Throughout the debate and the recent initial implementation steps of health care reform, medical experts and politicians alike have touted the shift away from the fee-for-service model to more coordinated care, leading to better outcomes and lowered spending.

Beginning this year, however, the financial health of hospitals will likely depend on just how well care is coordinated, as a relatively little-known yet critically important piece of the Affordable Care Act is enacted: the "Hospital Value-based Purchasing Program," overseen by the Centers for Medicare and Medicaid.What Medicare changes could mean to local hospitals

Value-Based Purchasing is a Medicare program started in January that seeks to hold hospitals accountable for the care they provide.

Last year, Medicare rolled out penalties for hospitals that have too many returning patients within a month. [chart of the effects of the two programs combined on hospitals in Sonoma, Marin and Napa counties]

The program ties hospital performance on a number of key metrics, both clinical and on patient satisfaction, directly to reimbursement rates on Medicare patients, which could have significant impact in either direction, hospital experts in the North Bay said.

It's of particular importance given the sway that Medicare has as a health care payer. And, as Medicare goes, often so goes private insurance, meaning other third-party payers, if they haven't already, will likely adopt similar metrics for payment to providers.

[caption id="attachment_69066" align="alignleft" width="180"] Cathy Camenga[/caption]

"It's getting more attention because CMS is doing it," said Cathy Camenga, vice president of performance improvement for St. Joseph Health, Sonoma County.  "This is not a surprise to hospitals. It shouldn't be."

Under the new program, which began in January this year, Medicare reduced its payments to all hospitals by 1 percent to achieve an estimated savings of $964 million. Hospitals are then given a score indicating how much money they are entitled to recoup, based on certain criteria set by CMS.

Payment to hospitals will be based on 12 clinical measures, including the effectiveness of treatment on heart disease, hospital-borne infections, pneumonia, diabetes and others. Seventy percent of the scores will be based on the clinical standards, while 30 percent will be determined by patient satisfaction surveys, which will include emergency room wait times and physician responsiveness, among others.

Hospitals will be scored on how well they match up with others in the industry as well as how much they improve over time.

By 2017, value-based purchasing will increase its penalty or bonuses to 2 percent -- a potentially significant number to any hospital's bottom line, said Mark Knight, a Santa Rosa-based health care consultant.  And, come 2015, the concept will be applied to physicians groups of 100 professionals or more, and to all doctors by 2017.

"The significance is only going to grow," Mr. Knight said. "Big systems are taking it very seriously."

Ms. Camenga and other local hospital professionals said that while the idea of making treatment decisions based on quality and outcome isn't new, the value-based purchasing program is perhaps the biggest example of financially rewarding or penalizing hospitals that either do or don't meet certain measures.

"More and more of our money is at stake as the measures ramp up," Ms. Camenga said. "Hospitals know how to deliver this care. It shouldn't be a surprise but the ante has been upped."

In California, 44 percent of hospitals will be getting a bonus under value-based purchasing, while 56 percent will be penalized, with an average change in payment of -.03 percent, according to a tally by Kaiser Health News.

Joel Sklar, chief medical officer of Marin General Hospital, said that while the concept of value-based purchasing is laudable, it does present some challenges to hospitals as they adapt to a new reality of payments under the ACA.

"I think conceptually it's the right thing," said Dr. Sklar, a cardiologist. "You should not just get paid for performing an operation."  

But, he added, "It's extremely difficult to have good data. I do think it's reasonable concept but it's extremely hard to administer. You have to get the whole hospital on board. It really becomes a team effort."

At Sutter Medical Center of Santa Rosa, officials emphasized recent patient satisfaction scores as well as a recent recognition from the Joint Commission, the leading health care accreditation group, on key quality measures for heart attack, heart failure, pneumonia and surgical care.

That's part of Sutter's effort to both coordinate care and reduce readmission rates, thereby preparing for the changes in Medicare reimbursement, spokeswoman Lisa Amador said.

Sutter is "as well prepared as we can be," Ms. Amador said.  "We're moving from a fee-for-service model, and that's pushing reimbursement away from the hospitals. The most expensive care is, of course, in the hospitals."

Ms. Amador pointed to another recent Sutter program, its Advanced Illness Management initiative, which focuses on late-stage chronic illness and provides nurse-led care management, palliative care, and advance care planning.

"All of these types of programs are really helping us to hone our ability to provide quality care," she said, which in turn should help Sutter meet the many goals of health care reform.

Similarly, St. Joseph Health has placed a strong emphasis on care in the ambulatory setting, as well as palliative and home care, Ms. Camenga said.

According a review of CMS data by the Harvard School of Public Health, the value-based program could differently affect some hospitals versus others, particularly trauma centers, research hospitals that train residents, and public hospitals that treat a large share of the uninsured.

But both trauma centers in the North Bay, Marin General and Santa Rosa Memorial, said they didn't expect the program to be any more difficult for them, largely because both have planned for better post-hospital discharge patient coordination and are actively working on stemming readmission rates.

Medicare will track the effectiveness of the new program through this year, and while much remains to be seen regarding patient outcomes and lowered spending, some health care experts see the financial incentive for hospitals as a critical move away from the previous, fractured fee-for-service model.

"There's controversy around whether paying people is the right thing to do," Ms. Camenga said. "I happen to think incentivizing people is the way to go. CMS is looking for us to be better integrated models versus stand-alone models, and they're holding us accountable through this method," she said, noting that hospitals, in the longer term, could receive significant bonuses.

"They've given us two ways," she said. "It's not entirely punitive."