Care Transformation Center Blog

The final word on pay-for-performance for FY 2015

by Eric Fontana

I've lost track of how many times I've been asked, "Is the data out yet?" over the last few months. Well, the wait is over.

‘The data’ so many were clamoring for—the value-based purchasing (VBP) and hospital-acquired conditions (HAC) adjustments that will apply in FY 2015—were released last week. Taken together with the finalized readmissions penalties that were announced in September, we now have a complete picture of how hospitals paid under the inpatient prospective payment system will be impacted in FY 2015 (assuming no correction notices are on the horizon).

We've mapped the final data below and compiled some early takeaways.

Click, drag, and zoom to see the estimated net P4P impact on FY 2015 Medicare revenues for any institution, color-coded by severity (red represents a net Medicare revenue impact of greater than one percent, for example). You can also open the map in a new browser to view it in full size.

FY 2015 P4P Penalty Impact Map

1. Mandatory risk programs maintain margin pressure

Earlier this year, MedPAC projected combined inpatient and outpatient Medicare margins of -6% for 2014. Taken together with fee-for-service cuts for disproportionate share (DSH) payments, sequestration and documentation and coding adjustments, and the mandatory risk programs for HAC, VBP, and readmissions, there will be little relief. Collectively, these programs place 5.5% of Medicare inpatient reimbursement at risk in FY 2015—an amount that will increase to 5.75% in FY 2016 and 6% in FY 2017.

2. Fine line between no HAC penalty and the full 1%

724 hospitals are set to receive the 1% HAC penalty in FY 2015. CMS's prior analysis (based on the proposed HAC penalties) indicated that a HAC score of 7 would likely be sufficient to place a hospital in the worst performing quartile. However, based on final data, the cutoff point looks to be a little higher at 7.025, meaning 143 hospitals barely escaped the worst-performing quartile.

Unsurprisingly, the mix of hospitals receiving HAC penalties also changed. This seemed likely to happen as the proposed penalties released back in April were based on a set of NHSN data representing an abbreviated timeframe. Now that the final, full timeframe has been accounted for, 168 hospitals that were originally expecting to receive a HAC penalty managed to avoid it altogether, while 138 hospitals that escaped penalty in the proposed rule are now slated to receive the full 1%.

Taking the glass half full view, fewer hospitals are set to receive a HAC penalty than initially proposed: down from 770 to 724 facilities.

3. HAC penalty a good indicator for overall P4P loss

In our preliminary analysis of the proposed HAC penalties, we stated that a 1% HAC penalty would generally foreshadow a net negative P4P loss in FY 2015. After reviewing the final results, this insight still holds true: 98% of hospitals receiving a HAC penalty are expected to see an overall net negative pay-for-performance impact after all three programs are considered in aggregate. Only 15 hospitals performed exceptionally strongly on VBP and were able to fully offset the HAC penalty with a VBP bonus.

Of the hospitals that received both HAC and readmissions penalties (an estimated 579 facilities), only two of them (Sharp Coronado Hospital and Healthcare Center in San Diego, Calif. and Chickasaw Nation Medical Center in Ada, Okla.) are projected to break even on pay-for-performance overall.

4. Significant proportion of hospitals penalized under all three programs

As shown in the Venn diagram below, 358 hospitals (11%) are expected to be penalized under VBP, readmissions, and HAC. We estimate the largest combined net penalty will be -3.42% and the average penalty will be $1,000,000.

5. Keep an eye on the future

The performance periods for the FY 2016 VBP program close on December 31, 2014. More importantly, data collection for FY 2017 is already underway, with some timeframes closing as early as next summer.


It’s a similar story with the HAC program. Assuming that data collection timeframes are rolled forward year over year (not a big stretch as they have been consistent to date), then data collected by CMS today will be used to determine HAC penalties for years as far ahead as FY 2018.

For a more detailed breakdown of CMS’s pay-for-performance programs, check out our recent presentation and log in to the Customized Assessment Portal to get your facility-specific estimates.

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