Senate Committee's Proposals Make Hospitals Quake

As the details of Congressional health reform proposals are made public, the knives are being sharpened for the battle to come.

The American Hospital Association (AHA) has already joined the fight with a 15-page letter to the Senate Finance Committee (SFC) protesting some of its proposed changes in Medicare payments to hospitals. Referring to the policy options that the SFC set forth in an April 29 paper, the hospital association said that implementation of the committee’s provisions on value-based purchasing, payment “bundling” and readmissions “would result in payment cuts to an already underfunded Medicare payment system.”

Specifically, the AHA noted that the SFC’s value-based purchasing program would hold back 2 percent of hospital inpatient payments in FY 2013, rising to 5 percent in FY 2016 and beyond. That money would be used to “reward” hospitals that performed well on quality measures. But the top 25 percent of facilities would merely get the withhold back, while the rest would receive either part of the withhold or nothing at all. Instead, the AHA said, better-performing and improving hospitals should receive some kind of bonus.

The hospital association also questioned the size of the withhold, noting that the Medicare Payment Advisory Commission has recommended that no more than 1 to 2 percent of payments be shifted from lower-scoring to higher-scoring hospitals. The AHA also said that the withhold should apply only to those diagnosis-related groups (DRGs) related to the quality measures, rather than to all of a hospital’s Medicare reimbursement.

While the AHA said that it supports efforts to encourage coordination of care, it stated that the committee’s approach to bundling acute care and post-acute care payments goes too far too fast. “This is an extremely complex issue… and has not been tried or implemented broadly in the public or private sector. We strongly recommend careful design and testing of any bundling provision prior to widespread implementation.” The AHA also observed that community hospitals that aren’t part of integrated systems will have more difficulty with bundling, and that physicians, who order most care, should also be at financial risk.

Under the SFC’s proposal to reduce readmissions (which would be phased out after bundling was applied across the board), hospitals with readmission rates above the 75th percentile for certain diagnoses would be subject to a 20 percent withhold for selected DRGs, starting in FY 2013. Money from this withhold would be returned to a hospital only if a patient assigned to that DRG were not readmitted to a hospital within 30 days for a preventable readmission, the AHA noted.

The hospital association argued that readmissions are beyond the control of hospitals in many cases.  Among the external factors that could affect readmissions, the AHA said, are “the limited availability of post-acute and ambulatory health care services, high levels of poverty among some hospitals’ patients, and a lack of community-based social services.” Public hospitals, it added, are especially vulnerable to these problems and could be unfairly penalized as a result.

The 20 percent withhold recommended by the Senate Finance Committee, said the AHA, is excessive and could adversely affect the cash flow of many institutions, especially small, rural hospitals. The association recommends that hospital payments be reduced only after a readmission occurs and that the policy be limited to readmissions within seven days of discharge.

While it is clear that the AHA is bargaining to get the best deal for its members, it is also clear that Sen. Max Baucus and Sen. Charles Grassley, the healthcare mavens on the Senate Finance Committee, are hitting for the fences in their reform proposals. Whether they’re overreaching depends on your viewpoint, but it certainly seems that hospitals have something to fear here.