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Exact rate of reimbursement under healthcare reform is subject to question

I noticed what I think is a pretty big error on Page 58 of September’s IE magazine. In the third paragraph of “Lean, Six Sigma for Your Healthcare,” the author wrote, “Medical centers in the bottom 25th percentile lose all the money; those in the 26th to 74th percentile get theirs back entirely.”

According to the final ruling by the Centers for Medicare and Medicaid Services (CMS), this is not right. CMS says that roughly half of all participating hospitals will have a net increase in payments (an increase on the 1 percent that is withheld initially) and roughly half will see a net decrease (will not recapture all their 1 percent withheld). The exact rate of reimbursement will be based on the ranking of the hospital’s value-based purchasing (VBP) score and the total amount of hospital withholdings. The payment percentage will be distributed as a linear exchange function, so technically it is possible that those scoring in roughly the 40th percentile will lose money at the same rate that the 60th percentile gains money.

CMS is, of course, confusing, but I do not think that what was published in IE is accurate. CMS posted an FAQ session in March that is really good (see the response from question No. 50 and on).

For the author as well, do not forget that CMS also has published the readmission penalty rates for participating hospitals; 1 percent is up for grabs with VBP and 1 percent is up for grabs with readmissions, though I doubt any will lose it all. It will be interesting to see if it really affects the hospitals, or if they just roll the costs on to self-payers or other hospital revenue sources.

Also, I am still trying to have CMS answer a few questions regarding their reimbursement rate methodology using the “linear exchange function.” Are they using a programming model, are they using standard percentile ranking of scores, how do they expect to return all that is withheld or what do they plan to do with the retainer?

Roger D. Gruneisen
Lexington, Ky.

Editor’s response: According to Stephen Mayfield, who was the source on the article, “Lean, Six Sigma for Your Healthcare,” the principles of value-based purchasing are based on CMS withholding money from each hospital's payments. In turn, hospitals whose performance is on the bottom of the ranking will suffer financially while those at the top will be incentivized. Mayfield agrees with Roger Gruneisen's points related to the actual calculations of the payments, which are still confusing. And, as Gruneisen alluded, CMS doesn’t quite know how they will be administered. To get hold of the moving target, we advise practitioners to follow Gruneisen’s advice and look at the FAQ on the CMS website for the value-based purchasing program, www.cms.gov/Medicare/Quality-Initiatives-Patient-Assessment-Instruments/hospital-value-based-purchasing/index.html.

Not only does this site have the FAQ Gruneisen referenced, it has other links and downloads related to the VBP program. Download the presentation on the national provider call about the VBP program’s FY 2013 actual reports, current as of Oct. 4.

Our youngest fan

Heidi Winstead is the newest fan of IE magazine’s glossy cover art. My husband, [Timothy Winstead], works in industrial engineering at Walt Disney World and is a member of IIE. We had our first child, Heidi, last Halloween, and nearly since birth, she has been a fan of the glossy cover of IE magazine. We snapped a few pictures of her and your latest issue. We thought someone might get a kick out of it.Here’s to more ladies in science, math and engineering!

Kirsten Winstead
Orlando, Fla.

Correction

On Page 48 of the September issue, Figure 1 was incorrect. The correct figure is below. This efficient frontier diagram plots six solutions on a cost vs. benefit rating. Solutions that have a higher benefit rating and lower cost are on the efficient frontier, represented by the dashed line that connects solutions A, G and C.

This is the corrected Figure 1 from Page 48 of the September issue of Industrial Engineer magazine.

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