CMS Announces Value-Based Bombshell – What’s the Impact on Rural Hospitals?

February 3, 2015
iVantage Health

by Christopher Wentworth and Charlie Boyle, iVantage Health Analytics

Last week, HHS Secretary Sylvia M. Burwell announced ambitious plans to move from “volume to value in Medicare payments” by accelerating the share of Medicare fee-for-service (FFS) payments that are tied to quality and value and reimbursed through alternative payment models. For rural hospitals in America, the implementation of Medicare’s Value-Based Purchasing (VBP) program has long loomed as a financial time bomb. CMS announced that new goals have been set for expanding the program which links hospital performance to Medicare reimbursement[1] and it ushers in major changes for the country’s Critical Access Hospitals.

CMS now intends for 85% of all hospital-based Medicare reimbursement to be tied to performance-based metrics by 2016, with that number to rise to 90% by 2018. In order to attain those goals, VBP or an analogous program will need to expand deeper into the rural space, very likely to include Critical Access Hospitals.

Do value-based reimbursement policies deserve their ominous reputation? Preliminary analysis suggests not. In fact, based on the current performance of rural healthcare, these institutions should actually welcome the introduction of such measures. If rural hospitals can keep pace with their peers and achieve Medicare’s chosen performance goals, they will see immediate benefits to their bottom line. In fact, if rural facilities continue their current performance, they stand to earn back every Medicare dollar withheld in 2016, as well as $20 million in bonus revenue. In 2018, rural healthcare could see that additional revenue increase to $24 million!

Findings: Predicted Impact

To analyze the impact of these proposed changes, iVantage applied current VBP scores for 1,351 rural acute-care hospitals to 2016 program rules and payback factors and assumed that in 2016, 85% of each hospital’s Medicare revenue would be tied to the VBP program, increasing to 90% in 2018.

In 2016, this would result in almost $85 million in Medicare revenue withheld from rural hospitals. At current levels of performance, the group would earn back all of those withheld dollars, as well as more than $20 million in additional revenue.

This is a significant amount of revenue to add to the rural pool, but if every facility performed perfectly on every measure, they could earn a further $114 million from the Medicare program. If 2018 sees a higher percentage of revenue withheld, as predicted, rural hospitals could see $103 million tied to performance measures, and expect to earn back that revenue, plus $24 million in additional revenue. Perfect performance could generate up to $137 million in further payments.

Value-based reimbursement policies, by design, create winners and losers. Certain facilities who underperform compared to national benchmarks will likely forfeit significant amounts of Medicare revenue, while those dollars are used to compensate those facilities who excel. These winners and losers will likely be more concentrated in some regions and states more than others. For instance, we predict that in three states (Connecticut, Maryland, and South Carolina), rural hospitals would forfeit more of their withheld revenue than they earn back in bonus dollars, meaning the policy change would result in a net loss for each state’s rural facilities. However, each of the 47 other states can expect to see a net financial gain for their rural hospitals, taken in the aggregate. If rural facilities respond to the increased pressures of value-based reimbursement policies by setting intelligent goals and monitoring them closely, it is likely that hospital performance will improve. CMS’ policies ensure that financial reward will follow closely behind.

Medicare Revenue Withheld

The map below highlights the predicted value of Medicare reimbursements withheld, by state, in 2016.

VBP Image 1

The top five states by total rural revenue withheld for are Illinois, Texas, Minnesota, California, and Wisconsin, representing nearly 23% of the national rural total. The median rural facility would see $40,000 withheld in 2016, increasing to more than $48,000 in 2018.

Bonus Revenue

The map below shows the share of bonus dollars each state would receive, expressed as a percentage of their total withheld Medicare revenue. New England and Western states would win the largest share of the additional revenue, while Southern states and those in the Rust Belt would see smaller amounts, or even forfeit revenue.

VBP Image 2

Now is the time for rural hospitals to know where they stand and set achievable goals toward transformative change, manage and track progress, and create accountability for measurable improvement.

What Are Rural Hospitals Leaving on the Table?

Unless a facility achieves a perfect performance record, it is sure to leave money on the table. All told, rural hospitals could earn up to $113 million in additional revenue in 2016 and more than $137 million in 2018.

The median rural hospital will leave more than $40,000 in potential value-based revenue on the table in 2015, and more than $50,000 in 2018.


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