June 23, 2008

1. The Hospital’s Bottom Line in an Era of Value-Based Purchasing A webinar for Philips customers that tells you what Medicare is planning and what it means for you… June 23, 2008

2. The Hospital’s Bottom Linein an Era of Value-Based Purchasing Presenters: Thomas Valuck, MD, JD, Medical Officer & Senior Adviser, Center for Medicare Management, Centers for Medicare and Medicaid Services, Washington, DC Ann Edwards, Director, Health Industries Advisory Practice, PricewaterhouseCoopers, Hartford, CT Moderator: Laurel Sweeney,Senior Director, Reimbursement and Legislative Affairs, Philips Healthcare, Andover, MA

3. Centers for Medicare & Medicaid ServicesCMS’ Progress Toward Implementing Value-Based Purchasing Thomas B. Valuck, MD, JD Medical Officer & Senior Adviser Center for Medicare Management Procurement Sensitive

4. Presentation Overview • CMS’ Value-Based Purchasing (VBP) Principles • CMS’ VBP Demonstrations and Pilots • CMS’ VBP Programs • Value-Driven Health Care • Horizon Scanning and Opportunities for Participation Procurement Sensitive

5. CMS’ Quality Improvement Roadmap • Vision: The right care for every person every time • Make care: • Safe • Effective • Efficient • Patient-centered • Timely • Equitable Procurement Sensitive

6. CMS’ Quality Improvement Roadmap • Strategies • Work through partnerships • Measure quality and report comparative results • Value-Based Purchasing: improve quality and avoid unnecessary costs • Encourage adoption of effective health information technology • Promote innovation and the evidence base for effective use of technology Procurement Sensitive

7. What Does VBP Mean to CMS? • Transforming Medicare from a passive payer to an active purchaser of higher quality, more efficient health care • Tools and initiatives for promoting better quality, while avoiding unnecessary costs • Tools: measurement, payment incentives, public reporting, conditions of participation, coverage policy, QIO program • Initiatives: pay for reporting, pay for performance, gainsharing, competitive bidding, coverage decisions, direct provider support Procurement Sensitive

8. Why VBP? • Improve Quality • Quality improvement opportunity • Wennberg’s Dartmouth Atlas on variation in care • McGlynn’s NEJM findings on lack of evidence-based care • IOM’s Crossing the Quality Chasm findings • Avoid Unnecessary Costs • Medicare’s various fee-for-service fee schedules and prospective payment systems are based on resource consumption and quantity of care, NOT quality or unnecessary costs avoided • Payment systems’ incentives are not aligned Procurement Sensitive

9. Practice Variation

10. Practice Variation

12. Why VBP? • Medicare Solvency and Beneficiary Impact • Expenditures up from $219 billion in 2000 to a projected $486 billion in 2009 • Part A Trust Fund • Excess of expenditures over tax income in 2007 • Projected to be depleted by 2019 • Part B Trust Fund • Expenditures increasing 11% per year over the last 6 years • Medicare premiums, deductibles, and cost-sharing are projected to consume 28% of the average beneficiaries’ Social Security check in 2010 Procurement Sensitive

13. Workers per Medicare Beneficiary Source: OACT CMS and SSA

14. Under Current Law, Medicare Will Place An Unprecedented Strain on the Federal Budget Percentage of GDP Source: 2008 Trustees Report

15. Support for VBP • President’s Budget • FYs 2006-09 • Congressional Interest in P4P and Other Value-Based Purchasing Tools • BIPA, MMA, DRA, TRCHA, MMSEA • MedPAC Reports to Congress • P4P recommendations related to quality, efficiency, health information technology, and payment reform • IOM Reports • P4P recommendations in To Err Is Human and Crossing the Quality Chasm • Report, Rewarding Provider Performance: Aligning Incentives in Medicare • Private Sector • Private health plans • Employer coalitions Procurement Sensitive

16. VBP Demonstrations and Pilots • Premier Hospital Quality Incentive Demonstration • Physician Group Practice Demonstration • Medicare Care Management Performance Demonstration • Nursing Home Value-Based Purchasing Demonstration • Home Health Pay-for-Performance Demonstration • ESRD Bundled Payment Demonstration • ESRD Disease Management Demonstration Procurement Sensitive

17. VBP Demonstrations and Pilots • Medicare Health Support Pilots • Care Management for High-Cost Beneficiaries Demonstration • Medicare Healthcare Quality Demonstration • Gainsharing Demonstrations • Accountable Care Episode (ACE) Demonstration • Better Quality Information (BQI) Pilots • Electronic Health Records (EHR) Demonstration • Medical Home Demonstration Procurement Sensitive

18. Premier Hospital Quality Incentive Demonstration

19. VBP Programs • Hospital Quality Initiative: Inpatient & Outpatient • Hospital VBP Plan & Report to Congress • Hospital-Acquired Conditions & Present on Admission Indicator • Physician Voluntary Reporting Program • Physician Quality Reporting Initiative • Physician Resource Use • Home Health Care Pay for Reporting • Medicaid Procurement Sensitive

20. VBP Initiatives Hospital-Acquired Conditions and Present on Admission Indicator Reporting Procurement Sensitive

21. The HAC Problem • The IOM estimated in 1999 that as many as 98,000 Americans die each year as a result of medical errors • Total national costs of these errors estimated at $17-29 billion IOM: To Err is Human: Building a Safer Health System, November 1999. Available at: http://www.iom.edu/Object.File/Master/4/117/ToErr-8pager.pdf. Procurement Sensitive

22. The HAC Problem • In 2000, CDC estimated that hospital-acquired infections add nearly $5 billion to U.S. health care costs annually Centers for Disease Control and Prevention: Press Release, March 2000. Available at: http://www.cdc.gov/od/oc/media/pressrel/r2k0306b.htm. • A 2007 study found that, in 2002, 1.7 million hospital-acquired infections were associated with 99,000 deaths Klevens et al. Estimating Health Care-Associated Infections and Deaths in U.S. Hospitals, 2002. Public Health Reports. March-April 2007. Volume 122. Procurement Sensitive

23. The HAC Problem • A 2007 Leapfrog Group survey of 1,256 hospitals found that 87% of those hospitals do not consistently follow recommendations to prevent many of the most common hospital-acquired infections 2007 Leapfrog Group Hospital Survey. The Leapfrog Group 2007. Available at: http://www.leapfroggroup.org/media/file/Leapfrog_hospital_acquired_ infections_release.pdf Procurement Sensitive

24. Statutory Authority: DRA Section 5001(c) • Beginning October 1, 2007, IPPS hospitals were required to submit data on their claims for payment indicating whether diagnoses were present on admission (POA) • Beginning October 1, 2008, CMS cannot assign a case to a higher DRG based on the occurrence of one of the selected conditions, if that condition was acquired during the hospitalization Procurement Sensitive

25. Statutory Selection Criteria • CMS must select conditions that are: • High cost, high volume, or both • Assigned to a higher paying DRG when present as a secondary diagnosis • Reasonably preventable through the application of evidence-based guidelines Procurement Sensitive

27. HACs Selected During IPPS FY 2008 Rulemaking • Foreign object retained after surgery • Air embolism • Blood incompatibility • Catheter-associated urinary tract infection • Vascular catheter-associated infection • Surgical site infection – mediastinitis after CABG • Pressure ulcers • Falls – specific trauma codes Procurement Sensitive

28. Candidate HACs • Surgical site infections following specific elective procedures • Staphylococcus aureus septicemia • Clostridium difficile-associated disease (CDAD) • Ventilator-associated pneumonia (VAP) • Deep vein thrombosis (DVT) / pulmonary embolism (PE) • Legionnaires’ Disease • Iatrogenic pneumothorax • Delirium • Extreme glycemic aberrancies Procurement Sensitive

29. Methicillin-Resistant Staph. aureus (MRSA) • Directly addressed, as MRSA could be the cause of any of the selected infectious conditions • Presence of MRSA as a colonizing bacterium does not constitute an HAC • Presence of MRSA is not a CC or MCC Procurement Sensitive

30. POA Indicator General Requirements • Present on admission is defined as present at the time the order for inpatient admission occurs • Conditions that develop during an outpatient encounter, including emergency department, observation, or outpatient surgery, are considered present on admission • Phased implementation Procurement Sensitive

31. POA Indicator General Requirements • POA indicator is assigned to • Principal diagnosis • Secondary diagnoses • External cause of injury codes (Medicare requires reporting only if E-code is reported as an additional diagnosis) Procurement Sensitive

32. POA Indicator Reporting Options

33. POA Indicator ReportingIPPS FY 2009 Proposed Rule • POA indicator • CMS is proposing to pay the CC/MCC for HACs that are coded as “Y” & “W” • CMS is proposing to NOT pay the CC/MCC for HACs that are coded “N” & “U” Procurement Sensitive

34. POA Indicator Reporting Requires Accurate Documentation “ A joint effort between the healthcare provider and the coder is essential to achieve complete and accurate documentation, code assignment, and reporting of diagnoses and procedures.” ICD-9-CM Official Guidelines for Coding and Reporting Procurement Sensitive

35. HAC & POAEnhancement & Future Issues • CMS seeks public comment on enhancements to the HAC payment provision in the IPPS FY 2008 proposed rule • Risk adjustment • Rates of HACs for VBP • Uses of POA information • Adoption of ICD-10 • Expansion of the IPPS HAC payment provision to other settings • Relationship to NQF’s Serious Reportable Adverse Events Procurement Sensitive

36. Relationship of HACs to NQF’s “Never Events” • In 2002, NQF created a list of 27 Serious Reportable Adverse Events, which was expanded to 28 events in 2006 • Of the HACs selected during IPPS FY 2008 rulemaking, 7 are on NQF’s list • Of the HACs candidates under consideration during IPPS FY 2009 rulemaking, 1 overlaps with NQF’s events Procurement Sensitive

37. Relationship of HACs to NQF’s “Never Events” • NQF’s selection criteria for Serious Reportable Adverse Events • Unambiguous: clearly identifiable and measurable • Usually preventable: recognizing that some events are not always avoidable • Serious: resulting in death or loss of a body part, disability, or more transient loss of a body function • Indicative of a problem in a health care facility’s safety systems • Important for public credibility or public accountability Procurement Sensitive

41. Combating Never Events • HAC payment provision • Conditions of Participation • VBP Plan—measurement, financial incentives, and public reporting • Coverage policy • Quality Improvement Organization (QIO) 8th and 9th Scopes of Work • The President’s FY 2009 Budget proposal • Prohibit hospitals from billing Medicare for never events • Require hospitals to report occurrence of these events or receive a reduced annual payment update Procurement Sensitive

42. Opportunities for HAC & POA Involvement • IPPS Rulemaking • IPPS FY 2009 proposed rule on display April 14, 2008 • 60 day comment period ended on June 13, 2008 • IPPS FY 2009 final rule released in August 2008 • Updates to the CMS HAC & POA website: www.cms.hhs.gov/HospitalAcqCond/ • Hospital Open Door Forums • Hospital Listserv Messages Procurement Sensitive

43. VBP Programs Hospital Value-Based Purchasing Procurement Sensitive

44. Hospital Quality Initiative • MMA Section 501(b) • Payment differential of 0.4% for reporting (hospital pay for reporting) • FYs 2005-07 • Starter set of 10 measures • High participation rate (>98%) for small incentive • Public reporting through CMS’ Hospital Compare website Procurement Sensitive

45. Hospital Quality Initiative • DRA Section 5001(a) • Payment differential of 2% for reporting (hospital P4R) • FYs 2007- “subsequent years” • Expanded measure set, based on IOM’s December 2005 Performance Measures Report • Expanded measures publicly reported through CMS’ Hospital Compare website • DRA Section 5001(b) • Report for hospital VBP beginning with FY 2009 • Report must consider: quality and cost measure development and refinement, data infrastructure, payment methodology, and public reporting Procurement Sensitive

46. Hospital VBP Workgroup Tasks & Timeline 2006 Oct Dec 2007 Jan 17 Apr 12 May June • Environmental Scan • Issues Paper • Listening Session #1 for Stakeholder Input on Issues Paper • Options Paper • Listening Session #2 for Input on Hospital VBP Options Paper • Final Design • Final Report, Including Design, Process, and Environmental Scan • Report Submitted to Congress Nov 21

47. Performance Model Overview • Hospitals submit data for all VBP measures that apply • CMS determines each hospital’s performance score on each measure: higher of 0 - 10 points on attainment or improvement • For each hospital, CMS aggregates scores across all measures within a domain (e.g., clinical process-of-care measures, HCAHPS) • CMS weights and combines each hospital’s domain scores to determine the hospital’s Total Performance Score • CMS translates each hospital’s Total Performance Score into an incentive payment using an exchange function Procurement Sensitive

48. .47 .87 Benchmark Attainment Threshold 4 7 1 2 3 6 5 8 9 Attainment Range Earning Clinical Process of Care Points: Example Measure: PN Pneumococcal Vaccination Hospital I Attainment Range Score Score baseline • .21 .70 performance • • • • • • • • • • • • • • • • • • • 9 2 3 4 5 6 7 8 1 Improvement Range Hospital I Earns: 6 points for attainment 7 points for improvement Hospital I Score: maximum of attainment or improvement = 7 points on this measure

49. Calculation of Clinical Process of Care Performance Score • Total Earned Points = • Sum of points earned across all reported measures • Total Possible Points = • Number of measures reported by hospital x 10 • Clinical Process of Care Performance Score = • Total Earned Points / Total Possible Points x 100 Procurement Sensitive

50. Earning HCAHPS Points: Example Dimension: Doctor Communication 50thBaseline Percentile 95thBaseline Percentile Attainment Threshold Benchmark Attainment Range Score Hospital I Score • 42nd baseline 63rd • performance 1 2 3 4 5 6 7 8 9 10 Attainment Range 1 2 3 4 5 6 7 8 9 Improvement Range Hospital I Earns: 3 points for attainment 4 points for improvement Hospital I Score: maximum of attainment or improvement = 4 points on this measure