Take heed, hospital administrators - Uncle Sam is watching.

Because the Centers for Medicare and Medicaid Services is getting pickier about what it pays for in the acute care setting, the agency is looking inside the hospital to find claim denials.

With a huge wave of new beneficiaries looming and forecasted Medicare trust fund depletion by 2017, CMS aims to aggressively curtail expenditures wherever it can. While no healthcare sector is being spared from the reimbursement knife, the Value-Based Purchasing initiative is aimed squarely at hospitals. It is part of a larger reimbursement reduction movement that also includes the Recovery Audit Contractor (RAC) program, Medicare-Severity DRGs (MS-DRGs) and pay-for-performance (P4P).

CMS is building upon the Deficit Reduction Act of 2005, which mandates hospitals follow a defined set of core quality measures, report them publicly and improve performance based on financial incentives. The intent is to use the combination of transparency and fiscal reward to drive clinical quality, patient-centric services and operational efficiency.

“This program, which I call the ‘Hospital Acquired Payment Adjustment Provision,’ is an overall movement to control costs at the Medicare and Medicaid levels,” said Walt Zywiak, principal researcher for CSC. “CMS has decided it will not make payments for hospital-acquired conditions. Overall, how it works is that if a hospital submits a Medicare claim for any of 10 CMS-identified conditions that were not present upon the patient’s admission, payments for those claims will be reduced.”

Zywiak, Kathy Jankowski and Jane Metzger are co-authors of a new CSC white paper that provides a clear view on how these new rules will affect hospitals over the next two fiscal years. The report advises hospitals toupgrade their clinical documentation systems to include admission screening tools, which will allow admitting physicians and nurses to better assess a patient’s condition at the initial encounter. The CSC research team also advocates better infection management information tools, as many of the conditions outlined for fiscal 2009 and 2010 are infection-related.

“This is part of CMS’ attempt to address quality issues, starting with core measures to guide hospitals or penalize them for not instituting measures that support quality,” said Jankowski, partner in CSC’s planning and operations group. “If the hospitals are recognizing these conditions, they don’t get reimbursed for not preventing them.”

The 10 CMS-cited conditions include in-hospital falls and trauma, surgical site infections and diabetes complications. CSC representatives predict the tight payment structure will likely be a model for the rest of the payer industry.

As the CMS list grows next year, hospitals will see an even greater number of claims adjusted lower, Zywiak said.

“One impact it’s having is increasing the ranks and roles of staff – especially nurses moving into new roles on clinical documentation and coding,” he said. “It is also causing hospitals to use these people to create new workflows, such as protocols designed to reduce hospital-acquired conditions.”

Hot conversation topic

As with any monumental Medicare policy shift, Value-Based Purchasing is causing vigorous discussion among hospitals, noted Blair Childs, senior vice president of public affairs for San Diego-based Premier. But while providers typically bridle at proposals that pare down reimbursement, Childs contends this one is being met with acceptance rather than vocal protest.

“Our members support the idea of not being paid if it is for something that was their fault,” he said. “Historically a lot of members didn’t bill for it anyway, so it’s not an issue for them. They already believe they are doing a superior job and see the value of being rewarded for that.”

Boasting 2,100 members and a staff of 1,200, Premier claims to have the largest clinical database in the industry, a vast repository that providers can use to share operational improvement methods with each other. Childs acknowledges that some of the discussion among providers centers on how to prevent the occurrences on the CMS list.

“In the instance of infections, how do you determine whether it was catheter-associated,” he said. “Falls are difficult, too. How do you stop a patient from going against orders and walking around?”

Premier helped lay the groundwork for Value-Based Purchasing and its companion initiatives through a project called HQID – Hospital Quality Incentive Demonstration, the largest CMS demonstration project to date.

Launched in October 2003, it examined the treatment of 1.1 million patients at 250 hospitals from 38 states and determined whether financial incentives motivate performance. It established 33 quality measures at the outset, grew to 41 and continues testing others. It is scheduled to run through October 2009.

“When you compare transparency with payment incentives, the performance is higher than with transparency alone,” Childs said. “But without transparency, performance is lower as well. So in order for hospitals to perform better, you must add a pay-for-performance component to transparency. Ultimately when you improve quality, compliance and reliability of care, the better the outcomes. That is what it’s all about.”