Medicare Should Not Base Payments on Hospital Productivity

While I generally support financial incentives to drive improvements in healthcare – such as Medicare deciding it will no longer pay for treatment of certain medical mistakes – I’m concerned about an approach built into some of the reform proposals making their way through Congress.

According to The Wall Street Journal Health Blog, the proposals claim they will save $172.8 billion over 10 years by making productivity improvements a factor in increases of Medicare payments.

Every year, the feds adjust Medicare payments to hospitals, nursing homes and other facilities to account for inflation. The House bill would add in a second factor: productivity. Because workers’ productivity tends to increase over time, factoring in productivity increases would make Medicare payment increases lower than if they were tied only to inflation.

I can understand the thinking behind that idea. If productivity improvements reduce expenses, Medicare payments shouldn’t have to increase. And if payments are adjusted for productivity improvements industry-wide (I’m not sure whether that would be the case), that gives individual hospitals an incentive to improve their productivity.

The problem is first, productivity can be difficult to measure, and second (and more importantly), it’s the wrong metric.

What exactly will the government use as a measure of increased productivity? The number of patients served by a hospital? The staff-to-patient ratio? The number of procedures, such as X-rays, performed in a given time period?

None of these is a true indicator of whether a hospital is providing the best care to the greatest number of patients. Financial incentives should be tied to outcomes. Not paying for treatment of “never event” medical mistakes is one approach. Another might be to reward a hospital for a reduction in its rate of in-hospital infections – or in its mortality rate. I’m sure there are plenty of others.

I worry that tying payments to productivity will give us more treatment without better quality.


Tim McMahon said...

Ralph you are right. As is often true with the government they pick metrics they can't measure and/or don't provide incentives for the right cause. A similiar activity I have seen is the measure of our company's IT contractor. They measure the timeliness of closing service request orders. So what happens is a tendency to close your request without ensuring their solution solves your problems. This results in more requests which they use to justify more work. I think it would be better to measure the customer satisfication of the solution that IT provides. This would be value added.