Value Based Payment

How hospital quality executives are pitching value-based payment to CFOs

November 7, 2019 3:42 pm
  • A potentially overlooked way in which value-based payment initiatives can improve hospital finances is by opening beds for high-revenue elective patients.
  • A health system’s analysis found complications were a net revenue loser after penalties were calculated.
  • Lengthy stays driven by complications also can slow access for emergency department patients, which hurts hospitals’ reputations.

Some quality improvement executives say they have identified effective ways to persuade CFOs at their organizations to shift more volume into risk-based value-based payment (VBP) models.

Patricia Garcia Sullivan, PhD, chief quality officer for the University of Pennsylvania Health System, said in a recent interview that previously the organization’s CFO would emphasize to her how they were responsible for the separate spheres of quality and finance. But that view has shifted amid the organization’s efforts to elevate VBP, including with the addition of a quarterly meeting among her, the CFO, CEO and CMO to analyze trends in areas that include:

  • Complication rates
  • Variations in length of stay
  • 90-day episodes of care

The various trends are analyzed for each of the system’s six hospitals and 3,000 beds.

“It’s such a different conversation. We say, ‘If you can decrease your complications by x, this is what we’re adding to the organization [financially],’” Sullivan said. “What they say to me is, ‘This is how we’re going to survive everything that’s going on in healthcare.’”

The organization benefits financially not through participation in VBP models — it is not in accountable care organizations, for instance — but because it faces excess demand for hospital beds.

With each clinical complication adding an average of 10 extra bed days, minimizing such occurrences has helped open access to more beds, Sullivan said.

“You can lower your direct fixed costs by lowering your complications, but you also create bed capacity and that’s a big deal,” Sullivan said.

David Levine, MD, a group senior vice president for quality consultancy Vizient, said identifying the financial case for VBP is critical because hospital income remains predominantly based on fee-for-service (FFS) payments.

The financial impact of complications

The FFS payment system may appear to reward greater patient complications, but the margins for such patients shrink the longer they stay in the hospital, Levine said.

“You may get more revenue in the short term. Long-term what you’re getting, in terms of penalties, is going to wash out negative,” Levine said.

In 2019, 800 hospitals were penalized under Medicare’s Hospital-Acquired Condition Reduction Program — the highest number since the program was established five years ago.

In fact, Sullivan’s CMOs have analyzed the financial implications of their organization’s complication rates and found “by and large and it’s costing us.”

Another issue involves opportunity costs.

“As a lot of hospitals are at high capacity, those patients with complications that are staying in beds are blocking the patients that the hospitals want to bring in — high-revenue patients on the waiting list for high-end elective surgery,” Levine said.

To help cut complications, University of Pennsylvania Health System brought in data scientists to develop a predictive model that can notify clinicians when a patient begins to deteriorate, Sullivan said at an Oct. 30 briefing for congressional staff. The model allowed clinicians to identify deteriorating patients an average of 24 hours earlier than usual.

Similarly, the health system developed an algorithm to identify the earliest point when patients in the ICU can be removed from ventilators, to which as many as 40% are connected.

“That has allowed getting more of these patients off [ventilation] earlier,” Sullivan said.

Complications also affect ED operations

High-bed occupancy driven by complications also slows the ability of hospitals to accept admissions from the emergency department (ED).

“That hurts your perception in the community when [patients] are going to make their choice between a hospital that has a no-wait ER or lower-wait ER and yours is a higher-wait hospital because yours is backed up,” Levine said.

Despite identifying areas of financial benefit, Levine agreed that fully understanding the financial ramifications of VBP is difficult.

“But I do think CFOs are working much better with their clinical quality people to come together,” Levine said.

Challenges identified

Beyond questions about finances, Sullivan said, obstacles that University of Pennsylvania Health System has encountered in seeking to further implement VBP include:

  • Electronic health record intra-operability
  • Regulatory burdens
  • Lack of uniformity in quality measures

Among the latest regulatory challenges are several major rule changes that were finalized Nov. 1. Those rules included $810 million in annual cuts for clinic visits furnished in off-campus hospital outpatient departments, a policy known as site-neutral payments.

“We have to be cautious about pivoting too quickly to a low-cost site of care from a high-quality site,” Levine said about the incentive.

Additionally, Levine worried that rapidly shifting such visits out of hospital settings would most impact the finances of academic medical centers and safety net hospitals, which take care of the lowest-margin patients.

Another policy change was a $1.6 billion payment cut to the 340B discount drug program.

Levine worried that the 340B cuts would hurt the finances of hospitals that care for the sickest patients.

“Without DSH [disproportionate share hospital] payments, the University of Iowa goes out of business or is not able to provide the high-end care,” Levine said.


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