NUR 8250 Module 1 Value-Based Payment Paper: Porter's Value Equation, Readmission Penalties and Unintended Harm Example

Paying for Outcomes Without Paying in Lives: A Paramus Hospital's Readmission Penalty and the Evidence on Value-Based Payment

Student Name

Doctor of Nursing Practice, Thomas Edison State University

NUR-8250: Health Economics and Finance

Mentor Name

Month Day, Year

Paying for Outcomes Without Paying in Lives: A Paramus Hospital's Readmission Penalty and the Evidence on Value-Based Payment

The Hospital's Exposure

Everything about this setting is invented: the hospital is a 310-bed community hospital in Paramus with about 9,000 Medicare admissions a year. Under the Hospital Readmissions Reduction Program, Medicare compares each hospital's risk-adjusted 30-day readmission rates for six groups of patients (heart failure, heart attack, pneumonia, chronic lung disease, bypass surgery and elective hip or knee replacement) with national expectations and reduces base payments for every Medicare stay when the hospital's rates run high. This hospital's reduction last year was 1.1 percent, about $1.3 million. Its heart failure readmission rate is the main driver. The board has asked its DNP-prepared nurse executive to explain the program and recommend a strategy.

The penalty's arithmetic surprises most board members. Because the reduction applies to every Medicare stay, not only to readmissions, a hospital pays for a high heart failure rate even on its hip replacements and pneumonia admissions. The maximum is 3 percent of base payments. The calculation also compares the hospital with national expectations rather than with its own past, which means a hospital that gets better can still pay a penalty when its peers get better faster. Starting in 2019, Medicare sorted hospitals into five peer groups by their share of stays for people covered by both Medicare and Medicaid; the aim was to ease the burden on hospitals that care for poorer communities.

What Value Means

Porter (2010) argued that the central goal in health care should be value for patients, meaning the results patients gain for each dollar that care costs. Outcomes, in his view, must be counted across all the care a condition needs, start to finish, rather than service by service, and include survival, the degree of recovery, the time and difficulty of getting there and how long the results last. Cost, likewise, should be counted across the whole episode. He warned that measuring only processes, or only the parts of care easiest to count, leads organizations to improve the wrong things.

This framing matters for the board because a readmission rate is one outcome, measured at one point, for one part of the care cycle. A strategy that lowers it while worsening survival or recovery would lower value even as it avoided a penalty.

Porter's view also changes who is accountable. In his framework, value is created by teams organized around a medical condition, such as heart failure, who manage the whole episode from diagnosis through recovery. A hospital organized by departments, in which the cardiology unit, the emergency department and the primary care practices each manage their own budgets, will struggle to improve value for heart failure patients, because no one owns the full cycle. The paper therefore proposes a heart failure service line leader, a nurse practitioner, with responsibility for outcomes from admission to 90 days after discharge.

What the Penalty Achieved

Zuckerman et al. (2016) tracked readmission and observation stay rates month by month in 3,387 hospitals over the years 2007 through 2015. Readmissions for the conditions targeted by the program fell from 21.5 percent to 17.8 percent, and rates for other conditions also dropped, reaching 13.1 percent after starting at 15.3. The decline sped up shortly after the Affordable Care Act passed in 2010 and then slowed after 2012. Observation stays climbed in those years too, yet inside individual hospitals, changes in readmissions were not linked with changes in observation stays, which suggested hospitals were not simply relabeling returns as observation.

What It May Have Cost

Wadhera et al. (2018) studied 8.3 million Medicare stays between 2005 and 2015 for heart failure, pneumonia and heart attack, comparing death trends within 30 days after discharge before and after the program. For heart failure, deaths after discharge were already rising slightly before the program, but rose further after it was announced and again after it took effect. For pneumonia, they were stable before and rose after the program. For heart attack, there was no increase. The extra deaths were mostly among patients who were not readmitted. Because the design was observational, it cannot show that the penalty caused the deaths, but it raised the possibility that pressure to avoid readmissions led some sick patients to be kept out of the hospital when they needed to come back.

A Strategy That Protects Patients

The recommendation is to lower readmissions by improving care across the heart failure episode rather than by discouraging returns. Four steps follow from the evidence. First, a heart failure transitional care program, with a nurse visit or call within 72 hours after discharge and a clinic visit within seven days, addresses the reasons patients come back. Second, the emergency department receives no readmission targets; a patient who needs admission is admitted. Third, the hospital tracks 30-day mortality after discharge and days alive and out of the hospital alongside readmissions, so that a falling readmission rate cannot hide rising deaths. Fourth, social risk is measured, since penalties fall more heavily on hospitals that serve poorer patients, and the data support the hospital's case to policymakers.

The Financial Picture

The transitional care program is estimated to cost about $620,000 a year for three nurses and a part-time pharmacist. If heart failure readmissions fall from 23 to 19 percent, the penalty would shrink substantially, and fewer avoidable readmissions would also free beds for new admissions. The board is told that the penalty reduction alone may not cover the full cost in the first year and that the case rests also on better outcomes for patients, which is the value Porter described.

The board also needs to see what happens if the hospital does nothing. Heart failure admissions are rising as the population ages, and if the readmission rate stays at 23 percent, the penalty is likely to grow. At the same time, two Medicare Advantage plans that now cover a third of the hospital's older patients are adding readmission targets to their contracts, with bonuses tied to performance. Inaction therefore carries its own financial risk, which the paper sets beside the cost of the program.

Measures

The hospital will report heart failure readmissions, 30-day mortality after discharge, days alive and out of the hospital, emergency visits within 30 days, the proportion with a clinic visit inside a week and the size of the penalty each year.

Conclusion

Payment tied to value is meant to pay for results per dollar, yet the readmission penalty looks at a single outcome at a single point. National readmissions fell under the program, and heart failure and pneumonia deaths after discharge rose in the same period, a pattern that calls for care. This hospital's strategy reduces readmissions through better transitions, refuses to discourage needed admissions, measures mortality beside readmissions and presents the board with an honest financial picture.

References

Porter, M. E. (2010). What is value in health care? New England Journal of Medicine, 363(26), 2477-2481. https://doi.org/10.1056/NEJMp1011024

Wadhera, R. K., Joynt Maddox, K. E., Wasfy, J. H., Haneuse, S., Shen, C., & Yeh, R. W. (2018). Association of the Hospital Readmissions Reduction Program with mortality among Medicare beneficiaries hospitalized for heart failure, acute myocardial infarction, and pneumonia. JAMA, 320(24), 2542-2552. https://doi.org/10.1001/jama.2018.19232

Zuckerman, R. B., Sheingold, S. H., Orav, E. J., Ruhter, J., & Epstein, A. M. (2016). Readmissions, observation, and the Hospital Readmissions Reduction Program. New England Journal of Medicine, 374(16), 1543-1551. https://doi.org/10.1056/NEJMsa1513024