The dollar impact of Medicare’s new MSPB efficiency metric is increasing. Now is the time to act and protect your inpatient reimbursement—and potentially earn a bonus.

During the program’s first two years, Medicare’s value-based purchasing (VBP) focused primarily on measuring hospital performance using metrics related to clinical care, mortality, and patient experience. But that changed last October 1, 2014 when Medicare also added efficiency as a domain, using a single Medicare spend per beneficiary (MSPB) metric.

Value-Based Purchasing Domains by Federal Fiscal Year
Value-Based Purchasing Domains by Federal Fiscal Year

MSPB is an indicator of whether Medicare spends more, less, or about the same on a particular episode of care for a patient treated in a specific hospital compared to a national average. The dollar impact of this metric should not be dismissed. Based on how efficiently your organization is coordinating patient care, a full half of one percent of your hospital’s federal FY17 Medicare revenues could be at risk. Alternatively, if your hospital is more efficient than the average U.S. hospital, your hospital stands to earn a bonus.

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The MSPB measure is gaining importance from a programmatic perspective. The episodic nature of this measure is complementary to the Medicare Shared Savings Program and the Bundled Payment for Care Improvement Program and, therefore, indicative of the direction a provider should be planning for the future. These changes accelerate the need for operations and finance to work together with a heightened focus on efficient, high-quality delivery of care that incorporates planning related to readmissions and care provided by post-acute care entities.

The differentiation between spend (reimbursement) and cost (expenses) will be key to managing MSPB. Fortuitously, the hospital-specific MSPB reports that Medicare releases contain significant and detailed data that finance leaders can use as the basis for discussions with clinicians and post-acute care providers.

A MSPB Refresher

The following section provides background on the MSPB metric. If you are already familiar with this metric, skip ahead to the next section on calculating your hospital’s financial penalty/bonus:

What are the specific measurement criteria? MSPB is the total Medicare spend related to a beneficiary episode of care. Specifically, it covers the following time period:

  • The three days prior to admission
  • The index admission itself
  • 30 days post-discharge

The post-discharge time frame includes all claims initiated within that 30 days so the total days of care to be covered can actually stretch longer than just 30 days. For example, if a patient is admitted into a skilled nursing facility for 30 days on day 15 post-discharge, the full 30 days of claims are included in the MSPB metric.

To determine a hospital’s MSPB score, the Centers for Medicare & Medicaid Services (CMS) accumulates the spend (or reimbursement) for all Medicare beneficiaries for the time period described above and applies several adjustments to account for patient acuity, wage differences across hospitals, and other factors. Then CMS indexes the hospital’s spend against every other participating U.S. hospital.

In federal FY14, the national MSPB average was 1.0. The average declined in federal FY15, which began Oct. 1, 2014, to 0.98, with top-decile hospitals performing at 0.83.

You can obtain your hospital’s MSPB 2015 scores by reviewing the QualityNet reports that came out on August 1, 2014. If you don’t have access to CMS’s QualityNet, reach out to the individual or department (e.g., performance improvement) that does. Current hospital-specific and national MSPB scores are also published on Hospital Compare under the “Payment and Value of Care” tab.

Like other VBP elements, a hospital achieves two efficiency scores. The first is the hospital’s rank among other hospitals (i.e., achievement score). The second score is based on a hospital’s improvement over its baseline score from two years earlier. Each organization gets to keep the higher of the two scores as its final MSPB score.

When is MSPB measured? The VBP metrics have baseline and performance measurement periods. The performance period is a designated time span used to capture data that shows how well a hospital is performing. CMS compares data collected during the performance period to data collected during the baseline period.

Different VBP domains have different performance and baseline periods, which are published in the Federal Register. The exhibit below illustrates the MSPB performance and baseline periods.

MSPB Performance and Baseline Periods
MSPB Performance and Baseline Periods

How does MSPB impact reimbursement? To determine the reimbursement impact, you first need to know the amount of Medicare reimbursement at risk for all VBP domains, which is rising from the current 1.5 percent of a hospital’s  inpatient DRG reimbursement to 2.0 percent in federal FY17.

Reimbursement Impact for Federal FY15-FY17

Reimbursement Impact for Federal FY15-FY17

The exact reimbursement tied to MSPB is a percentage of the total VBP amount. In the current federal FY15, the MSPB/efficiency domain accounts for 20 percent of the total VBP score. But this will go up to 25 percent in FY16, which begins on October 1, 2015.

VBP bonuses are awarded to hospitals that perform comparatively higher than the U.S. average on the four VBP domains related to clinical care, safety/outcomes, efficiency, and patient experience.

How might all of this translate for a specific hospital? Let’s use the example of a 250-bed hospital with $50 million in Medicare inpatient revenues during the federal FY15 (see the exhibit below). This hospital risks losing up to $150,000 on the MSPB ($50 million x 1.5 percent x 20 percent) for federal FY15.

Hospital Case Dollar Value for VBP and MSPB FY15

Hospital Case Dollar Value for VBP and MSPB FY15

The maximum bonus available in 2015 under these rules can be calculated by multiplying the amount the hospital risks losing ($150,000) by 2.57914, which is the Medicare multiplier based on the final performance of all hospitals. In this example, the maximum bonus amount is significant: $386,871.

The multiplier has increased in each of the past three years and applies equally across all domains for that VBP year. The multiplier was 2.096237 for 2014 and 1.837359 for 2013. As can been seen, this creates a significant upside opportunity for the hospital with an operational and financial plan to structure operations to earn the maximum bonus.

Your Potential Risk/Bonus

You can determine your own hospital’s risk and bonus opportunity using the following calculation guidelines:

2015 risk/bonus. Start with your inpatient Medicare reimbursement, which can be found on the most recent Medicare cost report (Worksheet E, Part A, Line 1). Multiply this by 1.5 percent to get the total VBP amount at risk for 2015. Multiply this by 20 percent, and that is the amount at risk for MSPB for 2015.

For the 2015 bonus, the multiplier was 2.57914. Therefore, when you multiply the amount at risk for MSPB by this multiplier the product is the maximum bonus available.

2017 risk/bonus. This calculation is very similar except the total amount at risk for VBP is 2 percent and the MSPB domain is worth 25 percent. The multiplier for the bonus has not yet been announced. Because the release date for the 2017 multiplier is yet to be announced, using a multiplier of 2.0 is not unreasonable for planning purposes.

Opportunities in MSPB Data

Hospitals have a wealth of information available to them related to their spend and the MSPB metric. Medicare provides hospital-specific reports through QualityNet. These detailed reports contain a tremendous amount of actionable information that can help finance and clinical leaders pinpoint where a hospital’s spend exceeds the national average (i.e., by DRG, by provider.) This data is important to advance critical conversations between operations and finance to improve scores for the upcoming performance year.

This process should start with a review of the two high-level reports available on QualityNet to document the magnitude of the opportunity/penalty for your hospital:

  • MSPB by site of service/type of provider sorted by time of service (i.e., three days prior to admission, during the index admission, or 30 days post discharge) compared to national average
  • MSPB by major diagnostic category (MDC) compared to state and national averages

The next level of analysis lies in the detailed reports that Medicare provides. These detailed Excel reports have patient-level information of every discharged Medicare beneficiary, including:

  • Claims for all services rendered during the spend timeframe
  • Claims information for up to five locations for each post-acute care category post-discharge, if within 30 days of discharge

Given the information available in these MSPB reports, hospital leaders can use them to:

  • Look at discharge trends by DRG, by physician, by post-acute provider, etc.  
  • Analyze which providers (e.g., post-acute, physician) have the highest (or lowest) spend in the 30-day post-discharge timeframe, and how their performance impacts the MSPB score
  • Identify which physicians and post-acute providers are readmitting back to the hospital?

These are just the beginning of some of the key questions that can be answered using these detailed files. These reports are also useful to hospitals considering a bundled payment or shared savings arrangement. Additionally, the spend data in these files might be advantageous in conversations between hospitals and potential payer or employer partners.

Drilling down into these reports takes time, but the effort is well worth it. Ideally, hospitals should assign dedicated analytical staff to this project, and provide them with clinical input and support in terms of what data to drill into, etc. Forming a dedicated operations/financial task force is a critical first step.

Access related tool: Action Steps that Can Help Hospitals Improve Their MSPB Scores

The Strategic Value

The underlying data behind the MSPB metric offer a wealth of actionable information that can help hospitals reduce their MSPB scores, as well as assist leaders with numerous strategic initiatives.

Melinda Hancock is partner-healthcare, at Dixon Hughes Goodman LLP in Glen Allen, Va., and voluntary Chair-Elect of HFMA.  

Related content: Improving Efficiency Scores While Maintaining Quality 

Discussion Starters

Forum members: What do you think? Please share your thoughts in the comments section below.

  • How is your organization using the MSPB data to guide performance improvement discussions? Please share.
  • What questions do you have about the MSPB metric or Medicare’s VBP program?

Publication Date: Thursday, April 23, 2015