Hospitals Concerned About CMS “Star Ratings”

CMS has added a star-rating system on its Hospital Compare website to help Medicare beneficiaries’ choose a hospital and gauge the quality of the care it provides.


A recently released CMS fact sheet described the initiative: “CMS believes that star ratings spotlight excellence in health care quality and make it easier for consumers to use the information on the Compare websites . . . consistent with the call for transparent, easily understood and widely available public reporting found in the Affordable Care Act. The ratings also support using quality measures as a key driver of health care system improvement.” (“Hospital Compare Star Ratings Fact Sheet,”, April 16, 2015)


Star ratings result from the HCAHPS survey completed by patients at nearly 3,500 Medicare-certified acute care hospitals.  The 12 star ratings for each hospital represent results for each of 11 publicly reported HCAHPS measures and an overall rating.


These ratings will be updated each quarter, according to the CMS fact sheet. The April 2014 ratings are based on patients discharged between July 1, 2013 and June 30, 2014.


The topics tracked under the ratings include:

  • How well nurses and doctors communicated with patients
  • How responsive hospital staff were to patient needs
  • Pain management
  • How clean and quiet the hospital environment was
  • How well-prepared patients were for post-hospital settings


Star ratings already are used for nursing homes, physician group practices and dialysis facilities, and are planned for Home Health Compare later this year. Eventually, Medicare plans to expand the star ratings to include other areas, such as clinical outcomes and safety, according to published reports. (“Star Ratings Added for Hospitals,” HFMA Weekly News, April 24, 2015)


Providers and policy experts have expressed concerns, warning that HCAHPS is a subjective instrument that tends to disproportionately penalize hospitals. For example:


  • Past HCAHPS analyses: cultural impacts—Northeasterners being more likely than Midwesterners and Southerners to express dissatisfaction
  • 2014 review of Hospital Compare: hospitals in South Dakota, Nebraska, Louisiana and Iowa fared best in hospital patient reviews
  • Advisory Board analysis: among the top-scoring hospitals, more than four out of five were specialty facilities—surgical hospitals, orthopedics hospitals, or heart hospitals that treat very few less predictable, more difficult-to-manage cases
  • 2013 study: patient satisfaction was independent of hospital compliance with surgical processes of quality care and with overall hospital employee safety culture
  • 2013 survey: 88 percent of patients with highly positive billing experiences would recommend the hospital (one of the HCAHPS measures)


HFMA has urged CMS to “conduct a patient-level study to better understand the relationship between HCAHPS scores and outcomes, including the effect of factors beyond a hospital’s control, such as patient severity and region,” to avoid the risk of inappropriately penalizing facilities for a measure that may have little relationship to patient outcomes. (“Star Ratings Added for Hospitals,” HFMA Weekly News, April 24, 2015)



Special Note: The Department of Health and Human Services Office of the Inspector General has just released “Practical Guidance for Health Care Governing Boards on Compliance Oversight,” a publication that focuses on regulatory risks and compliance programs. The publication’s conclusion appears here:


“A health care governing Board should make efforts to increase its knowledge of relevant and emerging regulatory risks, the role and functioning of the organization’s compliance program in the face of those risks, and the flow and elevation of reporting of potential issues and problems to senior management. A Board should also encourage a level of compliance accountability across the organization. A Board may find that not every measure addressed in this document is appropriate for its organization, but every Board is responsible for ensuring that its organization complies with relevant Federal, State, and local laws. The recommendations presented in this document are intended to assist Boards with the performance of those activities that are key to their compliance program oversight responsibilities. Ultimately, compliance efforts are necessary to protect patients and public funds, but the form and manner of such efforts will always be dependent on the organization’s individual situation.”


For a link to the OIG report, please contact Carlin Lockee,






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How Will Repeal of SGR Affect Hospitals?

After many years of postponing cuts mandated by the sustainable growth (SGR) rate formula, Congress finally repealed it last week within hours of a 21 percent fee cut for physicians. The SGR was intended to control Medicare costs by holding physician payments closer to U.S. economic growth. It was part of the Balanced Budget Act of 1997.


Hospitals joined physicians and other providers to back the measure, which would “replace the fee-for-service payment system with one that aims to move most physicians into quality-based payment models,” according to the Healthcare Financial Management Association’s analysis. (“Congress Repeals SGR, Includes Hospital Provisions,” HFMA Weekly News, April 17, 2014)


Total cuts to cover the repeal of the SGR amount to $70 billion. $141 billion of the cost will not be offset, however, according to a Congressional Budget Office estimate.


The new legislation also included many temporary and permanent policy changes for hospitals.


Provisions in the legislation include:

  • $19 billion in hospital cuts to help offset the cost of the physician payment changes. Cuts would come from replacing a planned one-time Medicare hospital payment increase of 3.2 percentage points in 2018 with a six-year phase-in of the increase, and by increasing scheduled Medicaid disproportionate share hospital (DSH) payment cuts from $35 billion to $43 billion, but delaying the start of the cuts until FY2018.
  • $6 billion in new Medicare spending through a limited extension of expiring payment provisions for rural hospitals that are paid based on a blend of current prospective payment system rates and costs.
  • Two year extensions for the Low-Volume Hospital program, work geographic index floor for the Medicare physician fee schedule, rural and super-rural ambulance add-on payments and an exceptions process for Medicare therapy caps.
  • Extension of funding for two years to community health centers, National Health Service Corp and teaching health centers.
  • Extension through October 1 of a ban on status reviews of hospital inpatient stays by recovery audit contractors. “Probe and educate” activities by contractors will continue to inform hospitals of improper billing of short stays under the two-midnight rule.
  • Bars civil monetary penalties against hospitals and critical access hospitals that compensate physicians for reducing medically unnecessary services. Federal law “previously discouraged full-scale gainsharing partnerships between hospitals and their medical staffs.” (“Congress Repeals SGR, Includes Hospital Provisions,” HFMA Weekly News, April 17, 2014)




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Mergers & Acquisitions Continue Unabated

Although consolidations appeared to slow in 2014, experts now report that transactions have substantially increased in the first quarter of 2015. One firm that tracks merger & acquisition activity noted 346 deals in January through March 2015, up 109 percent from the same quarter last year.


A preliminary analysis of these transactions by Irving Levin Associates shows disclosed prices worth more than a combined $104.7 billion. The dollar record, set in the first quarter of 2009, topped $127 billion spent on 202 deals. (“Healthcare Deals Surge in 2015,” HFMA Weekly News, April 10, 2015)


The interest in consolidation continued despite Federal Trade Commission (FTC) challenges reported widely in the media. Administrators may be anticipating increased FTC scrutiny of hospital deals after the agency won its first challenge of a health system’s acquisition of a physician group.


iProtean expert Monte Dube, Esq. (Proskauer Rose LLC) noted, however, “In my experience, well meaning healthcare consultants and lawyers have taken these few (FTC) successes and told the industry and hospitals that there is a high risk of successful anti-trust challenges. That conclusion is unnecessarily pessimistic. In fact, fewer than one in ten hospital mergers are ever investigated with seriousness by the FTC. (Excerpt from an upcoming iProtean course on Mergers & Acquisitions)


Faced with increasing structural changes and financial constraints, hospitals have looked to consolidation/collaboration as a way to improve efficiency, access to care, quality of care . . . and lower costs. Worth noting (and repeating), however, is that consolidation tends to make larger hospitals stronger and smaller hospitals weaker, according to a senior Moody’s Investors Service analyst in a recent release.


Also worth noting is that the trend also seems to be shifting from traditional mergers and acquisitions to partnerships, collaborations, joint ventures and other nonbinding agreements, according to another recent report.


Mr. Dube noted, “It is the rare hospital in America that is not today considering or actively talking with a potential partner . . . While there may be compelling reasons for your hospital to remain independent, due to your geography, the fact that you are a sole community hospital with minimal competition or because you are a critical access hospital with cost based reimbursement, I have little doubt that the pace of consolidation of hospitals of all sizes, of all types, will continue from coast to coast for the next five to ten years.”




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Clinical Integration Trumps Physician Employment Part 2

Clinical Integration may be a smart addition to employing physicians. But how does a hospital/system start; where does it begin?


Last week we wrote about the advantages and characteristics of a clinically integrated network. Today we focus on how to build one. Again, our source is the Healthcare Financial Management Association’s report, Taking Smart Steps Toward Clinical Integration in Health Care.


Building an effective clinically integrated network to complement a hospital/health system’s employed physicians involves the following steps:


Establish the operating model and implementation timeline. Establish a team to manage, monitor and optimize the clinically integrated network including a core group to align internal clinical and business leadership. Key areas of engagement and questions to ask include:

  • Business Development: How will creating a clinically integrated network affect previously planned development initiatives?
  • Physician Enterprise: What role will the clinical leaders and functions of the employed physician group(s) play?
  • Finance: Will the capital budget allow for the necessary investments, or will funding approval require a mid-cycle process?
  • Legal and Contracting: Can existing payer and vendor contracts be extended to clinically integrated network participants in their current format, or will they require renegotiation?
  • Care, Utilization and Quality Management: What resources, protocols and committees could be leveraged by the clinically integrated network to avoid conflicting or duplicative efforts?
  • Technology and Decision Support: Does the capacity exist to combine disparate data sources, and will supplemental resources be needed to meet the clinically integrated network’s reporting and analytics requirements?
  • Outreach and Marketing: How should communication and recruiting efforts be coordinated to ensure community physicians aren’t getting mixed messages about the clinically integrated network?


Identify whom to include. Target the types of physicians needed given the complement of employed physicians, with attention paid to the specific number of physicians needed by specialty. Attention should also be paid to balancing recruitment against the hospital/system’s overall clinical strategy.


Define what’s in it for the physicians. Consider these elements that may attract independent primary and specialist physicians to a clinically integrated network:

  • Preferential access to services of other clinically integrated network members for patients; fewer barriers in care navigation and referral processes
    • Participation in the refinement of quality improvement programs, care management capabilities, etc.
    • Contracting processes that enable physicians to collectively negotiate fee-for-service rates, reap the discounts of the clinically integrated network ’s group purchasing organization, participate in value-based care contracts, and share in the cost savings generated
      • Access to the health system’s IT solutions and network scale


Agree on the tenets that will make it stick. The hospital/health system and the clinically integrated network participants should make a meaningful commitment to core tenets:


  • A physician-led governance model
  • A value-based payer strategy
  • Gauging individual performance against a core set of manageable and understandable metrics
  • Structures in place to encourage patient retention within the network
  • Collaboration principles embraced by all network participants
  • Requisite resources to further the clinical integration program provided by the clinically integrated network


Understand when to say no. Hospitals/health systems can no longer accept all physicians into the network. Potential new arrivals must be considered in light of the current composition of the network. In addition, specific and measurable criteria for vetting must be applied, etc.



Overall Benefits of a Clinically Integrated Network


“Strategically developing a clinically integrated network can positively affect a health system’s financial performance, improve care quality and patient outcomes and accelerate readiness for value-based payment. The clinically integrated network model is an alternative to employment . . . Health systems, especially those experiencing large losses, may no longer be able to afford to grow their physician complement through acquisition and employment. As noted previously, operating expenses per physician are much lower in a clinically integrated than in an employed-only model, and early results indicate that savings generated in terms of medical spend for value-based arrangements track more favorably in a clinically integrated network model than in a predominantly employed model.” (“Taking Smart Steps Toward Clinical Integration in Health Care,” HFMA Weekly, March 27, 2015)


iProtean thanks the Healthcare Financial Management Association for allowing us to liberally quote from its publication.



iProtean subscribers, the new advanced new advanced Governance course, Two Imperatives for Boards, featuring Tom Dolan, Ph.D. and Karma Bass, MPH, FACHE of Via Healthcare Consulting is in your library.



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