance levels. CMS will use seven quality measures from the existing Outcome-Based Quality Improvement set. These include measures regarding the incidence of acute care hospitalization, and improvements in bathing, ambulation, transferring, the status of surgical wounds, and management of oral medications. Participating agencies that fall short won’t be penalized with cuts in payments, but CMS will only award bonuses to those making the grade if the demonstration results in both improvement in quality and savings to Medicare overall.

The second of the long-term care demo projects, the Nursing Home Value-Based Purchasing Demonstration, will include nursing homes from five states. (As this issue of Annals of Long-Term Care went to press in early December, CMS had yet to specify the states.) Each year of the demonstration, CMS will evaluate each nursing home’s performance based on staffing, Minimum Data Set outcomes, survey deficiencies, and appropriate hospitalizations. The agency will award points based on the extent to which homes meet these criteria, and both nursing homes with overall scores in the top 20% and those in the top 20% in terms of improvement will be eligible for a share of any savings, in their state, that results from the demonstration. CMS anticipates savings due to declines in avoidable hospitalizations.

Healthcare providers have expressed concerns about the P4P approach on a number of fronts. One hazard of P4P, some argue, is that, by focusing attention on meeting specific quality standards, it can divert attention from areas of care that are harder to quantify. Among long-term care providers, the nursing home demonstration’s focus on avoidable hospitalizations has raised red flags as well. This focus, providers have pointed out, could, among other things, act as a disincentive to sending residents to the hospital even when it is warranted.

Based on results from its three-year “Rewarding Results” program—seven varied P4P projects in both public and private healthcare settings—the Robert Wood Johnson Foundation concluded in 2005 that P4P can boost quality significantly.