Healthcare Reform Bills Would Reward Hospitals for Medicare Spending Efficiency

Language in both the Senate and House healthcare reform bills calls for higher Medicare reimbursements for "high-value" hospitals, those that more efficiently spend Medicare funds, according to a report in The Washington Post.

The revised Medicare payment formula would benefit hospitals that lie in regions such as the Midwest, Mountain West and Northwest, which physicians and hospital officials say are currently highly underpaid for their care. The inclusion of the language in the bill is the result of a lobbying effort led by Rochester, Minn.-based Mayo Clinic and a coalition of other hospitals in the Midwest, according to the report.

Opponents to the revised formula say that hospitals in major urban areas and the South would suffer most from the change, resulting in care being taken away from impoverished and minority patients. Representatives of urban hospitals call the change a "money grab," as Midwest hospitals tend to treat less minority or low-income patients, according to the report.

The problem lies in how a value-based Medicare index would be created, according to the report. Mayo and other Midwestern hospital routinely perform well in rankings by Dartmouth College measuring Medicare spending, and they tend to rank high in quality care. Hospitals in some areas, such as Miami and Los Angeles, spend the most per Medicare patient, which may also be due to factors such as cost of living.

The current Medicare payment formula is based on the number of Medicare patients seen on an annual basis. According to the report, some hospitals fear that a value-based system would incentivize hospitals to limit the number of Medicare patients they see in a year.

Another issue with the proposed new formula is that new Medicare rates are likely to be set on a regional or city-wide basis, rather than on a hospital-to-hospital basis, according to the report. This would mean that some low-performing hospitals could be lumped in with efficient hospitals, and vice versa. Some opponents suggest that Congress and Medicare should examine all hospital spending, not just Medicare, to get a better picture of how efficiently hospitals use their money. For instance, many hospitals that receive lower Medicare rates charge significantly higher rates for privately-insured patients, according to the report.

Legislators have agreed that including the value index is one of strongest cost-control measures in the current healthcare reform bills, according to the report. The next step for Congress is deciding the exact language to include in the final bill and how to craft the index if the provision is included.

Read the Washington Post's article on the value-based Medicare index

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