At the Margins

70% of hospitals will lose money on Medicare P4P, plus other takeaways for FY 2018

by Eric Fontana and Kenna Hawes

Medicare's pay-for-performance programs (Hospital Readmissions Reduction, Hospital-Acquired Conditions Reduction, and Value-Based Purchasing) place up to 6% of your hospital's Medicare inpatient revenue at risk. As hospitals around the nation face increasing margin pressure, it's critical to remain aware of how these programs are changing.

Join the Financial Leadership Council for our Pay-for-Performance Update webconference on Tuesday, Jan. 23, where we'll discuss how these programs have impacted hospitals' finances since FY 2013. We'll also examine important recent and upcoming changes, including next year's overhaul of the Hospital Readmissions Reduction Program to account for the socioeconomic status of your patient population.

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In the meantime, here are three of our key takeaways about hospitals' performance this year:

1. 87% of organizations with a P4P net loss in FY 2017 will see a net loss again this year

Medicare's P4P programs are often discussed in the news as three separate penalty opportunities—but considering these programs in isolation doesn't provide the full picture of their impact, which can be substantial for an individual hospital. By our estimates, the hospital with the largest FY 2018 net penalty will have its Medicare inpatient revenue reduced by -4.35% this fiscal year. The hospital receiving the largest net gain will see its Medicare inpatient revenue increased by +1.92%.

As in past years, the majority of participating hospitals received a net penalty from the FY 2018 P4P programs:

Net P4P Impact on Participating Hospital Cohort Across All 3 CMS Programs

2.Despite changes to HAC scoring, the cohort of HAC penalized hospitals remains relatively stable

FY 2018 was the first year for CMS's new Hospital-Acquired Conditions (HAC) Program scoring methodology, which was designed to eliminate ties between hospitals. CMS anticipated that the changes would shake up which hospitals were penalized and which were not. However, ultimately there was relative stability in the cohort of penalized hospitals from FY 2017 to FY 2018: 425 hospitals (56%) of the 751 penalized in FY 2018 were also penalized last year, a comparable carryover rate from past years (54% carryover from FY 2016-2017 and 57% carryover from FY 2015-2016).

Check out our new map to see how your hospital performed in P4P from FY 2013-FY 2018

3. A sizeable minority of hospitals have earned multiple P4P penalties in FY 2018.

The largest area of overlap, as in past years, was between VBP and HRRP: 21% of hospitals received both readmissions and VBP penalties, about the same proportion as last year. A sizeable 10% of hospitals received penalties in all three programs.

Negative Impact Driven by Compounding Penalties



Next, get 10 insights on reducing care variation from leading health systems

Download our infographic to learn 10 tactics for implementing effective and sustainable care variation reduction initiatives across multiple service lines and care sites.

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