Currently Viewing:
The American Journal of Managed Care December 2018
Feasibility of Expanded Emergency Department Screening for Behavioral Health Problems
Mamata Kene, MD, MPH; Christopher Miller Rosales, MS; Sabrina Wood, MS; Adina S. Rauchwerger, MPH; David R. Vinson, MD; and Stacy A. Sterling, DrPH, MSW
From the Editorial Board: Jonas de Souza, MD, MBA
Jonas de Souza, MD, MBA
Risk Adjusting Medicare Advantage Star Ratings for Socioeconomic Status
Margaret E. O’Kane, MHA, President, National Committee for Quality Assurance
Reducing Disparities Requires Multiple Strategies
Melony E. Sorbero, PhD, MS, MPH; Susan M. Paddock, PhD; and Cheryl L. Damberg, PhD
Cost Variation and Savings Opportunities in the Oncology Care Model
James Baumgardner, PhD; Ahva Shahabi, PhD; Christopher Zacker, RPh, PhD; and Darius Lakdawalla, PhD
Patient Attribution: Why the Method Matters
Rozalina G. McCoy, MD, MS; Kari S. Bunkers, MD; Priya Ramar, MPH; Sarah K. Meier, PhD; Lorelle L. Benetti, BA; Robert E. Nesse, MD; and James M. Naessens, ScD, MPH
Patient Experience During a Large Primary Care Practice Transformation Initiative
Kaylyn E. Swankoski, MA; Deborah N. Peikes, PhD, MPA; Nikkilyn Morrison, MPPA; John J. Holland, BS; Nancy Duda, PhD; Nancy A. Clusen, MS; Timothy J. Day, MSPH; and Randall S. Brown, PhD
Relationships Between Provider-Led Health Plans and Quality, Utilization, and Satisfaction
Natasha Parekh, MD, MS; Inmaculada Hernandez, PharmD, PhD; Thomas R. Radomski, MD, MS; and William H. Shrank, MD, MSHS
Primary Care Burnout and Populist Discontent
James O. Breen, MD
Adalimumab Persistence for Inflammatory Bowel Disease in Veteran and Insured Cohorts
Shail M. Govani, MD, MSc; Rachel Lipson, MSc; Mohamed Noureldin, MBBS, MSc; Wyndy Wiitala, PhD; Peter D.R. Higgins, MD, PhD, MSc; Sameer D. Saini, MD, MSc; Jacqueline A. Pugh, MD; Dawn I. Velligan, PhD; Ryan W. Stidham, MD, MSc; and Akbar K. Waljee, MD, MSc
The Value of Novel Immuno-Oncology Treatments
John A. Romley, PhD; Andrew Delgado, PharmD; Jinjoo Shim, MS; and Katharine Batt, MD
Medicare Advantage Control of Postacute Costs: Perspectives From Stakeholders
Emily A. Gadbois, PhD; Denise A. Tyler, PhD; Renee R. Shield, PhD; John P. McHugh, PhD; Ulrika Winblad, PhD; Amal Trivedi, MD; and Vincent Mor, PhD
Provider-Owned Insurers in the Individual Market
David H. Howard, PhD; Brad Herring, PhD; John Graves, PhD; and Erin Trish, PhD
Currently Reading
Mixed Messages to Consumers From Medicare: Hospital Compare Grades Versus Value-Based Payment Penalty
Jennifer Meddings, MD, MSc; Shawna N. Smith, PhD; Timothy P. Hofer, MD, MSc; Mary A.M. Rogers, PhD, MS; Laura Petersen, MHSA; and Laurence F. McMahon Jr, MD, MPH

Mixed Messages to Consumers From Medicare: Hospital Compare Grades Versus Value-Based Payment Penalty

Jennifer Meddings, MD, MSc; Shawna N. Smith, PhD; Timothy P. Hofer, MD, MSc; Mary A.M. Rogers, PhD, MS; Laura Petersen, MHSA; and Laurence F. McMahon Jr, MD, MPH
Many hospitals penalized for readmissions were given readmission grades of “no different” or “better” than the national rate on the Hospital Compare website.

This study highlights the important differences in hospital performance regarding readmissions as reported to the public in grades on Hospital Compare and communicated to hospitals by financial penalties. Many hospitals are penalized for readmissions despite having publicly reported grades of average performance. The HRRP program has 2 goals: to save Medicare dollars and to motivate care improvement. Readmission reporting and penalty is part of CMS’ goal to move 90% of payments from activity-based to value- and quality-based payment by 2018.11 The HRRP results in payment reductions required by legislation, yet it is unclear how closely the readmission scores are associated with avoidable readmissions. Consumers and hospitals should expect that the application of value-based strategies to our nation’s hospitals be predicated on 3 fundamental assumptions. First, hospitals providing better quality of care to patients should be financially rewarded by not receiving financial penalties. Second, by using tracer conditions like readmissions to proxy “value” in its value-based programs,12 CMS is able to identify hospital deficiencies modifiable by the hospital. Third, methods used by CMS to identify quality of care are sufficiently robust to send the appropriate “value signal” back through the health system by public grades and financial penalties to motivate care improvement.

The definitions used in public reporting of grades and assigning financial penalties are both driven by the underlying statistical approach of defining poor care, which uses different statistical methods to score hospitals. Both of these methods use a normative-based assessment (ie, grading on the curve) as opposed to criterion-based assessment. Contrasts between normative- and criterion-based assessment have been extensively studied in education for more than 40 years, and the issues raised are somewhat analogous to the methods used here.13 Publicly reported grades for readmissions are assigned based on a modification of a normal distribution of performance, as detailed above,1,5 whereas the risk-adjusted point estimate used for assigning financial penalties is normalized to an expected value. A rule such as this, which assigns a financial penalty to any hospital with a point estimate above the mean of an assumed normal distribution of outcomes, will necessarily result in half of the hospitals being penalized per measure. Because hospitals can be identified as having greater than expected readmissions in 1 or more categories, this approach’s net effect is to label most hospitals as having lower outcomes than expected. In contrast, if the methods for setting the threshold for qualifying for a financial penalty were modified to be similar to the grading criteria on Hospital Compare, in that there was a lower limit of a confidence interval for each hospital estimate to be above the mean before assigning a penalty, then fewer than half of the hospitals would be penalized.

What, then, can CMS do to more directly align its goal of improving value while decreasing cost? The most direct value signal that CMS could provide, which would serve to enhance value and decrease cost, is to stop paying for clinically inappropriate care and pay less for clinically marginal care.14 This does occur within the Hospital Value-Based Purchasing Program,15 which incorporates criterion-based assessments (eg, measures of timely and effective care, such as the percentage of patients provided treatment to prevent blood clots on day of or day after admission or surgery), in addition to patient outcomes of hospital-acquired complications and mortality. It is important to balance the selection of process and outcome measures when comparing hospital performance. Comparing by process measures rewards hospitals for providing appropriate care and ensures less impact on hospitals when patient outcomes are poor despite the hospital doing everything right. Comparing by risk-adjusted outcome measures focuses on the most important result for patients while allowing hospitals to try different processes to improve care, particularly when the protocol to improve the outcome is not well established. Similar approaches should also be considered for incorporation in the HRRP to include appropriate process measures in addition to outcome measures. Thus, if a hospital coordinates a home visit after discharge for a high-risk patient, this is evidence of appropriate care—regardless of whether or not this patient eventually requires a readmission. It is critical that clinicians enter the value conversation directly and embrace initiatives such as Choosing Wisely—which seeks to start stratifying the clinical value of care—to inform the most appropriate care. This clinically defined approach needs to be aligned more directly with payment redesign for CMS to truly deliver on its promise to change its payment paradigm from volume to value.


The major limitation of this study was that hospitals had to have both grades and penalties reported for at least 1 measure to be included for analysis. However, because CMS manages the HRRP, we presume that hospitals excluded from reporting readmission data for grades and penalties were not subject to the HRRP.


Hospital grades for readmissions seen by consumers on Hospital Compare are often out of line with excessive readmission scores used to assign readmission penalties to hospitals. Discordant systems for grading and penalizing performance are confusing to consumers and hospitals and highlight persistent uncertainty in how best to identify and link value to payment. Although the legislation requiring financial penalties predetermines the cost reduction to be achieved by requiring penalties for the bottom half of the outcome distribution, the relationship to improved quality is tenuous. Penalizing 81% of hospitals suggests that there is little value in the penalty. This ambiguous value signal, currently evident in the various CMS programs and websites, undermines the value message. 


The authors thank Heidi Reichert, MA, for assistance with data analysis.

Author Affiliations: Department of Internal Medicine (JM, SNS, TPH, MAMR, LP, LFM), Department of Pediatrics and Communicable Diseases (JM), and Department of Psychiatry (SNS), University of Michigan Medical School, Ann Arbor, MI; Center for Clinical Management Research, Veterans Affairs Ann Arbor Healthcare System (JM, TPH), Ann Arbor, MI; University of Michigan School of Public Health (LFM), Ann Arbor, MI.

Source of Funding: This work was funded by the Agency for Healthcare Research and Quality (2R01HS018334, 1K08HS019767).

Author Disclosures: The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (JM, SNS, TPH, LFM); acquisition of data (JM, SNS, LFM); analysis and interpretation of data (JM, SNS, TPH, MAMR, LFM); drafting of the manuscript (JM, SNS, LP); critical revision of the manuscript for important intellectual content (JM, SNS, TPH, MAMR, LP, LFM); statistical analysis (SNS); obtaining funding (JM, LFM); administrative, technical, or logistic support (MAMR, LP, LFM); and supervision (JM).

Address Correspondence to: Jennifer Meddings, MD, MSc, University of Michigan, 2800 Plymouth Rd, Bldg 16, Room 430W, Ann Arbor, MI 48109-2800. Email:

1. 30-day unplanned readmission and death measures. website. Accessed March 17, 2017.

2. Readmissions Reduction Program (HRRP). website. Updated September 27, 2018. Accessed March 17, 2017.

3. Fingar K, Washington R. Trends in hospital readmissions for four high-volume conditions, 2009–2013 [HCUP statistical brief no. 196]. Agency for Healthcare Research and Quality website. Published November 2015. Accessed November 29, 2018.

4. McIlvennan CK, Eapen ZJ, Allen LA. Hospital readmissions reduction program. Circulation. 2015;131(20):1796-1803. doi: 10.1161/CIRCULATIONAHA.114.010270.

5. Infections. website. Accessed March 17, 2017.

6. Readmissions complications and death – hospital.csv. Hospital Compare data archive: 2015 annual files. website. Published January 22, 2015. Accessed March 31, 2016.

7. Hospital-acquired condition reduction program. website. Accessed April 3, 2017.

8. FY 2015 IPPS Final Rule Readmissions PUF-Oct CN.xls. Files for FY 2015 final rule and correction notice. CMS website. Accessed April 13, 2015.

9. Fiscal year 2015 results for the CMS Hospital-Acquired Condition Reduction Program and Hospital Value-Based Purchasing Program [news release]. Baltimore, MD: CMS; December 18, 2014. Updated January 22, 2015. Accessed March 17, 2017.

10. Hospital-Acquired Condition Reduction Program (HACRP). CMS website. Updated July 30, 2018. Accessed December 2, 2018.

11. Better care. smarter spending. healthier people: paying providers for value, not volume [news release]. Baltimore, MD: CMS; January 26, 2015. Accessed March 17, 2017.

12. CMS’ value-based programs. CMS website. Updated July 25, 2018. Accessed December 2, 2018.

13. Luyten H, Visscher A, Witziers B. School effectiveness research: from a review of the criticism to recommendations for further development. Sch Eff Sch Improv. 2005;16(3):249-279. doi: 10.1080/09243450500114884.

14. McMahon LF Jr, Chopra V. Health care cost and value: the way forward. JAMA. 2012;307(7):671-672. doi: 10.1001/jama.2012.136.

15. The Hospital Value-Based Purchasing (VBP) Program. CMS website. Updated August 2, 2018. Accessed October 23, 2017.
Copyright AJMC 2006-2020 Clinical Care Targeted Communications Group, LLC. All Rights Reserved.
Welcome the the new and improved, the premier managed market network. Tell us about yourself so that we can serve you better.
Sign Up