New HAC Payment Penalty on the Horizon: Are Teaching Hospitals Prepared?

By Scott Wetzel

One of the Affordable Care Act (ACA)’s main goals is to shift providers from a fee-for-service system to one that pays for performance. In October of 2014, the ACA’s third and final hospital pay-for-performance quality program will commence. The Hospital Acquired Conditions (HAC) Reductions Program will result in a 1 percent payment penalty to  hospitals that score poorly on selected quality measures—estimated to be up to a quarter of institutions. Are hospitals ready for the impact of this new program? For those that are a member of the Association of American Medical College’s (AAMC) Council on Teaching Hospitals and Health Systems (COTH), the answer likely is no.

A preliminary analysis by the AAMC shows that approximately half of the 243 acute inpatient COTH hospitals will be penalized, double the rate of hospitals nationally. Why are so many COTH members expected to perform poorly? The answer is multifaceted, but one of the quality measures selected for the program offers a partial explanation.

Initially, hospitals will be scored on two types of measures: 35 percent of the score will come from performance on a patient safety composite, and the remaining 65 percent from two Centers for Disease Control (CDC) measures on central line-associated bloodstream infections (CLABSI) and catheter-associated urinary tract infections (CAUTI). The problem for many teaching hospitals lies with the patient safety composite measure, which is derived from claims data and is therefore not clinically validated. A Medicare Congressional advisory committee aptly described how these measures can be affected simply by “changing administrative billing and coding practices rather than increasing clinical resources for infection control.” This means that such measures can be more influenced by how they are entered into the claims system than by clinical improvements in the hospital.

Of even greater concern is the size of the new penalty, which disproportionately disadvantages teaching hospitals. Unlike other hospital quality programs, the penalty is applied to a hospital’s total Medicare payment, meaning that it applies to add-on payments, including Indirect Medical Education (IME) and Disproportionate Share (DSH). The result? A penalty that is much higher for teaching hospitals than other hospitals.

Despite all of these challenges, it is clear that teaching hospitals have much room for improvement. While COTH members have performed well on reducing incidences of CLABSI, the same levels of improvement have not occurred on the CAUTI and patient safety composite measures. The goal for teaching hospitals should be to set the gold standard for safe environments by leading the development and dissemination of best practices to reduce HACs in the years to come. Learn more about the Hospital Acquired Conditions Reductions Program here.

—Scott Wetzel is a policy and regulatory affairs specialist at the Association of American Medical Colleges. He can be reached at