The Changing Landscape of Payment Models

Healthcare payment models are undergoing a transformation, incentivizing providers to shift from the 

paradigm of “A for effort” to “A for outcomes.” These new payment models include penalties and 

incentives to manage care more efficiently and are gaining traction in this changing healthcare 

environment. One such model for a nursing home value-based purchasing program for readmissions

reduction, H.R. 4302 Protecting Access to Medicare Act of 2014, goes into effect in October 2018,1 

with the publication of facility readmission rates scheduled to go live on Nursing Home Compare by 

October 2017.2

The Latest on Hospital Penalties

On October 1, 2014, the beginning of federal fiscal year 2015, the Centers for Medicare & Medicaid 

Services (CMS) issued penalties for excess hospital readmissions that occurred between July 1, 2010,

and June 30, 2013, with more than 220 California hospitals being assessed penalties.3 In the previous

fiscal year 2014, hospitals were penalized up to 2 percent of their Medicare reimbursement for excess

readmissions in congestive heart failure, acute myocardial infarction, and pneumonia. The new fiscal 

year 2015 penalties not only add chronic obstructive pulmonary disease and total knee and hip 

arthroplasty into the penalty assessment, but increase the maximum fine to 3 percent. Moreover,

CMS recently announced that it will add coronary artery bypass graft readmissions to the hospital 

penalty list starting October 2016.

Efficiency as an Incentive

Medicare Spending Per Beneficiary (MSPB) is another hospital efficiency measure that was added to

the hospital value-based purchasing program on October 1, 2014. MSPB assesses Medicare Part A 

and Part B payments for services provided to a Medicare beneficiary during a spending-per-beneficiary 

episode that spans from three days prior to a hospital admission through 30 days after discharge. In the

value-based purchasing program, the highest performing hospitals (those with the highest efficiencies 

based on a multifactorial assessment) will receive incentive payments, while the lowest performing 

hospitals will be subject to a negative payment adjustment. By measuring cost of care through MSPB,

the transparency of care for consumers will increase, with hospitals involved in high-quality care at lower

cost to Medicare beneficiaries rewarded for their efforts.4,5

What This Means for Nursing Homes

The readmission penalties and MSPB measures are intended to encourage hospitals to work with 

post-acute care settings and community organizations to reduce Medicare spending. The impact 

to hospitals can be greatly influenced by what happens in the nursing home to avoid a 30-day 

readmission. It is in the best interests of both hospitals and nursing homes to work together to

identify opportunities for improvement that reduces cost, eliminates readmissions, and enhances 

the patient experience. Health Services Advisory Group, the California Quality Improvement 

Organization for Medicare, is ready to assist you in these efforts. For more information on value 

based purchasing or other Medicare quality improvement initiatives, please visit our website at

www.hsag.com or call us at 818.409.9229.