Four CMS Initiatives That May Reshape Hospital Reimbursement


The passage of the Affordable Care Act empowered CMS to encourage the healthcare market to refine or in some cases develop new delivery models through changing reimbursement structures as the market evolves from pay for volume to a pay for quality.

These two reimbursement models are at odds as volume keeps the lights on for providers, but new incentives and penalties related to quality are challenging their profitability.  This is an important point as the new initiatives encouraged by CMS can carry both a carrot and a stick but often just a stick.

  • Hospital Acquired Conditions (HAC) and Readmission Reduction Programs are mandatory programs that penalize lower performing hospitals.
    • HAC’s focus on patient safety and infection measures will force hospitals to evaluate their operating room workflow and their ability to ensure proper sterilization.  Surgical instrument tracking solutions will play a critical role in supporting these efforts (see my colleague Elliot Amundson’s recent blog on that topic); and readmissions in the context of the current pay-for-volume reimbursement model can be challenging as hospitals have received additional reimbursement for readmissions.
    • With the Readmission Reduction Program, hospitals may weigh the loss of revenue through readmission reduction efforts against the potential penalty for those with higher readmission rates than the national average. At what point does the penalty outweigh the investment to reduce readmissions plus the incremental revenue that it provides?
  • In the case of bundled payments, a participating provider selects a specific condition or procedure and accepts a capitated payment.  This arrangement with CMS gives the provider an opportunity to bear the risk and reward for the cost of delivering care for a particular condition or procedure.  Providers can capture the financial rewards by finding and correcting current inefficiencies in the delivery of care and redesigning the care coordination efforts across multiple parties for that particular condition or procedure.
  • Value-Based Purchasing also creates an opportunity for providers to participate in both risk and reward based on three key areas: clinical process, patient experience and mortality.  Depending on a hospital’s score against the industry average and its individual performance over time, a hospital will receive either an increase or decrease in reimbursement.  Value-Based Purchasing attempts to ensure that hospital efforts to decrease the cost of care do not sacrifice efforts to provide quality care.

The graphic below adds some additional context for these four programs:


Hospitals continue to invest time and money to meet ever-changing regulatory focus and requirements, and many are consumed with the ambitious goals of the Meaningful Use provisions in the HITECH Act.  With the functionality and investment now taking shape, hospitals will be able to address CMS’s ultimate goals of increased patient safety, improved care coordination and better overall outcomes.  Companies positioned to support hospitals in these new endeavors will find increased interest and engagement from the provider community.

Let us know what you think.

Jay Ahlmer
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