Hospitals Say They’re Penalized by Medicare for Improving Care.

Reed Abelson has an excellent piece in this morning's N.Y. Times about the Medicare prospective payment system (PPS) for reimbursing hospitals for in-patient care. The upshot is that hospitals that creatively and effectively produce the best health outcomes for their patients are often systematically punished by a reimbursement system that pays on the basis of admissions and discharges, rather than outcomes. The lead example in the article is Utah's Intermountain Health Care network, which

says it saves at least 70 lives a year. By giving the right drugs at discharge time to more people with congestive heart failure, Intermountain saves another 300 lives annually and prevents almost 600 additional hospital stays.

But under Medicare, none of these good deeds go unpunished.

Intermountain says its initiatives have cost it millions of dollars in lost hospital admissions and lower Medicare reimbursements. In the mid-90's, for example, it made an average profit of 9 percent treating pneumonia patients; now, delivering better care, it loses an average of several hundred dollars on each case.

"The health care system is perverse," said a frustrated Dr. Brent C. James, who leads Intermountain's efforts to improve quality. "The payments are perverse. It pays us to harm patients, and it punishes us when we don't."

And it's not just the providers who think the system is perverse:

"Right now, Medicare's payment system is at best neutral and, in some cases, negative, in terms of quality — we think that is an untenable situation," said Glenn M. Hackbarth, the chairman of the Medicare Payment Advisory Commission, an independent panel of economists, health care executives and doctors that advises Congress on such issues as access to care, quality and what to pay health care providers.

In a letter published in the current edition of Health Affairs, a scholarly journal, more than a dozen health care experts, including several former top Medicare officials, urged the program to take the lead in overhauling payment systems so that they reward good care.

Even the departing head of the Medicare program agrees with this assessment: "'It's one of the fundamental problems Medicare faces,' said Thomas A. Scully, who as the administrator of the Centers for Medicare and Medicaid Services has encouraged better care by such steps as publicizing data about the quality of nursing home and home-health care and by experimenting with programs to reward hospitals for their efforts."