Pay-for-Performance: Another Nail in the Coffin for Disadvantaged Hospitals

Last Updated Jul 7, 2010 3:59 PM EDT

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New "pay-for-performance" measures being instituted by the federal overseer of Medicare are supposed to offer rich financial rewards to hospitals that provide the best care. But according to a new study, pay-for-performance may simply speed up the demise of the local hospital.

Independent hospitals are already facing a crisis. The outlook is especially dire for hospitals in poor neighborhoods, where patients are disproportionately reliant on Medicare and Medicaid. The seemingly endless shrinking of reimbursement rates has squeezed profits to a trickle.

Pay-for-performance only aggravates the situation. Hospitals located in the lowest socioeconomic areas consistently perform the worst on pay-for-performance measures because they don't have access to the resources they need to improve quality. "For hospitals in less well-off places, pay-for-performance will be just one more problem," says Jan Blustein, professor of health policy and medicine at New York University and co-author of the new paper in PLoS Medicine.

The researchers evaluated more than 2,700 hospitals based on how well they responded to two common health conditions: acute myocardial infarction and heart failure. They cross-referenced quality data reported under the Hospital Quality Alliance (HQA) program with federal and local data on hospital characteristics and finances. The differences were stark: On heart failure, for example, hospitals in poverty-stricken neighborhoods had a mean HQA score of 73 in 2004 vs. the 84 scored by hospitals in wealthier neighborhoods.

These results cast serious doubts on the role pay-for-performance will play in health reform. President Obama's 2010 budget proposes to link some Medicare payments directly to hospital performance measures. The president believes this will save $12 billion over 10 years -- money that can then be funneled into the reserve fund for health reform.

The worst-performing hospitals in the PLoS study did show the greatest improvements over time, but they still ended up at the bottom of the heap on quality measures. There was a direct correlation between human resources and quality, though Blustein says it's unclear whether the problem was a lack of doctors and nurses, or the training level of those professionals, or some combination of the two. She hopes to design future studies to sort out those issues.

CMS recognizes the potential for disparities and has vowed to offer special assistance to low-quality hospitals, such as training and on-site consulting. But Blustein and her colleagues argue CMS should tackle quality issues much more proactively, providing resources at the outset to disadvantaged hospitals, rather than waiting for quality issues to come to light. "Based on the evidence," says Blustein, "they may want to re-think an approach that penalizes low performers."

Emergency room image via Flikr user taberandrew, CC 2.0