Medicare picks twelve New Jersey hospitals to test incentive system

Twelve New Jersey hospitals and their participating physicians have received approval from the federal government to test an innovative new incentive method that aims to reduce healthcare costs while improving quality of care.

The three-year trial program could serve as a basis to overhaul government payment for Medicare services nationwide.

"Rising healthcare costs are a growing burden for all of us," said NJHA President and CEO Betsy Ryan. "This is a bold test to see if we can redesign the failed system of the past and replace it with strategies that keep healthcare affordable while making it better and safer for patients. That's essential as we embark on a national effort to reform our healthcare system."

NJHA spearheaded the effort to win a waiver from the federal Centers for Medicare and Medicaid Services to test the initiative in New Jersey. Called "gainsharing," the program offers physicians financial incentives to work with hospitals in lowering costs in a variety of ways. The program also includes stringent quality controls to protect patients.

The program is designed to encourage physicians and hospitals to work together to provide the most efficient care for patients. Currently, Medicare reimburses hospitals a fixed rate for treating a Medicare patient, based on the patient's diagnosis. But physicians are paid differently, receiving individual payments for each procedure or each day spent in the hospital. Those very different payment philosophies are inconsistent, and the gainsharing project aims to bring them together.

Under gainsharing, physicians may share a portion of the savings that are realized by working with the hospital to make a patient's stay more efficient. The overall savings ultimately will benefit the Medicare program - and taxpayers.

"This is a triple win scenario that works for patients, physicians and the hospitals," said Michael Kalison, chairman of Applied Medical Software, who worked with NJHA to design the pilot project. "It's a simple, elegant idea to align incentives of doctors and hospitals - all with the ultimate goal of creating a better healthcare outcome for the patient and eliminating unnecessary costs from our healthcare system."

Participating hospitals are AtlantiCare Regional Medical Center, Overlook Hospital in Summit, Holy Name Hospital in Teaneck, Jersey Shore University Medical Center in Neptune, Hunterdon Medical Center in Flemington, Monmouth Medical Center in Long Branch, St. Francis Medical Center in Trenton, Our Lady of Lourdes Medical Center in Camden, The Valley Hospital in Ridgewood, Somerset Medical Center in Somerville, JFK Medical Center in Edison and CentraState Healthcare System in Freehold.

The project will be carefully monitored and evaluated by CMS. At the pilot's conclusion, CMS will analyze an array of data - from quality indicators to cost savings - to determine whether its strategies could be replicated nationwide.

The program is designed around three core areas.

Efficiency Strategies

• Physicians and hospitals will be encouraged to work together in non-clinical areas such as decreasing patient stays in the emergency department, improving operating room scheduling and improving discharge planning. Prolonged ED stays, for example, increase costs and provide a less-than-optimal environment for a patient awaiting a hospital bed. And better discharge planning with nursing homes or other providers can free up hospital beds and spare patients from a long delay in transferring to a more appropriate site.
• Some of the efficiency strategies could be as simple as ensuring the operating room starts on time each morning (to prevent backlogs that keep patients waiting, while also increasing expenses such as employee overtime) and encouraging physicians to write discharge orders for patients in the morning, so they can be released in a timely manner.

Quality Standards

• In a first for a federal pilot project, participating hospitals have agreed to implement a system to track patients to their initial destinations following their discharge - to a nursing home, for example, or to their own home with home health support. The goal is to provide follow-up services to assess patients' recoveries, quickly address any problems that may arise and prevent costly readmissions to the hospital. This project will initially be limited to patients with strokes or congestive heart failure, but the goal is to make it a workable model for replication.
• All participating hospitals have agreed to take part in the many quality collaboratives offered by NJHA's Institute for Quality and Patient Safety or equivalent programs. These efforts address healthcare concerns such as improving care in the intensive care unit, reducing pressure ulcers, fighting infection and removing racial disparities in heart care.
• All participants will take part in data reporting requirements consistent with the Joint Commission (a national group that accredits hospitals) as well as National Patient Safety Goals. Both process measures (how well physicians adhere to best practices) and outcome measures (how well the patients fare) will be collected.

Financial Incentives

• The program is strictly voluntary for physicians.
• Physicians' accomplishments will be measured based on factors such as costs per case and adherence to nationally accepted best practices. All data will be adjusted to make it fair for physicians who care for more seriously ill patients.
• Based on their performance in efficiency and quality, participating physicians may earn financial incentives for their role in the overall cost-savings.

The demonstration project's dual goals - improving quality while reducing costs - are especially relevant as national leaders explore healthcare reform.

"Our challenge as a nation is to design a system that provides health coverage to all, while reducing costs and maintaining quality," said Sean Hopkins, NJHA's senior vice president of health economics. "This demonstration project represents a commitment by the provider community to be part of the solution."