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Statewide, All-Payer Financial Incentives Significantly Reduce Hospital-Acquired Conditions in Maryland Hospitals


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Snapshot

Summary

An adaptation of the Centers for Medicare & Medicaid Services payment policy related to hospital-acquired conditions, Maryland’s Hospital-Acquired Conditions Program rewards and penalizes individual hospitals based on how well they do in avoiding hospital-acquired conditions thought to be preventable. At present, the worst-performing hospitals can lose up to 3 percent of inpatient revenues, whereas the best performers can earn up to a similar amount, with rewards and penalties based on relative performance on two components—actual versus expected rates of hospital-acquired conditions (with expected rates based on patient severity) weighted by an estimate of the incremental cost of each complication and improvement in the rate over time. The program significantly reduced hospital-acquired conditions during its first 2 years of operation, generating substantial cost savings.

Evidence Rating (What is this?)

Moderate: The evidence consists of pre- and post-implementation comparisons of hospital-acquired conditions in Maryland hospitals, along with estimates of the cost savings generated by the program from preventing such conditions.
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Developing Organizations

Maryland Health Services Cost and Review Commission
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Use By Other Organizations

As noted, CMS has its own program that creates financial incentives to reduce hospital-acquired conditions. CMS leaders are currently considering a new program more similar to the rate-based approach pioneered by MHAC.

Date First Implemented

2012
The first payment adjustments took place in fiscal year 2012, based on performance during the 2011 fiscal year.

Problem Addressed

A common and costly problem, preventable hospital-acquired conditions pose severe health risks to patients. Many if not most of these conditions can be avoided by using evidence-based care processes (such as proven infection control practices), but most hospitals fail to systematically use them. Hospitals’ poor performance stems in part from a lack of financial incentives, as the traditional fee-for-service (FFS) payment system in some cases pays hospitals more when a hospital-acquired condition arises.
  • A common, growing problem: An estimated 1.7 million hospital-acquired infections (HAIs) occur in the United States each year,1 and the prevalence has increased in recent years.2 This figure does not include other common hospital-acquired conditions not classified as infections, such as accidental lacerations during a procedure or improper administration of a medication. Before implementation of this program, roughly 6.6 percent of inpatient cases (53,000 out of 800,000) experienced 1 of the 49 hospital-acquired conditions initially included in the program.
  • Severe health risks: Numerous studies show that hospital-acquired conditions lead to longer hospital stays, greater use of later-generation antibiotics, higher costs, and increased risk of death.2 For example, roughly 99,000 people die each year due to HAIs.1
  • High costs: Before implementation of this program in Maryland, hospital-acquired conditions accounted for just more than 7 percent of total inpatient costs across the state, or roughly $621 million in 2009. Extrapolating this figure to the national level, hospital-acquired conditions were responsible for $8.2 billion in excess inpatient costs among Medicare recipients that year.3
  • Driven in part by misaligned incentives: The traditional FFS payment system used by most public and private payers—including the fixed diagnoses-related group (DRG) payment system used by Medicare—does not reward hospitals that do a good job in avoiding hospital-acquired conditions, or penalize those that do not. In fact, these systems often pay hospitals more when hospital-acquired conditions arise during the inpatient stay. To address this problem, the Centers for Medicare & Medicaid Services (CMS) stopped paying providers additional money (beyond the regular DRG-based payment) for a narrow set of hospital-acquired conditions thought to be completely or nearly completely preventable. However, this payment policy does not apply to hospitals in Maryland, an “all-payer” state in which the State government sets specific payment rates used by all payers for inpatient and outpatient services.

What They Did

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Description of the Innovative Activity

Maryland’s Hospital-Acquired Conditions Program (MHAC) rewards and penalizes individual hospitals based on how well they do in avoiding hospital-acquired conditions thought to be preventable. The worst-performing hospitals can lose up to 3 percent of inpatient revenues, whereas the best performers can earn up to a similar amount, with rewards and penalties based on relative performance on two components—actual versus expected rates of hospital-acquired conditions (with expected rates based on patient severity) weighted by an estimate of the incremental cost of each complication and improvement in the rate over time. Key elements of this value-based reimbursement policy are outlined below:
  • Identifying hospital-acquired conditions: Maryland’s Health Services Cost and Review Commission maintains a database that collects information on every patient discharged from a Maryland hospital (roughly 700,000 a year), including a detailed list of conditions present on admission. Consequently, the Commission can identify cases when a condition not present on admission arises during the inpatient stay, signaling a potential hospital-acquired condition. The Commission currently identifies any of 51 potentially preventable conditions as part of this program. (The 51 conditions were chosen from a list of 65 developed by 3M Health Information Systems; see the Planning and Development Process section for more details.)
  • Third-party audit: To ensure accuracy, the Commission engages an independent third party to conduct an audit of coding (via administrative and chart review processes) to ensure that hospitals report conditions present on admission accurately; these audits have generally found high levels of accuracy (much higher than across the nation), although one hospital was excluded the first year because of coding issues.3
  • Calculating performance: The Commission evaluates two components of an individual hospital’s performance: its severity-adjusted rate of hospital-acquired conditions, compared with an expected rate; and its degree of improvement, compared with the statewide average rate of improvement. More details on each component are provided below:
    • Actual versus expected performance (risk adjusted): The Commission calculates the rate of hospital-acquired conditions for each hospital for each targeted condition and then compares the actual rate to an “expected” rate, calculated as 85 percent of the statewide average in the previous year, with hospital-specific adjustments based on severity of patient mix. (In the past, the expected rate was equivalent to the statewide average, but program leaders recently decided to create a tougher standard by using a lower rate.) Performance on each condition is aggregated to create an overall score, with condition-specific scores weighted based on an estimate of the incremental cost or resource use associated with the condition. This estimate is derived from a statewide regression analysis of standardized charges in the previous year, adjusted for severity of illness.
    • Degree of improvement: The Commission evaluates each hospital’s rate of improvement for five high-cost hospital-acquired conditions that are widely accepted as offering a large opportunity for improvement: renal failure without dialysis, pneumonia and other lung infections, septicemia and severe infections, aspiration pneumonia, and venous thrombosis. Collectively, the total cost of these complications exceeds $125 million a year across the state. The Commission compares each hospital’s degree of improvement for the five conditions as a whole with the statewide average (median) level of improvement in the previous year.
  • Incentive payments: In July of each year, reimbursement rates for individual hospitals are adjusted up or down for each hospital case based on performance during the most recent calendar year for which data are available. For example, rate adjustments for fiscal year 2015 (which begins July 1, 2014) will be based on performance during the 2013 calendar year, with the 2012 fiscal year used as the baseline. The program builds in a 6-month lag between performance and baseline to allow time to collect the necessary data to produce baseline information. All adjustments are made in a revenue-neutral manner, with the better performing hospitals receiving net increases funded by reductions for the poorer performing hospitals. The size of the incentive has been increased over time and now totals a maximum of 3 percent, with 2 percent tied to actual versus expected performance and 1 percent tied to the rate of improvement, as outlined below:
    • Adjustments based on point-in-time performance: In fiscal year 2010, the maximum penalty tied to actual versus expected performance totaled 0.5 percent of revenues. This figure jumped to a maximum of 1.0 percent in fiscal year 2012, and then to a maximum of 2 percent in fiscal year 2013. That year, the best-performing hospitals received rewards of approximately $17 million, funded by similar-sized penalties assessed to the worst performers.
    • Adjustments based on improvement: Beginning in fiscal year 2015, hospitals will be rewarded or penalized up to 1 percent of their revenues based on improvement. Hospitals with above-average levels of improvement will receive rewards, funded by those with below-average levels of improvement. The size of the reward or penalty will be in proportion to the difference between the hospital rate of improvement and the benchmark.
  • Quarterly performance reports: Each quarter, hospitals receive a series of reports that help their leaders understand their performance and the financial impact of that performance, and identify specific opportunities for improvement.

Context of the Innovation

Through the Health Services Cost and Review Commission, the state of Maryland operates a prospective payment system that establishes specific payment rates for all inpatient and outpatient services provided by acute-care hospitals in the state. These rates apply to all public and private payers, with the state having a Federal waiver that exempts it from the national fee schedules established by Medicare and Medicaid (including any value-based payment systems). Because it sets rates for all payers, the Commission has the ability to create consistent payment incentives for hospitals across Maryland, something that few other State governments can do, since payment systems typically vary across payers.

For a number of years, the Commission has been experimenting with new payment systems to promote higher value care, in some cases acting in advance of and in other cases in tandem with evolving payment programs established by CMS. Historically, most of these efforts focused on controlling the growth of hospital costs, something that Maryland has been successful in doing.3 Recognizing that little attention had been paid to the potential for innovative payment systems to promote higher quality, Commission leaders decided in 2007 to develop pay-for-performance programs that encourage hospitals to improve quality of care. They began with the Quality-Based Reimbursement Program (QBR), a program modeled after CMS’s Hospital Value-Based Payment Program, which creates financial incentives for hospitals to adhere to evidence-based care processes, provide a good patient experience, and reduce mortality rates. (This program is featured in another profile, available at http://www.innovations.ahrq.gov/content.aspx?id=3849.) When CMS began developing and preparing to implement its no-payment policy for certain hospital-acquired conditions, Commission leaders decided it was appropriate to keep pace with this national program and develop a policy of its own that would apply to Maryland hospitals. To that end, the Commission created a work group of key stakeholders charged with developing a program that could work within Maryland’s all-payer system.

Did It Work?

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Results

The program significantly reduced hospital-acquired conditions during its first 2 years of operation, generating substantial cost savings.
  • Fewer complications: During the program’s first 2 years, complication rates fell by 15.26 percent across all hospital-acquired conditions tracked by the state (including those not covered by the program), from a risk-adjusted complication rate of 2.38 per 1,000 people in 2009 to a rate of 2.02 in 2011. For three-quarters of these conditions, rates fell in both years, and the declines over the 2-year period met the test of statistical significance for two-thirds of the conditions. Complication rates for those conditions included in the program fell by an even greater amount (18.59 percent, from 2.54 per 1,000 people in 2009 to 1.98 in 2011), while rates for excluded conditions rose slightly (2.76 percent), primarily because of large increases in two obstetrical complications. Overall, declines occurred more rapidly in infection-related complications than for other types of hospital-acquired conditions; part of this decline may have been due to a separate program—the Maryland Hospital Hand Hygiene Collaborative, which began in 2009.3
  • Significant cost savings: The 15.26-percent decline translates into more than $100 million in cost savings for the health care system in Maryland, with the largest savings coming from avoidance of urinary tract infections, septicemia and other severe infections, and pneumonia and other lung infections. If similar results could be achieved nationwide, the Medicare program would save an estimated $1.3 billion over 2 years, whereas the health care system as a whole would save $5.3 billion.3

Evidence Rating (What is this?)

Moderate: The evidence consists of pre- and post-implementation comparisons of hospital-acquired conditions in Maryland hospitals, along with estimates of the cost savings generated by the program from preventing such conditions.

How They Did It

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Planning and Development Process

Key steps included the following:
  • Forming workgroup: A hospital-acquired conditions workgroup formed that comprised clinical and financial staff from payers and hospitals. This group played a key role in planning and implementing all aspects of the program.
  • Deciding on broad, rate-based (rather than narrow, nonpayment) approach: Some workgroup representatives expressed concerns about the approach being used by CMS in developing its payment policies related to hospital-acquired conditions, including the fact that it did not pay hospitals more if the complication was present and that it only covered a narrow set of complications thought to be completely or nearly completely preventable. As an alternative approach, the workgroup decided on a rate-based (rather than nonpayment) approach for a broader set of hospital-acquired conditions.
  • Developing initial list of included complications: Workgroup members collaborated with staff at the Commission and 3M to develop the initial list of included conditions. They began with what then was a list of 64 potentially preventable complications developed as part of the 3M Health Information System. The list included harmful events or negative outcomes unlikely to be a consequence of the natural progression of an underlying illness. Examples of harmful events include an accidental laceration during a procedure or improper administration of a medication, whereas a negative outcome would be development of pneumonia or a urinary tract infection after hospital admission that results from care processes or treatments. The group ultimately decided to exclude 15 complications on the original list because of the statistical insignificance of the incremental costs or to clinical or measurement concerns. For example, during the public vetting process, providers noted that coding and testing practices for one type of infection (Clostridium difficile colitis) varied greatly across hospitals, preventing valid measurement.
  • Developing conservative measurement methodology: The workgroup decided to adopt a conservative methodology for measuring performance. To that end, the definitions of hospital-acquired conditions included a number of clinical exclusions. For example, counts exclude certain complications determined to be redundant or a natural consequence of a diagnosis present on admission (and thus not preventable). In addition, the group decided to exclude patients with certain present-on-admission diagnoses (transplants, HIV, neonatal anomalies, major trauma) and patients who are younger than 1 month old from calculations of all rates. Last, the group initially adopted a conservative approach to benchmarking performance by choosing the statewide average in the previous year. (As noted, this benchmark has since been lowered to 85 percent of the statewide average.)3
  • Ongoing feedback and refinement: The Commission receives feedback and input on an ongoing basis from key stakeholders, with refinements made to the coding, performance measurement methodologies, and other aspects of the program as appropriate. For example, although the list of included conditions has remained relatively stable, a few have moved into and out of the program over time.

Resources Used and Skills Needed

  • Staffing: The Commission dedicates approximately two full-time equivalent (FTE) employees to the MHAC program. These personnel include associate directors and several analysts, each of whom works part-time on MHAC. One associate director has a nursing background and expertise in quality and policy issues. The second has a background in clinical quality and analytics; this individual produces the targets, benchmarks, thresholds, and tools to assist hospitals in measuring and improving performance. At the hospital level, program-related requirements are generally folded into the responsibilities of existing staff. Because Maryland is an all-payer state, hospitals may have a lower overall quality reporting burden than in other states in which multiple payers have payment reform programs, each with different requirements.
  • Costs: In addition to the compensation costs for the staff who work on the program, the Commission hired an outside firm that conducts the regular audits of hospital coding. This company also performs other auditing work at Maryland hospitals; the estimated cost of the MHAC component is roughly $70,000 per year.
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Funding Sources

Maryland Health Services Cost and Review Commission
The Health Services Cost and Review Commission funds program-related costs out of its internal operating budget; as noted, the payment adjustment methodology is designed to be revenue neutral.end fs

Tools and Other Resources

More information on this program can be found at: http://hscrc.maryland.gov/init_qi_MHAC.cfm.

More information on the 3M software used as part of this program can be found at http://solutions.3m.com/wps/portal/3M/en_US/Health-Information-Systems/HIS/Products-and-Services/Products-List-A-Z/APR-DRG-Software/.

Adoption Considerations

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Getting Started with This Innovation

  • Involve key stakeholders in planning and vetting program: Although it took a long time to put the program in place, the iterative, multistakeholder process proved necessary and worthwhile, allowing key players (i.e., payers, hospitals) to have their concerns raised and addressed.
  • Start with modest rewards and penalties: Winning the support of key stakeholders may be easier if the potential rewards and penalties start out small, thus giving an opportunity for any issues or challenges to be addressed before the program starts having a major financial impact on hospitals.
  • Include broad array of complications, but define them conservatively: The Commission chose to include a broad array of hospital-acquired conditions but also to allow for many clinical exclusions (as described earlier). The Commission also initially chose a conservative performance benchmark (the statewide average), meaning that hospitals did not have to achieve top-notch performance to reap rewards or avoid penalties in the early years of the program.
  • Ensure appropriate mix of measure types across programs: As noted, the MHAC program is a complement to the Maryland QBR program, which initially included only evidence-based process measures, because at this time these types of measures were the only ones that had been widely tested and accepted. Moreover, these measures did not require use of sophisticated and sometimes controversial risk-adjustment methodologies. As the science of measurement has improved and other types of measures have become accepted, program leaders decided to broaden the measures used in QBR by adding outcomes and patient experience measures and to launch the MHAC program to evaluate performance on a different type of quality measure: hospital-acquired conditions. Any organization considering adopting these kinds of programs today should incorporate a mix of measurement types across programs, including but not limited to hospital-acquired conditions.

Sustaining This Innovation

  • Conduct initial and ongoing audits and monitoring: Many hospitals do not know how to properly code conditions that are present on admission. In fact, as noted, one hospital did such a poor job that it had to be excluded from the program in the first year. To address this issue, the Commission audits each hospital’s coding practices once every 3 years and receives quarterly reports that help to identify hospitals that may be having problems. The Commission sometimes imposes fines on hospitals with coding problems and, in some cases, has worked with hospitals to identify and address issues. For example, one hospital had a “rogue coder” who needed additional training and support.
  • Consider growing rewards and penalties over time: As noted, leaders of the MHAC program have increased the size of the total potential rewards and penalties over time, beginning with 0.5 percent of revenues and subsequently increasing this amount in stages, first to 1.0 percent, then to 2.0 percent, and most recently to 3.0 percent.
  • Consider “upping ante” on benchmarks over time: Once hospitals get used to and accept the program and measurement issues are addressed, tougher benchmarks can be adopted for evaluating performance. For example, as noted, MHAC leaders recently changed the benchmark used to gauge expected performance from 100 percent to 85 percent of the statewide average. (A lower rate of hospital-acquired conditions represents better performance, so lowering the benchmark creates a tougher standard.)
  • Provide benchmarks and thresholds as early as possible: Hospital leaders need to understand the performance targets they are being evaluated against as early as possible. In the past, these targets have sometimes not been available until after the performance year started. This issue is being addressed so that the targets can be known ahead of time.
  • Provide actionable tools: Hospitals need actionable reports, tools, and other resources to help them understand and improve performance, including detailed information that pinpoints specific areas in which performance may be lagging. The goal should be to provide this information on a quarterly basis.

Use By Other Organizations

As noted, CMS has its own program that creates financial incentives to reduce hospital-acquired conditions. CMS leaders are currently considering a new program more similar to the rate-based approach pioneered by MHAC.

More Information

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Contact the Innovator

Dianne Feeney
Associate Director, Quality Initiatives
State of Maryland Department of Health and Mental Hygiene
Health Services Cost Review Commission
4160 Patterson Avenue
Baltimore, MD 21215-2299
(410) 764-2582
E-mail: dianne.feeney@maryland.gov

Sule Calikoglu, PhD
Associate Director of Performance Measurement
Health Services Cost and Review Commission
4160 Patterson Avenue
Baltimore, MD 21215
(410) 764-2522
E-mail: sule.calikoglu@maryland.gov

Innovator Disclosures

Ms. Feeney and Dr. Calikoglu reported having no financial interests or business/professional affiliations relevant to the work described in the profile.

References/Related Articles

More detailed information on this program is available at: http://www.hscrc.state.md.us/init_qi_MHAC.cfm.

Calikoglu S, Murray R, Feeney D. Hospital pay-for-performance programs in Maryland produced strong results, including reduced hospital-acquired conditions. Health Aff. 2012;31(12):2649-58. [PubMed] (The online Appendix to this article also contains more detailed information about the program.)

Footnotes

1 Klevens RM, Edwards JR, Richards CL Jr, et al. Estimating health care-associated infections and deaths in U.S. hospitals, 2002. Public Health Rep. 2007;122(2):160-6. [PubMed] Available at: http://www.cdc.gov/HAI/pdfs/hai/infections_deaths.pdf (If you don't have the software to open this PDF, download free Adobe Acrobat ReaderĀ® software External Web Site Policy.).
2 Siegel JD, Rhinehart E, Jackson M, et al. Management of multidrug-resistant organisms in healthcare settings, 2006. Atlanta (GA): U.S. Centers for Disease Control and Prevention. The Healthcare Infection Control Practices Advisory Committee. 2009 Dec 29. Available at: http://www.cdc.gov/hicpac/mdro/mdro_3.html.
3 Calikoglu S, Murray R, Feeney D. Hospital pay-for-performance programs in Maryland produced strong results, including reduced hospital-acquired conditions. Health Aff. 2012;31(12):2649-58. [PubMed] (The online Appendix to this article also contains more detailed information about the program.)
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Disclaimer: The inclusion of an innovation in the Innovations Exchange does not constitute or imply an endorsement by the U.S. Department of Health and Human Services, the Agency for Healthcare Research and Quality, or Westat of the innovation or of the submitter or developer of the innovation. Read more.

Original publication: July 03, 2013.
Original publication indicates the date the profile was first posted to the Innovations Exchange.

Last updated: July 03, 2013.
Last updated indicates the date the most recent changes to the profile were posted to the Innovations Exchange.