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Publication Briefs

Despite Individual Hospital Performance, Pay-for-Performance Program May Result in Small Changes in Medicare Payments

The Affordable Care Act mandates that the Centers for Medicare and Medicaid Services (CMS) initiate a Medicare-funded pay-for-performance program for all acute-care hospitals, which is scheduled to begin in October 2012. This will be the largest Medicare quality improvement initiative for hospitals to date, and will include a pool of $850 million for payment incentives in its first year. While the program has the potential to redistribute hospital funding away from hospitals that perform poorly and toward those that perform well, the program's likely effect on payment changes for more than 3,000 participating hospitals is unclear. Moreover, there is concern about the program's potential to redistribute payments away from geographic regions and hospitals that may already face resource limitations, while rewarding hospitals that would have performed well in the absence of pay-for-performance. Using 2009 data — the most recent year for which hospital performance data were available — investigators in this study calculated hospital performance scores and projected payments under the new program for all eligible hospitals (n=3,018). Specifically, this study examined regional differences in hospital performance, expected changes in Medicare payments, and hospital characteristics associated with changes in expected payments.


  • Despite differences across hospitals in terms of performance, expected changes in payments from Medicare under the new hospital pay-for-performance program were small, even for hospitals with the best and worst performance scores. Almost two-thirds of hospitals would experience changes of just a fraction of 1%, and only eight hospitals would have a change of greater than 0.75%.
  • Hospital performance varied substantially across states, which translated into regional differences in Medicare payments. For example, in New Hampshire, one of the states with the highest scores, average Medicare payments would increase by $66,948 (0.24%), while in Hawaii, one of the states with the lowest scores, average Medicare payments would decrease by $25,596 (0.20%).
  • Changes in expected hospital payment also varied by most hospital characteristics. For example, the percentage of hospitals that would have an increase in Medicare payment by 0.25% or more varied by teaching status: 10% of hospitals with a major teaching affiliation were in this category compared to 20% of non-teaching hospitals.
  • These results raise questions about whether the new pay-for-performance program will substantially alter the quality of hospital care, and findings highlight the challenges of designing effective quality improvement incentives.


  • This study was a simple description of the expected outcomes of the new CMS pay-for-performance program, as if it had been in place in 2009. Investigators could not address how hospitals will actually perform under the program in 2012. In addition, investigators describe changes expected to occur in the program's first year only.

Dr. Werner was supported by an HSR&D Career Development Award and is part of HSR&D's Center for Health Equity Research and Promotion, Philadelphia, PA.

PubMed Logo Werner R and Adams Dudley R. Medicare’s New Hospital Value-Based Purchasing Program is Likely to Have Only a Small Impact on Hospital Payments. Health Affairs September 2012;31(9):1932-40.

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HSR requires notification by HSR-funded investigators about all articles accepted for publication. These journal articles are reviewed by HSR and publication briefs or summaries are written for a select number of articles that are then forwarded to VHA Central Office leadership to keep them informed about important findings or information. Articles to be summarized are selected by HSR based on timeliness of the findings, interest of leadership, or potential impact on the organization. Publication briefs are written for only a small number of HSR published articles. Visit the HSR citations database for a complete listing of HSR articles and presentations.

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