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Section 3008 of the Affordable Care Act went into effect October 1, 2014, penalizing the top quarter of inpatient hospitals based on rates of hospital-acquired conditions by reducing its Medicare payments by 1%. In other words, 25% of the hospitals in the US with the highest rates of hospital-acquired conditions will only receive 99% of their eligible Medicare payment for Fiscal Year (FY) 2015, which runs from October 2014 through October 2015.

Unpacking Section 3008

The goal of this rule is to use funding to encourage hospitals to reduce infections, complications, and other conditions not present before that occur while a patient is in the hospital. The full list of these conditions is available from the Centers for Medicare and Medicaid Services (CMS) website. Infections from superbugs like methicillin-resistant Staphylococcus aureus (MRSA), vancomycin-resistant Enterococcus (VRE,) and Clostridium difficile (C. diff) are among the most well known conditions, but the list includes pressure ulcers from prolonged bedrest and falls within the hospital. These conditions are determined and maintained by the Secretary of the Department of Health and Human Services (HHS). CMS has not reimbursed hospitals treating Medicare patients for hospital-acquired conditions that were present on admission since 2008.

We want hospitals focused on patient safety and we want them laser-focused on eliminating patient harm

– Dr. Patrick Conway, Chief Medical Officer, CMS

Hospitals are required to report certain measures, which are reviewed by a variety of agencies, and are audited if there are believed to be discrepancies. Conversely, CMS and other agencies conduct their own research and provide hospitals a monthly opportunity to review and submit corrections to the collected data before publication. Information about patient experiences, readmission, complications rates, and timing and effectiveness of services is publicly available through the Hospital Compare website. Since data collection began in 2002, this website has provided hospital-specific information and allows comparison to state and national averages on a variety of metrics.

 Because of hospital-acquired infections, hospitals are now penalized with a 1% reduction of payment by Medicare.

The Centers for Disease Control (CDC) reports that 1 in 25 patients suffer from a hospital-acquired infection every day in US hospitals. For the purposes of Section 3008, CMS began analyzing hospital-acquired infection rates this year, and will continue to track them until September 30, 2015. To determine which hospitals will face penalties in 2015 and how large those penalties will be, CMS will consider data collected between September 2013 and September 2015.

How much is 1%?

That largely depends on how you measure the data. First, a very brief explanation of Medicare reimbursements is in order. Medicare reimburses hospitals and healthcare providers for the services they provide through the Inpatient Prospective Payment System. Payments are determined based on the condition being treated, which is coded into one of several Diagnosis Related Groups (DRGs). CMS is also using this strategy of adjusting payments to encourage implementation of electronic health records in hospitals and medical practices.

 These penalties are meant to encourage hospitals to improve care.

According to Kaiser Health News, the penalties could total $330 million across 761 hospitals. For example, Ronald Reagan UCLA Medical Center, one of the hospitals likely to be penalized, stands to lose roughly $22,000 based on CMS data from 2012. (Calculation note: Data from FY 2012 for the top 100 DRGs as determined by CMS. CMS estimates that the top 100 DRGs account for 70% of Medicare payments. Total Medicare payments for Ronald Reagan UCLA Medical Center were $1,553,671.19.) This penalty is not meant to be crippling, but to encourage hospitals to improve care.

Not all hospitals are created equal

Several types of hospitals have been excluded from the 1% penalty, including psychiatric, long-term care, and cancer hospitals.

There are concerns among the hospitals that are subject to the penalties. Teaching hospitals and those with poorer patient populations may have disproportionately high rates of infection due to the composition of staff and patients. Several hospitals can choose which patients to admit, opening a potential route by which the statistics could be influenced.

A further complication lies in the reported data. When hospital staff are actively looking for infections, they tend to notice more of them. However, the more infections that are reported, the more likely that hospital will face a penalty. A common complaint is that vigilant efforts to monitor and detect hospital-acquired infections works against the hospital. Many hospitals accurately report lower infection rates over time but these improvements may not be enough to move them out of the penalty quarter. CMS will ultimately take into account the size of the hospital and university affiliations to adjust the rates of infection that will be used to determine final penalties.

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