CMS's "no pay" policy: A harbinger of things to come?

A recent article in the New England Journal of Medicine provided an interesting perspective on Medicare’s new policy to not pay for specific hospital-acquired conditions. The article, “Nonpayment for Performance? Medicare’s New Reimbursement Rule,” appeared in the Oct. 18, 2007 issue.

The article applauds CMS’s efforts to realign the financial incentives within the DRG system, but also argues that these changes are only the initial components of a larger strategy:

The DRG payment system [has] harbored a perverse incentive: hospitals that improved patient safety and ameliorated problems such as nosocomial infections saw their Medicare revenues—and sometimes their profits—reduced.

Although in the near term, the amount of money withheld may be small, in terms of the percentage of all payments to hospitals, it can be expected to have a disproportionate effect on their behavior. One reason is that this change represents the leading edge of a series of anticipated CMS reforms of provider payment, which include a shift toward pay for performance. Hospitals may therefore view the new policy as a harbinger of things to come and act in anticipation of more substantial reimbursement changes.

Eventually, the article states, CMS’s policy may lead to more widespread adoption of quality measurement and reporting. However, although the new policy is a good first step to reward high-quality care, the challenge for CMS—according to the article—is to create a fair set of policies to not pay for poor-quality care in the future:

The conditions for which Medicare will cease to pay hospitals as of next October have been shown to be within the control of hospitals, so there is a relatively compelling case that their costs should fall on the provider rather than the purchaser. It is unclear how Medicare will generalize the principle of refusal to pay for poor-quality care beyond this initial and largely symbolic effort.

The article was written by Meredith B. Rosenthal, Ph.D., an associate professor of health economics and policy at the Harvard School of Public Health, Boston, and can be accessed here.