Edward Norton

Edward Norton, Ph.D., is a health economist working with MVC.

The Center for Medicare and Medicaid Services (CMS) is increasingly using financial incentives in pay-for-performance programs to encourage higher quality care at lower cost. Michigan hospitals might want to know: “How much are we penalized if one additional Medicare patient dies?”  A National Bureau of Economic Research (NBER) working paper by several members of the MVC team addresses that question for the Hospital Value-Based Purchasing Program (HVBP), with surprising results.  This study finds that about one-third of Michigan hospitals face no financial penalty if one additional patient with AMI, heart failure, or pneumonia dies.  For most other hospitals, the penalties for an additional death are modest, typically less than $10,000, but a few hospitals face penalties of up to around $40,000.

CMS created HVBP to reward or penalize hospitals based on their quality and episode-based costs of care. Within HVBP, each patient affects hospital performance on a variety of spending and quality measures (including mortality), and that performance translates directly to changes in program points and ultimately dollars.  For example, when a patient with AMI dies, the hospital’s AMI mortality rate increases, which reduces their points for the mortality measure, which reduces their total performance score, which lowers their percent bonus paid in two years, which lowers their future Medicare revenue.  But until now, the magnitude of this penalty was unknown. 

A recent NBER study — authored by myself, doctoral student Jun Li, medical student Anup Das, and MVC Associate Director Lena M. Chen — estimates how much money each Michigan hospital would lose if mortality increases by one, for each of three conditions, AMI, heart failure and pneumonia. The MVC data were essential to conduct the simulations.

One reason that the magnitude of financial incentives are hard to calculate is that there is no simple formula. Hospitals are rewarded more points if they have a low mortality rate relative to other hospitals or if they improve their mortality rate relative to their own performance in a prior year. 

The magnitude of the HVBP penalty for one additional death ranges widely across Michigan hospitals, from $0 to more than a $40,000 penalty (see Figure 1). For roughly one-third of all hospitals, there is no penalty.   The specific numbers are 17 hospitals (out of 50) for AMI, 33 out of 73 for heart failure, and 25 out of 75 for pneumonia (some hospitals do not have enough patients to meet the minimum threshold).  On the other hand, for the two-thirds of hospitals that do face a penalty, it can be as large as -$44,683 for AMI, -$41,303 for heart failure, and -$29,345 for pneumonia. 

Michigan hospitals with larger penalties tend to be larger and to be safety-net hospitals. These hospitals also tend to have mortality rates in the middle of the distribution, because those that have the best or worst rates are not penalized much by a single additional death. 

We do not know yet if these financial incentives affect behavior, although this is the premise of the HVBP Program. However, if provider behavior responds to financial incentives, these findings suggest that CMS may need to adjust how it calculates points and creates incentives for hospitals in the HVBP program.  The research by the MVC team on the national CMS pay-for-performance programs will help us design better pay-for-performance programs in Michigan, and achieve the goal of delivering high-value care to Michigan residents.

Figure 1.

This work was supported by the National Institute on Aging (P01-AG019783). Support for MVC is provided by Blue Cross Blue Shield of Michigan as part of the BCBSM Value Partnerships program; however, the opinions, beliefs and viewpoints expressed by the author do not necessarily reflect those of BCBSM or any of its employees. 


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