Hospitals that are not performing well may have their Medicare funding cut. Image: Flickr / boliston / CC-BY

The ways in which Medicare payments are determined have always been a political difficulty. There are currently 441 geographic payment zones for hospitals that pay on the basis of average costs in the area. In 2013, the system will give higher payments to hospitals rated as higher quality institutions.

Changes in 2013

In 2013, the Medicare payment system is scheduled to be revamped according to quality scores. Value-based reimbursements are intended to reward hospitals for providing higher quality care to patients, while also providing incentives to improve the quality of care. Medicaid, the federal/state healthcare program for low-income and at-risk Americans, will likely be making similar changes. This also depends highly on the actions Congress takes in the next year and a half.

Disparity in care quality

In a study released in the October issue of Health Affairs, the idea of rewarding better performing hospitals with higher payments was questioned. The care disparity between “best” and “worst” hospitals is very large, and it may get worse with quality-based payments. Hospitals that have the worst outcomes are mostly small and rural. Lower-quality hospitals also tend to treat a higher proportion of Medicare and Medicaid patients, a higher proportion of elderly patients, and a higher proportion of minority patients.

The potential effects of quality based payments

As the Health Affairs report outlines, basing payments to hospitals on the quality of their care may have the reverse effect of what is intended. Hospitals that receive lower payments for their services, on average, tend to have worse outcomes for their patients. Physicians and hospitals are currently filing a class-action lawsuit against Medicare, claiming that the payment system is broken, unfair and underpays physicians in higher-cost areas. The lawsuit, which focuses on physician payments rather than hospital payments, was originally filed in 2007 and has since been re-filed. If the Department of Health and Human Services is found to be at fault in this case, it would cost the Federal Government $3.9 billion.


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