Medicare presently withholds 2% of participating hospitals’ base operating Medicare Severity Diagnosis-Related Group (MS-DRG) payment amounts and redistributes it based on relative performance and demonstrated improvement. It is supposed to function as a reward for hospitals doing well and a motivator for those not. In 2019, the amount redistributed was $1.9 billion, with 44% of hospitals sustaining a net loss and 5% losing more than $350,000. The problem with this approach is that the conditions being rewarded and penalized are somewhat beyond hospitals’ ability to modify, particularly their patient mix, with safety-net hospitals suffering the most.
A new paper by Colleen McLaughlin and Francis Boscoe in Health Services Research illustrates this issue by predicting the Total Performance Score used to reallocate these funds solely using demographic information. If hospitals were in control of all aspects of their performance, it should not matter who their patients are. And yet the map below shows a strong spatial pattern, with hospitals in inner-cities and in the South typically with scores below 30, while those in the Midwest and Northwest typically close to 40.
Calls to adjust this score for the socioeconomic status of hospital markets have been growing, but thus far regulators have resisted holding these hospitals to a lower standard.
The full paper may be accessed here.