Hospital Value-Based Purchasing: CMS Should Take Steps to Ensure Lower Quality Hospitals Do Not Qualify for Bonuses
Published: 2017-06-30T00:00:00

Fast Facts:
Through the Hospital Value-based Purchasing program, hospitals that participate in Medicare receive bonuses or penalties, depending on their performance on a set of quality and efficiency measures.
Despite the program's intention to reward hospitals that provide high-quality care at a lower cost, we found that some hospitals with low quality scores received bonuses because they had relatively high efficiency scores.
To ensure that lower quality hospitals do not receive these bonuses, we recommended that the Centers for Medicare & Medicaid Services revise the methodology this program uses to calculate total performance scores.

Highlights:
section_title: Why GAO Did This Study
paragraphs: The HVBP program, enacted as part of the Patient Protection and Affordable Care Act (PPACA), evaluates hospital performance on quality and efficiency (Medicare spending per beneficiary) measures. Based on those results, CMS adjusts Medicare payments, leading to bonuses or penalties for hospitals. The first HVBP payment adjustments started in fiscal year 2013.
PPACA included a provision for GAO to assess the HVBP program's impact on Medicare quality and efficiency, including the effects on safety net, small rural, and small urban hospitals. This report addresses (1) hospitals' performance in quality and efficiency categories; (2) how hospitals' payment adjustments have changed over time; and (3) the effect, if any, of efficiency scores on payment adjustments.
GAO analyzed CMS documentation and data on performance scores and payment adjustments in each year for all hospitals participating in fiscal years 2013 through 2017. GAO also analyzed results for safety net, small rural, and small urban hospitals and interviewed CMS officials.
section_title: What GAO Found
paragraphs: The Hospital Value-based Purchasing (HVBP) program aims to improve quality of care and efficiency by creating financial incentives for about 3,000 participating hospitals. From fiscal years 2013 through 2017, performance on quality and efficiency measures varied by hospital type. Safety net hospitals—those that serve a high proportion of low-income patients—generally scored lower in quality compared to all participating hospitals. In contrast, small rural and small urban hospitals—those with 100 or fewer acute care beds—scored higher on efficiency compared to all hospitals.
Payment adjustments—bonuses or penalties, announced prior to each fiscal year—have varied over time for all hospitals. In four out of the five years of GAO's analysis, small rural and small urban hospitals were more likely to receive a bonus compared to all participating hospitals, while safety net hospitals were more likely to receive a penalty. While a majority of all hospitals received a bonus or a penalty of less than 0.5 percent each year, the percentage of hospitals receiving a bonus greater than 0.5 percent increased from 4 percent to 29 percent from fiscal year 2013 to 2017. In dollar terms, most hospitals had a bonus or penalty of less than $100,000 in fiscal year 2017.
Some hospitals with high efficiency scores received bonuses, despite having relatively low quality scores, which contradicts the Centers for Medicare & Medicaid Service's (CMS) stated intention to reward hospitals providing high-quality care at a lower cost. Further, among hospitals that were missing one or more quality scores, the efficiency score had a greater effect on the total performance score because of the methodology used by CMS. This methodology compensated for the missing scores by increasing the weights of all of the non-missing scores. Consequently, hospitals with missing scores were more likely to receive bonuses than hospitals with complete scores.
Bonus or Penalty Status of Hospitals Participating in the Hospital Value-based Purchasing Program, Fiscal Years 2015 through 2017
section_title: What GAO Recommends
paragraphs: So that lower quality hospitals do not receive bonuses, GAO recommends that CMS revise (1) the methodology used to calculate total performance scores and (2) its method of accounting for missing quality scores. In its written comments, HHS indicated that it would consider revising these two methodologies.

section_title: Letter
paragraphs: The Hospital Value-based Purchasing (HVBP) program, which was  created in 2010 by the Patient Protection and Affordable Care Act  (PPACA), aims to improve hospital quality and efficiency by creating  financial incentives through Medicare’s traditional fee-for-service  payments to hospitals. Under HVBP, the Centers for Medicare &  Medicaid Services (CMS), an agency within the Department of Health and  Human Services (HHS), adjusts Medicare payments to hospitals based  on a formula that takes into account each hospital’s performance on a  designated set of quality and efficiency measures. Higher performing  hospitals, relative to other hospitals, receive an increase in future  Medicare payments, while the lower performing hospitals have a  decrease in their payments. HVBP is one example of a range of efforts  initiated under PPACA to induce providers to improve their quality of care  and become more cost efficient.
PPACA also included a provision that we assess the impact of the HVBP  program on Medicare hospital quality and payments, including the quality  of care among safety net hospitals, which provide a significant amount of  care to the poor, and small rural and small urban hospitals, which have  fewer than 100 acute care beds. The provision called for an interim  report to be issued by October 1, 2015, and a final report by July 1, 2017.  The interim report examined how the financial incentives created under  HVBP may have affected hospitals’ quality of care as well as their efforts  to improve quality in the first years of the program’s implementation from  fiscal year 2013 through fiscal year 2015, including the effects of the  program on safety net, small rural, and small urban hospitals.
This final report addresses three questions for the hospitals participating  in the HVBP program:  1.  Relative to all hospitals, how have safety net, small rural, and small  urban hospitals performed in the HVBP quality and efficiency  performance categories used for payment in fiscal years 2013 through  2017?  2.  How have payment adjustments under HVBP changed over time for  safety net, small rural, small urban, and other hospitals?  3.  What effect, if any, has the inclusion of the efficiency score beginning  in 2015 had on payment adjustments?
To determine how safety net, small rural, and small urban hospitals  performed relative to all participating hospitals in the HVBP quality and  efficiency performance categories used for payment, we analyzed CMS  data on these performance categories, or domains, collected from 2013  through 2017 for approximately 3,000 hospitals. (See app. I for a list of  the measures associated with each domain each year.) Specifically, we  analyzed HVBP hospital domain scores, which, for the purposes of our  reporting, we divided into two groups: (1) quality domains, which include  the clinical processes, patient experiences, patient outcomes, and safety  domains; and (2) an efficiency domain, which contains a single cost  metric—Medicare spending per beneficiary. Not all of the domains were  included in the HVBP program each year, and the individual measures  that make up the domains changed year over year. As a result, we did not  compare the performance scores of hospitals from one year to the next.  We compared the median hospital domain scores and total performance  scores—the sum of the quality and efficiency domains after they are  weighted, which serves as the basis for the HVBP payment  adjustments—for fiscal years 2013 through 2017 for all hospitals  participating in the HVBP program (“all hospitals”) with other types of  participating hospitals within a given year. We therefore compared the  median scores of all hospitals to those of safety net, small rural, and small  urban hospitals in each year. We identified safety net hospitals as those  in the top 10 percent of a composite ranking based on Medicare  disproportionate patient percentage—a measure of hospitals’ Medicaid  and low-income Medicare patients—and hospitals’ proportion of  uncompensated care, which we obtained from annual Medicare cost  reports. For this report, we defined small hospitals as those with 100 or  fewer acute care beds using data from an American Hospital Association  survey and identified rural or urban hospitals using CMS data. Because  CMS does not differentiate between hospital types when evaluating  hospitals’ performance, our “all hospital” category included each of the  different hospital types as well as hospitals that were not safety net, small  rural, or small urban hospitals. (For information on the number and types  of hospitals participating in the HVBP program each fiscal year of our  review, see app. II.)
To describe how payment adjustments under the HVBP program have  changed over time for safety net, small rural, small urban, and all  participating hospitals, we analyzed data provided by CMS on payment  adjustments—the hospitals’ bonuses or penalties—which are made prior  to each fiscal year. We examined these adjustments for each of the  hospital types, as described above, during fiscal years 2013 through  2017. We analyzed hospital payment adjustments to determine what  changes, if any, occurred over time and what differences, if any, existed  in payment adjustments for hospitals overall as compared to safety net,  small rural, and small urban hospitals.
To determine what effect, if any, the inclusion of the efficiency domain  score beginning in fiscal year 2015 had on payment adjustments, we  compared these adjustments, efficiency scores, and weighted composite  quality scores of our different hospital types. We made these  comparisons by specific year for those hospitals that had an efficiency  score during fiscal year 2015, 2016, or 2017. To develop a weighted  composite quality score for each hospital, we subtracted hospitals’  weighted efficiency scores from their total performance scores to  calculate a median composite quality score for all hospitals for fiscal  years 2015 through 2017. Hospitals with composite quality scores above  the median were considered higher quality, while hospitals with  composite quality scores below the median were considered lower  quality. Regardless of hospital type, the all-hospital median was used as  the point of comparison, since CMS does not distinguish by hospital type  when determining payment adjustments. After developing a composite  quality score, we then analyzed the weighted and unweighted efficiency  scores of the hospitals that received a bonus to determine how those  scores may have impacted hospitals’ payment adjustments during fiscal  years 2015 through 2017. Since a complete set of domain scores was not  required to participate in the HVBP program after 2015, we also analyzed  the impact missing domain scores had on weighted composite quality  scores, efficiency scores, total performance scores, and payment  adjustments.
To determine the reliability of the HVBP data, we reviewed related  documentation including CMS guidance for the program, CMS fact  sheets, CMS reports, and federal register notices, and we interviewed  CMS officials regarding the program and the completeness and accuracy  of the data provided to us. We also reviewed the data for outliers and  compared the data to information in other published reports. For the  American Hospital Association data, we reviewed previous assessments  of these data used for our prior reports. We determined that all data were  sufficiently reliable for our reporting objectives.
We conducted this performance audit from August 2016 to June 2017 in  accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Each year, CMS evaluates approximately 3,000 acute care hospitals  participating in HVBP on their performance in prior years on a series of  quality and efficiency measures. Prior to the HVBP program, hospitals  received slightly higher Medicare payments for submitting data on  measures within CMS’s public Inpatient Quality Reporting (IQR).  Beginning in fiscal year 2013, the HVBP program provided new bonuses  and penalties that were based on each hospital’s performance on a  subset of these measures.
Each individual hospital’s performance is calculated for each measure  within a domain using a baseline period and a performance period, both  of which are in prior years. For each of the HVBP measures, CMS  considers both the results of a hospital’s absolute performance— awarding achievement points if performance on a measure was at or  above the median for all participating hospitals—and improvements in its  performance over time—awarding improvement points if current  performance had improved. CMS uses the higher of these points as the  hospital’s score on each measure. Related measures are grouped into  specific performance categories, called domains. The domain scores are  weighted to develop a total performance score for each hospital. The  measures that constitute each domain, the number of domains, and the  weighting of the domain scores have changed over the years of the  program (see table 1). In fiscal year 2013, HVBP had two quality  domains—clinical processes and patient experience; by 2017, two  additional quality domains—patient outcomes and safety—and one  efficiency domain were added to the program.
By law, the HVBP program is budget neutral, which means that the total  amount of payment increases, or bonuses, awarded to hospitals deemed  to provide higher quality of care must equal the total amount of payment  reductions, or penalties, applied to hospitals deemed to provide lower  quality of care. To fund the HVBP program, CMS first applies an initial  fixed percentage reduction to the amount of each hospital’s Medicare  reimbursements for its patients that fiscal year. The initial percentage  reduction was 1 percent in fiscal year 2013 and has grown by 0.25  percent each year to the maximum of 2 percent for fiscal year 2017 and  beyond, as specified in PPACA.
CMS determines each hospital’s payment adjustment based on the  hospital’s total performance score relative to all participating hospitals.  Hospitals with payment adjustments that exceed the initial reduction  receive a net increase, or bonus. Hospitals with a payment adjustment  less than the initial reduction have a net decrease, or a penalty. (For two  hypothetical examples using the initial percentage reduction for fiscal year  2017, see fig. 1.) These payment adjustments are applied to the inpatient  Medicare payment for each discharged patient throughout the upcoming  fiscal year.
In October 2015, we reported on certain HVBP performance measures  prior to and after the implementation of the HVBP program. We found  that trends in performance for many of these measures were unchanged  since the implementation of the HVBP program. This report included  information from interviews with officials from selected hospitals who  noted that the HVBP program reinforced ongoing quality improvement  efforts but did not lead to major changes in focus. Hospital officials also  indicated that there were patient population and community barriers to  their quality improvement efforts. In a related report on the HVBP  program, HHS noted challenges that rural hospitals face that affect their  performance on quality measures and the reliability of their outcome  measurements, including lower occupancy rates, higher percentages of  uncompensated care, and lower operating margins than urban  hospitals.
section_title: Quality Scores Were Generally Lower for Safety Net Hospitals Compared to All Hospitals, while Small Rural and Urban Hospitals Generally Had Higher Quality and Efficiency Scores
paragraphs: Safety net hospitals generally had lower median quality domain scores in  comparison to all hospitals, while small rural and small urban hospitals  generally scored higher on quality and efficiency domains during fiscal  years 2013 through 2017. Median scores for each of the separate quality  domains—clinical processes, patient experience, patient outcomes, and  safety—were consistently lower for safety net hospitals and were  generally higher for small rural and small urban hospitals than for  hospitals overall during fiscal years 2013 through 2017. Specifically, for  the four quality domains, we found the following:
Clinical processes: The clinical processes median domain scores— which summarize measures for preventive or routine care—were  lower for safety net hospitals and generally higher for small urban  hospitals than for all hospitals during fiscal years 2013 through 2017.  Median clinical processes scores for small rural hospitals were  generally lower—between 4 and 9 percent—than for hospitals overall  in fiscal years 2013 through 2015 (see fig. 2).
Patient experience: Small hospitals consistently had higher patient  experience scores—which consist of measures for communication  and responsiveness—than hospitals overall, while safety net hospitals  had the lowest scores of any of the hospital types (see fig. 3).
Patient outcomes: Median scores for the patient outcomes domain— which comprises measures for mortality rates and other results and  was added in fiscal year 2014—were generally lowest for small rural  hospitals in each year of our analysis, except for fiscal year 2016,  when compared to hospitals overall (see fig. 4). Safety net hospitals  and small urban hospitals—with the exception of fiscal year 2016— also did not perform as well as all hospitals in the years of our  analysis.
Safety: Safety scores—which were added in fiscal year 2017 and  include measures for infection rates and other complications—were  lowest for safety net hospitals and higher for small rural and small  urban hospitals than the median scores for hospitals overall. The  median score for the safety net hospitals was about 11 percent lower  than the median score for all hospitals. Small rural hospitals had the  highest median score and small urban hospitals also had a higher  median score than hospitals overall. However, 21 percent of all  hospitals were missing scores for this new domain in fiscal year  2017.
Trends for the efficiency domain, which contains the single cost  measure—Medicare spending per beneficiary—were similar to the quality  domains in that small hospitals tended to perform better than safety net  hospitals and better than hospitals overall from fiscal year 2015, when the  domain was added, through fiscal year 2017 (see fig. 5). Safety net  hospitals have had the same median efficiency scores as for hospitals  overall during the 3 years it has been included in the program. However,  over 40 percent of all hospitals had an efficiency score of 0 during these  years due to CMS’s methodology for calculating scores. This  methodology resulted in a low median score of 10 for all hospitals, though  many hospitals had considerably higher efficiency scores.
Hospitals’ total performance scores were consistent with the trends in the  quality and efficiency domain scores. Specifically, when compared to all  hospitals, total performance scores were lowest for safety net hospitals  and generally highest for small urban hospitals during fiscal years 2013  through 2017 (see fig. 6).
section_title: HVBP Payment Adjustments Have Varied over Time, but Safety Net Hospitals Generally Had Lower Payment Adjustments Compared to the Other Hospital Types
paragraphs: Median payment adjustments generally have varied for all hospitals, and  small rural and small urban hospitals, since the program began; however,  in most years, the median payment adjustment for safety net hospitals  has been a penalty—that is, a negative payment adjustment. In  contrast, the small hospitals, as well as hospitals overall, generally had  positive payment adjustments, indicating a bonus, with the exception of  fiscal year 2014. Small urban hospitals consistently received higher  payment adjustments than all hospitals—between 0.03 and 0.36  percentage points higher—every fiscal year. (See table 2.)
The majority of all hospitals received a bonus or a penalty of less than 0.5  percent each year of the program (see fig. 7). However, over time, an  increasing percentage of hospitals received bonuses of more than 0.5  percent, and by fiscal year 2016, more than one-quarter of all  participating hospitals received a bonus of more than 0.5 percent.  Compared to all hospitals, a higher percentage of small rural and small  urban hospitals received bonuses of more than 0.5 percent, and this  disparity has grown as the program continues. An increasing percentage  of hospitals have also received penalties of greater than 0.5 percent over  time, and safety net hospitals consistently had the highest percentage of  penalties of 0.5 percent or more when compared to all hospitals, small  rural hospitals, and small urban hospitals.
In part, the size of the bonuses and penalties, in dollar terms, has been  increasing due to the increase in the initial reduction from 1 percent in  fiscal year 2013 to 2 percent in fiscal year 2017 (see table 3). In addition,  as more hospitals receive bonuses in excess of 0.5 percent, the  difference between the bonuses and penalties has been increasing. For  example, in fiscal year 2013, the median bonus and penalty for all  hospitals was nearly identical. Over the years, the median bonus has  more than doubled, but the median penalty has nearly tripled. For most  hospitals, the annual bonus or penalty is less than $100,000, and by the  end of the fiscal year 2017, over $690 million will have been redistributed  from hospitals that received penalties to hospitals that received  bonuses.
Safety net hospitals received a smaller percentage of the bonuses and  paid a greater share of the penalties than small rural and small urban  hospitals. For example, safety net hospitals have received about 5  percent of the bonus dollars and paid approximately 10 percent of the  penalty dollars each year. In contrast, small rural and urban hospitals  have received an average of about 9 and 12 percent of the bonus dollars,  respectively, and both groups of these small hospitals paid about 5  percent or less of the penalties dollars during fiscal years 2013 through  2017.
section_title: Since Fiscal Year 2015, High Efficiency Scores Have Resulted in Bonuses for Some Lower Quality Hospitals
subsections: section_title: About 20 Percent of All Hospitals Receiving Bonuses Had Composite Quality Scores below the Median and Received Bonuses Because of High Efficiency Scores
paragraphs: Since the efficiency score was added to the HVBP program in fiscal year  2015, about 20 percent of the hospitals that received bonuses each year  had weighted composite quality scores below the median for all hospitals  in fiscal years 2015 through 2017 (see table 4). For each fiscal year, a  higher percentage of safety net and small rural hospitals received  bonuses (between 26 and 36 percent) when compared to all hospitals,  despite having quality scores below the median score for all hospitals.  The median payment adjustments for the hospitals that received a bonus  with lower quality scores were less than median bonuses overall. For  example, in fiscal year 2015, the median bonus for all hospitals was 0.32  percent, and the median bonus for the hospitals that received a bonus  with composite quality scores below the median was 0.17 percent.
Hospitals that received a bonus despite having composite quality scores  below the median for all hospitals had sufficiently high efficiency scores to  achieve total performance scores that made them eligible for bonuses.  Across all hospital types and years, the median efficiency scores for  these hospitals ranged from 1.50 and 6.00 times higher than the median  efficiency scores for hospitals overall. For example, in fiscal year 2017,  the overall median efficiency score for small rural hospitals was 30.00. In  contrast, the median efficiency score for small rural hospitals that  received a bonus with a composite quality score below the all-hospital  median was more than twice as high at 70.00. Table 5 compares two  actual hospitals—both of which received a bonus—with similar total  performance scores but different composite quality scores. Hospital A  outperformed Hospital B in every quality domain except safety and  received a composite quality score of 40.00, well above the median of  29.03. While both hospitals had an efficiency score above the median of  10.00, Hospital B’s high efficiency score results in a total performance  score above that of the higher quality Hospital A.
According to CMS documentation, the agency developed the weighting  formula to ensure that the Medicare spending per beneficiary measure— the sole measure in the efficiency domain—would make up only a portion  of the total performance score and that the remainder would be based on  hospitals’ performance on the other measures. The same  documentation stated that the distinct measure of cost, independent of  quality, would enable the agency to identify—and subsequently reward  through payment adjustments—hospitals involved in the provision of high- quality care at a lower cost to Medicare. However, CMS’s formula for  weighting the domain scores to determine a total performance score has  created a system that, in some cases, rewards lower quality hospitals that  provide care at a lower cost. In a November 2016 report to Congress,  CMS indicated that it was aware of reports that the added efficiency  metric resulted in some lower quality hospitals receiving bonus HVBP  payments in 2015. However, in the report CMS reiterated that its scoring  methodology—the weighting of quality domains at 75 percent and the  efficiency domain at 25—provided balanced consideration for quality and  efficiency and would ensure that high-quality hospitals were being  rewarded. Our work shows that CMS has not achieved this balanced  consideration as it intended, thereby rewarding some lower quality  hospitals due to their high efficiency scores.
section_title: Efficiency Scores Carry More Weight for Hospitals with Missing Quality Domain Scores, and Hospitals with Missing Domains Are More Likely to Receive a Bonus
paragraphs: CMS did not require a complete set of domain scores to participate in the  HVBP program after 2015, but instead proportionately redistributed the  missing scores’ domain weights to the other domains, including  efficiency. As a result, the efficiency score can carry even more than its  assigned weight, and hospitals with missing domain scores had efficiency  scores that were weighted higher than those of the other participating  hospitals. This amplified the contribution of the efficiency domain to  hospitals’ total performance scores. The assigned weight for the  efficiency score was 20 percent in fiscal year 2015 and 25 percent in  fiscal years 2016 and 2017. However, due to the proportional  redistribution, a hospital’s efficiency score could be weighted between 25  and 50 percent—rather than the original 20 percent—in fiscal year 2015  and between 26 and 71 percent—rather than the original 25 percent—in  fiscal years 2016 and 2017, depending on how many and which domains  were missing.
Table 6 illustrates the impact of redistributed domain weights on hospitals  in fiscal year 2017. Hospital A, the same hospital noted in table 5, is  considered a higher quality hospital, with a composite quality score well  above the median of 29.03 for all hospitals in 2017. Three other actual  hospitals—hospitals C through E—show how the proportional  redistribution of weights can dramatically increase the effect that a  hospital’s efficiency score can have on its total performance score.  Hospital C is missing two domains, together worth 45 percent of the total  performance score. The 45 percent is then proportionally redistributed to  the other domains so that the clinical processes domain weight increases  from 5.00 percent to 9.10 percent and the weights of the patient  experience and efficiency domains each increase from 25 percent to  45.45 percent.
We also found that hospitals with missing domain scores were more likely  to receive a bonus than hospitals with all domain scores. Specifically, in  fiscal year 2017, 68 percent of hospitals with missing domain scores  received a bonus, compared to 50 percent of hospitals with all domain  scores. Of the approximately 20 percent of hospitals that received a  bonus with a quality score below the median described earlier, many  were also missing domain scores. For example, in fiscal year 2017, 182  of the 345 lower quality hospitals that received a bonus (53 percent) were  missing at least one quality domain score.
Hospitals with missing domain scores had bonuses that grew to exceed  the median bonus payment adjustment for all hospitals. In fiscal 2015, the  median bonus adjustment for all hospitals was 0.32 percent. For lower  quality hospitals with missing domain scores, the median bonus  adjustment that year was slightly lower at 0.31 percent. However, by  fiscal year 2017, lower quality hospitals with missing domain scores that  received bonuses had a bonus adjustment of 0.74 percent, considerably  higher than the median bonus adjustment of 0.54 percent for hospitals  overall.
CMS decided to proportionally redistribute missing domain scores in  order to maintain the relative weights of each remaining domain and  reliably score hospitals on their performance. However, the issues we  identified with the weighting formula—in that it results in some lower  quality hospitals receiving bonuses—are exacerbated for hospitals with  missing domain scores. As a result, hospitals with missing domain scores  are more likely to get a bonus, and, in some cases, those bonuses are  greater than median bonuses overall. Additionally, while CMS intended to  keep the efficiency metric independent of quality, the effective weight of  the efficiency measure depends on the extent to which hospitals report  quality measures. As a result, the balance the agency tried to achieve in  the total performance score—allocating 75 percent of the score to the  quality domains and 25 percent of the score to the efficiency domain—is  no longer achieved.
section_title: Conclusions
paragraphs: The aim of the HVBP program is to improve hospital quality and efficiency  by providing incentives for hospitals to improve their quality of care and to  become more cost efficient. Throughout the 5 years of the program, CMS  has made modifications to meet these goals by changing quality  performance domains and domain weighting from year to year. With the  addition of the efficiency domain in fiscal year 2015, CMS signaled the  importance of hospitals’ providing care at a lower cost to Medicare, and,  in its weighting formula, the agency tried to find balanced consideration  for quality and cost. Rather than achieving this balance—which would  have allowed the agency to identify and reward higher quality and lower  cost hospitals—CMS’s weighting formula has resulted in bonuses for  some lower quality hospitals, solely due to their cost efficiency. Because  the program is budget neutral, bonuses for lower quality hospitals may  result in smaller bonuses for hospitals that are performing well across all  domains. The issue is especially stark for between 10 and 25 percent of  the hospitals that were missing domain scores in fiscal years 2015  through 2017, which has also contributed to the awarding of bonuses to  lower quality hospitals. If CMS continues to use the current formula, it will  continue to reward hospitals that do not score well on quality and  efficiency metrics.
section_title: Recommendations for Executive Action
paragraphs: To ensure that the HVBP program accomplishes its goal to balance  quality and efficiency and to ensure that it minimizes the payment of  bonuses to hospitals with lower quality scores, we recommend that the  Administrator of CMS take the following two actions:
Revise the formula for the calculation of hospitals’ total performance  score or take other actions so that the efficiency score does not have  a disproportionate effect on the total performance score.
Revise the practice of proportional redistribution used to correct for  missing domain scores so that it no longer facilitates the awarding of  bonuses to hospitals with lower quality scores.
section_title: Agency Comments
paragraphs: We provided a draft of this report to HHS for comment, and its written  comments are reprinted in appendix III. The department indicated that it  would examine the formula used for calculating hospitals’ total  performance scores and would explore alternatives to the practice of  proportional redistribution. While HHS stated it would consider revisions  to these practices, it indicated that any changes to the weights of the  domains, or the distribution of weights for missing domains, would be  evaluated for potential negative impacts and would be subject to notice  and comment rulemaking. HHS also provided technical comments, which  we incorporated as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Health and Human Services, the CMS  Administrator, and other interested parties. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Quality and Efficiency Measures in the Hospital Value-based Purchasing Program, Fiscal Years 2013 through 2017
paragraphs: Table 7 lists the Inpatient Quality Reporting program measures that the  Centers for Medicare & Medicaid Services (CMS) used to analyze  hospitals’ performance in the Hospital Value-based Purchasing program  during fiscal years 2013 through 2017. This table identifies the domain  associated with each measure, which measures were used to calculate  domain scores each year, the measure code, and a description of each  measure.
section_title: Appendix II: Hospital Types Participating in the Hospital Value-based Purchasing Program
section_title: Appendix III: Comments from the Department of Health & Human Services
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Martin T. Gahart (Assistant  Director), Erin C. Henderson (Analyst-in-Charge), Zhi Boon, Kye Briesath,  and Elizabeth Morrison made key contributions to this report. Also  contributing were Muriel Brown and Jacquelyn Hamilton.
section_title: Related GAO Products
paragraphs: Medicare Value-based Payment Models: Participation Challenges and  Available Assistance for Small and Rural Practices. GAO-17-55.  Washington, D.C.: December 9, 2016.
Health Care Quality: HHS Should Set Priorities and Comprehensively  Plan Its Efforts to Better Align Health Quality Measures. GAO-17-5.  Washington, D.C.: October 13, 2016.
Patient Safety: Hospitals Face Challenges Implementing Evidence-based  Practices. GAO-16-308. Washington, D.C.: February 25, 2016.
Hospital Value-based Purchasing: Initial Results Show Modest Effects on  Medicare Payments and No Apparent Change in Quality-of-Care Trends.  GAO-16-9. Washington, D.C.: October 1, 2015.
Health Care Transparency: Actions Needed to Improve Cost and Quality  Information for Consumers. GAO-15-11. Washington, D.C.: October 20,  2014.
Electronic Health Record Programs: Participation Has Increased, but  Action Needed to Achieve Goals, Including Improved Quality of Care.  GAO-14-207. Washington, D.C.: March 6, 2014.
Health Care Quality Measurement: HHS Should Address Contractor  Performance and Plan for Needed Measures. GAO-12-136. Washington,  D.C.: January 13, 2012.
Hospital Quality Data: Issues and Challenges Related to How Hospitals  Submit Data and How CMS Ensures Data Reliability. GAO-08-555T.  Washington, D.C.: March 6, 2008.