Health Care

Hospitals Chase Medicare's Performance-Based Bonuses


Hospitals Chase Medicare's Performance-Based Bonuses

Photograph by Paul Harizan

The chief executive officer of a Florida hospital decided to go undercover. He skipped shaving for two days late last year, donned a baseball cap, and laid down on a stretcher to feign being ill. The ruse was all part of an effort by HCA Holdings (HCA), the biggest for-profit hospital company in the U.S., to find out what it’s really like to be one of its customers. “He was able to see things the way patients do,” says Jonathan Perlin, chief medical officer at HCA, based in Nashville. “I can assure you every ceiling tile with a water stain got replaced.”

Hospitals across the U.S. are trying to make patient stays more pleasant—because there’s money waiting for them if they do. The government will dole out almost $1 billion this year in bonus Medicare payments to hospitals, based in part on how well they perform on patient surveys.

Under the plan, the federal Medicare program for the elderly is withholding 1 percent of payments, or a projected $964 million in fiscal 2013, from more than 3,000 hospitals. The government will pool the money and award it to those that meet Washington’s expectations. Thirty percent of the payments—about $300 million—will be decided using the surveys. Clinical measures will determine the rest. Patients are asked whether their room was comfortable, if it was quiet at night, and how well their pain was controlled. Estimates of how much individual hospitals may get aren’t yet available, but high marks could mean millions of dollars for larger hospitals, says Sheryl Skolnick, managing director at CRT Capital Group, which tracks hospital performance.

As welcome as the improvements may be, numerous studies based on earlier efforts to tie bonuses to doctors’ performance suggest the cash payments may improve the quality of hospital food and pillows more than medical care. In 2004 the U.K.’s national health system began a similar effort to pay primary care doctors as much as 25 percent more for reaching a variety of goals, including counseling patients on reducing blood pressure. Although most doctors met the standards and got the money, researchers found the program resulted in no overall change in blood pressure control nationwide and no decline in heart attacks, strokes, or deaths, according to a 2011 paper published in the British Medical Journal.

A 2008 study of Massachusetts doctors, published in Health Affairs, noted that insurance plans that paid doctors incentives to improve the overall health of their patients—from $10,000 for a small practice to $2.7 million for one of the largest—saw no better results than doctors whose insurers didn’t offer bonuses. Research also casts doubt on the potential effectiveness of Medicare bonuses. In 2003 the government began a six-year experiment awarding select hospitals 1 percent to 2 percent higher payments to bring down death rates. Medicare claimed hospitals in the program improved quality of care by 18.6 percent. A study published in 2012 in the New England Journal of Medicine found hospital deaths did decline modestly over the six years—but deaths dropped by the same amount in hospitals that didn’t get the money.

The U.S. is standing by the logic of its new program. “Asking patients directly is the best way to measure care,” says Patrick Conway, chief medical officer for the Centers for Medicare & Medicaid Services. It may at least result in better bedside manner. The Cleveland Clinic uses noise meters to make sure hospital corridors are quiet at night and does role-playing exercises for doctors to improve their communication skills. HCA is encouraging executives across the company to pose as secret shoppers to spot shortcomings that could lead to low marks. All this effort may make patients dread hospitals less, but Dan Ariely, a professor of behavioral economics at Duke University, doubts it will improve their health. “We have to admit,” he says, “we haven’t really found the right measures.”

The bottom line: Medicare will pay nearly $1 billion to hospitals that meet government goals. Yet research shows such incentives rarely improve patient health.

Pettypiece is a reporter for Bloomberg News in New York.
Armour is a reporter for Bloomberg News in Washington.

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