New bills would tie nursing home performance to Medicare payments

Lawmakers on both sides of the aisle want to boost Medicare payments for nursing homes if they enhance the care provided to their patients.

The new legislation is an example of how top policymakers are grappling with poor quality of care in the healthcare sector. Some legislators believe a solution to the problem of medical errors and patient neglect can be achieved through something that the industry will notice: financial incentives.Lawmakers on both sides of the aisle want to boost Medicare payments for nursing homes if they enhance the care provided to their patients.

The new legislation is an example of how top policymakers are grappling with poor quality of care in the healthcare sector. Some legislators believe a solution to the problem of medical errors and patient neglect can be achieved through something that the industry will notice: financial incentives.

Sen. Ron Wyden (D-Ore.) and Rep. Phil English (R-Pa.) each introduced similar legislation last month that would reward nursing homes for providing excellent care while penalizing those that lag behind performance targets. The bills echo similar themes of a Centers for Medicare and Medicaid Services (CMS) pilot project that rewards some Premier Inc. hospitals for providing high-quality care.

Meanwhile, the new Medicare drug law includes a provision that says hospitals can collect government payment updates only after they provide the government with quality-of-care information.

If the Wyden-English legislation is enacted, the top 10 percent of nursing homes would receive a bonus of 2 percent on top of their annual payment update while the top 20 percent would receive a 1 percent boost. Nursing homes receive a payment adjustment each year that parallels inflation and typically increases their payments between 2 and 3 percent. The payment increase for 2005 will be 2.8 percent. Those facilities that on average fall below the quality benchmarks, after a phase-in period that ends in 2006, would lose one percentage point of that annual update.

Rep. Marcy Kaptur (D-Ohio) has also introduced legislation that would tie Medicare payment rates to nursing home performance.

“This is where the world is going,” said former CMS Administrator Tom Scully, a lobbyist for Alston & Bird LLP who represents nursing homes. Stephen Guillard, chairman of the Alliance for Quality Nursing Home Care, a coalition of some of the largest nursing-home operators, said momentum is growing both in Congress and within the administration toward a pay-for-performance approach.

Scully, who was a strong advocate of pay for performance while at CMS, told The Hill
it would be “crazy to pay everybody the same,” likening the Medicare payment situation to paying the same for a Mercedes as for a Yugo.

Scully said that “most people in healthcare” know that to improve quality a provider’s performance has to be recorded, adding that it is not just a Republican issue. “Plenty of Democrats feel the same way,” Scully said.

The Alliance for Quality Nursing Home Care strongly supports the measure, and AARP has endorsed it. Former Rep. Hal Daub (R-Neb.), who is now the president and CEO of the largest association representing long-term-care providers, the American Health Care Association (AHCA), said the AHCA has not taken a position on any of the bills but endorses and supports the concept of quality measurement. Daub said that the idea “sounds great” but that, in implementing it, the complexity of long-term care must be taken into account.

Scully said he hopes that Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and House Ways and Means Committee Chairman Bill Thomas (R-Calif.) will move the legislation when it is reintroduced next year. Scully said, “Both have been aggressive proponents of quality improvement,” but added that the legislation’s prospects will be tied to its price tag.

Supporters of the bill say it would not be costly, even if all nursing homes improve the quality of their care.

Scully argued that the cost to Medicare would decrease because better quality care means fewer complications. “If everybody is doing a better job, costs go down,” he said.

The Congressional Budget Office has not scored the legislation.

While participation in the reporting of quality-of-care data is voluntary, nursing homes that do not submit the information would not receive a payment update.

Scully called this provision a “very aggressive form of volunteering,” adding that “no nursing home can afford not to participate.”

Proponents of the legislation said that it would not bankrupt any nursing home.

Scully added that if some nursing homes cannot improve to reach the benchmark levels, “maybe they shouldn’t be in business.”

The former CMS chief said taking the lead on quality improvement could help providers next year, when Congress will consider whether to extend an add-on payment for nursing homes. Many nursing-home operators are struggling financially, and not extending the add-on could prove devastating for them, nursing home advocates argue. However, the GOP-led Congress is expected to ratchet back federal spending next year and healthcare providers could feel the brunt of these expected cuts.