Care Transformation Center Blog

Hospital-acquired conditions: The pay-for-performance game changer?

by Eric Fontana

Since CMS released the proposed inpatient rule for FY 2015 payments, we’ve received quite a few questions about how the new hospital-acquired condition (HAC) penalties may impact hospitals when the rule is finalized in August.

While we expect the HAC penalty numbers to change a little when the final rule is announced, the proposed penalties generally provide a good high-level view for what to expect. Check out our pay-for-performance map highlighting the proxy adjustment factors for the HAC, VBP, and readmissions programs, then read our six takeaways below.

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VBP Program | Readmission Program | HAC Program

1. HAC penalties additional drag on margins for some hospitals

Considering MedPAC recently projected an average Medicare margin of -6% in FY 2014, it’s hardly surprising that an additional 1% HAC penalty could add financial pressure for many hospitals. Even before the HAC penalties are levied, roughly 2,500 facilities are expected to see reduced inpatient payments based on the combined impact of VBP and readmissions adjustments. Of these, 577 hospitals will have their revenue losses compounded by an additional 1% HAC penalty based on the proposed rates.

According to our analysis, 324 hospitals (around 9.5%) could be penalized under all three pay-for-performance programs based on the proposed rates. The Venn diagram below illustrates the hospitals impacted by the various quality penalties.

2. HAC penalties may wipe out a performance bonus for some hospitals

A small subset of hospitals doing well under the VBP and readmissions programs might see a HAC penalty undo all their hard work from a financial standpoint.

Our analysis indicates that 850 hospitals can expect to at least break even after considering VBP and readmissions in aggregate, yet 184 of those hospitals (roughly 5% of all hospitals in the program) can expect a negative net P4P impact, solely due to the (proposed) HAC penalty. Our estimates indicate this subset of hospitals would see an average loss of over $200,000, with the largest estimated single loss totaling more than $1.6 million.

3. Some states hit harder than others

Although HAC penalties are judged at the individual hospital level, a quick look at the data indicates that some states fared better than others. For states with at least 10 hospitals, Utah, Connecticut, Wisconsin, Colorado, and Oregon have the highest proportion of HAC penalties. The states with the lowest proportion of hospitals facing a HAC penalty include Alabama, Louisiana, Oklahoma, Tennesee, and South Dakota.

4. The HAC penalty will not get tougher over time

While the HAC program is set for some important changes in the next couple of years, a larger penalty is not one of them.

However, CMS has proposed to increase the pool of CDC/NHSN infection-related measures and place greater weight on their contribution to the overall HAC penalty. For FY 2016, two additional surgical site infection metrics are proposed to be added, while MRSA and Clostridium Difficile infection measures are proposed for FY 2017. CMS may also roll additional conditions into the composite PSI-90 measure, possibly expanding the metric to 11 conditions. The image below provides a summary of the proposed domain and measures changes in these future years.

5. HAC penalties may change when the final rule is released

CMS calculated the proposed HAC penalties using the actual PSI-90 data that is expected to be used in the final rule (July 1, 2011 - June 30, 2013). However, the CDC/NHSN data used in the proposed rule (July 1, 2012 - June 30, 2013) was from a shorter, less complete timeframe compared to what will eventually be used (January 1, 2012 - December 31, 2013).

This truncated timeframe may be significant for some when the final penalties are announced, possibly resulting in a different HAC score for some hospitals as the standard infection ratios consider a longer historical snapshot.

It remains to be seen how broadly this impacts movement into and out of top quartile of HAC scores overall. However, individual hospitals should not be surprised to see some changes to their HAC scores when the final rule is published in August.

6. Start thinking about future performance today

To mitigate financial losses in successive years, you need to act now. The clock is already ticking for FY 2016 and FY 2017.

See where your organization stands in the HAC program using our tool that replicates CMS's scoring methodology and factors in the impact of new measures and modifications to scoring, such as the proposed “pooled” SSI scores in FY 2016.


*This tool is available to Health Care Advisory Board, Physician Executive Council, Nursing Executive Center, and Financial Leadership Council members.

After diagnosing your performance, check out our Pay-for-Performance Crosswalk to get best practices and resources for the domains and metrics that need the most work.

*This crosswalk is available to Physician Executive Council, Cardiovascular Roundtable, and Nursing Executive Center members.

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Meet the author

Eric Fontana
Practice Manager
Data and Analytics Group