[Federal Register Volume 76, Number 9 (Thursday, January 13, 2011)]
[Proposed Rules]
[Pages 2454-2491]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-454]



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Part II





Department of Health and Human Services





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Centers for Medicare & Medicaid Services



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42 CFR Parts 422 and 480



Medicare Program; Hospital Inpatient Value-Based Purchasing Program; 
Proposed Rule

  Federal Register / Vol. 76 , No. 9 / Thursday, January 13, 2011 / 
Proposed Rules  

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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Parts 422 and 480

[CMS-3239-P]
RIN 0938-AQ55


Medicare Program; Hospital Inpatient Value-Based Purchasing 
Program

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: In this proposed rule, we are proposing to implement a 
Hospital Value-Based Purchasing program (``Hospital VBP program'' or 
``the program'') under section 1886(o) of the Social Security Act 
(``Act''), under which value-based incentive payments will be made in a 
fiscal year to hospitals that meet performance standards with respect 
to a performance period for the fiscal year involved. The program will 
apply to payments for discharges occurring on or after October 1, 2012, 
in accordance with section 1886(o) of the Social Security Act (as added 
by section 3001(a) of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148), enacted on March 23, 2010, as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), 
enacted on March 30, 2010 (collectively known as the Affordable Care 
Act)). The measures we are proposing to initially adopt for the program 
are a subset of the measures that we have already adopted for the 
existing Medicare Hospital Inpatient Quality Reporting Program 
(Hospital IQR program), formerly known as the Reporting Hospital 
Quality Data for the Annual Payment Update Program (RHQDAPU), and we 
are proposing, based on whether a hospital meets or exceeds the 
performance standards that we are proposing to establish with respect 
to the measures, to reward the hospital based on its actual 
performance, rather than simply its reporting of data for those 
measures.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on March 8, 2011.

ADDRESSES: In commenting, please refer to file code CMS-3239-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address only:
    Centers for Medicare & Medicaid Services, Department of Health and 
Human Services, Attention: CMS-3239-P, P.O. Box 8010, Baltimore, MD 
21244-8010.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-3239-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. If you prefer, you may deliver (by hand or 
courier) your written comments before the close of the comment period 
to either of the following addresses:
    a. For delivery in Washington, DC-- Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-8691 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Allison Lee, (410) 786-8691.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments: All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all comments received before the close of the comment period on 
the following Web site as soon as possible after they have been 
received: http://www.regulations.gov. Follow the search instructions on 
that Web site to view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Background
    A. Overview
    B. Hospital Inpatient Quality Data Reporting Under Section 
501(b) of Public Law 108-173
    C. Hospital Inpatient Quality Reporting Under Section 5001(a) of 
Public Law 109-171
    D. 2007 Report to Congress: Plan To Implement a Medicare 
Hospital Value-Based Purchasing Program
    E. Provisions of the Affordable Care Act
II. Provisions of the Proposed Regulations
    A. Overview of the Proposed Hospital Value-Based Purchasing 
Program
    B. Proposed Performance Period
    C. Proposed Measures
    D. Proposed Performance Standards
    E. Proposed Methodology for Calculating the Total Performance 
Score
    F. Applicability of the Value-Based Purchasing Program to 
Hospitals
    G. The Exchange Function
    H. Proposed Hospital Notification and Review Procedures
    I. Proposed Reconsideration and Appeal Procedures
    J. Proposed FY 2013 Validation Requirements for Hospital Value-
Based Purchasing
    K. Additional Information
    L. QIO Quality Data Access
III. Collection of Information Requirements
IV. Response to Comments
V. Regulatory Impact Statement
    A. Overall Impact
    B. Anticipated Effects
    C. Alternatives Considered
    D. Accounting Statement

Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing the acronyms used and their 
corresponding meanings in alphabetical order below:
AHRQ Agency for Healthcare Research and Quality

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AMI Acute Myocardial Infarction
CCN CMS Certification number
CMS Centers for Medicare & Medicaid Services
DRG Diagnosis-Related Group
FISMA Federal Information Security and Management Act
HCAHPS Hospital Consumer Assessment of Healthcare Providers and 
Systems
HF Heart Failure
HIPAA Health Insurance Portability and Accountability Act
HOP QDRP Hospital Outpatient Quality Data Reporting Program
IPPS Inpatient prospective payment systems
IQR Inpatient Quality Reporting
NQF National Quality Forum
PN Pneumonia
PQRI Physician Quality Reporting Initiative
PRRB Provider Reimbursement Review Board
PSI Patient Safety Indicator
QIO Quality Improvement Organization
QRS Quality Review Study
RFA Regulatory Flexibility Act
RHQDAPU Reporting Hospital Quality Data for the Annual Payment 
Update Program
RIA Regulatory Impact Analysis
SCIP Surgical Care Improvement
VBP Value-Based Purchasing

I. Background

A. Overview

    The Centers for Medicare & Medicaid Services (CMS) promotes higher 
quality and more efficient health care for Medicare beneficiaries. In 
recent years, we have undertaken a number of initiatives to lay the 
foundation for rewarding health care providers and suppliers for the 
quality of care they provide by tying a portion of their Medicare 
payments to their performance on quality measures. These initiatives, 
which include demonstration projects and quality reporting programs, 
have been applied to various health care settings, including 
physicians' offices, ambulatory care facilities, hospitals, nursing 
homes, home health agencies, and dialysis facilities. The overarching 
goal of these initiatives is to transform Medicare from a passive payer 
of claims to an active purchaser of quality health care for its 
beneficiaries.
    This effort is supported by our adoption of an increasing number of 
widely-agreed upon quality measures for purposes of our existing 
quality reporting programs. We have worked with stakeholders to define 
measures of quality in almost every setting. These measures assess 
structural aspects of care, clinical processes, patient experiences 
with care, and, increasingly, outcomes.
    We have implemented quality measure reporting programs that apply 
to various settings of care. With regard to hospital inpatient 
services, we implemented the Hospital IQR program. In addition, we have 
implemented quality reporting programs for hospital outpatient services 
through the Hospital Outpatient Quality Data Reporting Program (HOP 
QDRP), and for physicians and other eligible professionals through the 
Physician Quality Reporting Initiative (PQRI). We have also implemented 
quality reporting programs for home health agencies and skilled nursing 
facilities based on conditions of participation, and an end-stage renal 
disease quality reporting program based on conditions for coverage.
    This new program will necessarily be a fluid model, subject to 
change as knowledge, measures and tools evolve. We view the Hospital 
VBP program under section 1886(o) of the Social Security Act (the Act) 
as the next step in promoting higher quality care for Medicare 
beneficiaries and transforming Medicare into an active purchaser of 
quality health care for its beneficiaries.
    In developing this rule as well as other value-based payment 
initiatives, CMS applied the following principles for the development 
and use of measures and scoring methodologies.
    Purpose:
    CMS views value-based purchasing as an important step to revamping 
how care and services are paid for, moving increasingly toward 
rewarding better value, outcomes, and innovations instead of merely 
volume.
    Use of Measures:
     Public reporting and value-based payment systems should 
rely on a mix of standards, process, outcomes, and patient experience 
measures, including measures of care transitions and changes in patient 
functional status. Across all programs, CMS seeks to move as quickly as 
possible to the use of primarily outcome and patient experience 
measures. To the extent practicable and appropriate, outcomes and 
patient experience measures should be adjusted for risk or other 
appropriate patient population or provider characteristics.
     To the extent possible and recognizing differences in 
payment system maturity and statutory authorities, measures should be 
aligned across Medicare's and Medicaid's public reporting and payment 
systems. CMS seeks to evolve to a focused core-set of measures 
appropriate to the specific provider category that reflects the level 
of care and the most important areas of service and measures for that 
provider.
     The collection of information should minimize the burden 
on providers to the extent possible. As part of that effort, CMS will 
continuously seek to align its measures with the adoption of meaningful 
use standards for health information technology (HIT), so the 
collection of performance information is part of care delivery.
     To the extent practicable, measures used by CMS should be 
nationally endorsed by a multi-stakeholder organization. Measures 
should be aligned with best practices among other payers and the needs 
of the end users of the measures.
    Scoring Methodology:
     Providers should be scored on their overall achievement 
relative to national or other appropriate benchmarks. In addition, 
scoring methodologies should consider improvement as an independent 
goal.
     Measures or measurement domains need not be given equal 
weight, but over time, scoring methodologies should be more weighted 
towards outcome, patient experience and functional status measures.
     Scoring methodologies should be reliable, as 
straightforward as possible, and stable over time and enable consumers, 
providers, and payers to make meaningful distinctions among providers' 
performance.

CMS welcomes comments on these principles.

B. Hospital Inpatient Quality Data Reporting Under Section 501(b) of 
Public Law 108-173

    Section 501(b) of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA), Public Law 108-173, added section 
1886(b)(3)(B)(vii) to the Act. This section established the original 
authority for the Hospital IQR program and revised the mechanism used 
to update the standardized payment amount for inpatient hospital 
operating costs. Specifically, section 1886(b)(3)(B)(vii)(I) of the Act 
provided for a reduction of 0.4 percentage points to the annual 
percentage increase (sometimes referred to at that time as the market 
basket update) for FY 2005 through FY 2007 for a subsection (d) 
hospital if the hospital did not submit data on a set of 10 quality 
indicators established by the Secretary as of November 1, 2003. It also 
provided that any reduction applied only to the fiscal year involved, 
and would not be taken into account in computing the applicable 
percentage increase for a subsequent fiscal year. The statute thereby 
established an incentive for many subsection (d) hospitals to submit 
data on the quality measures established by the Secretary.
    We implemented section 1886(b)(3)(B)(vii) of the Act in the FY

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2005 IPPS final rule (69 FR 49078) and codified the applicable 
percentage change in Sec.  412.64(d) of our regulations. We adopted 
additional requirements under the Hospital IQR program in the FY 2006 
IPPS final rule (70 FR 47420).

C. Hospital Inpatient Quality Reporting Under Section 5001(a) of Public 
Law 109-171

1. Change in the Reduction to the Annual Percentage Increase
    Section 5001(a) of the Deficit Reduction Act of 2005 (DRA), Public 
Law 109-171, further amended section 1886(b)(3)(B) of the Act to, among 
other things, revise the mechanism used to update the standardized 
payment amount for hospital inpatient operating costs by adding new 
section 1886(b)(3)(B)(viii) to the Act. Specifically, sections 
1886(b)(3)(B)(viii)(I) and (II) of the Act as added by the DRA 
originally provided that the annual percentage increase for FY 2007 and 
each subsequent fiscal year shall be reduced by 2.0 percentage points 
for a subsection (d) hospital that does not submit quality data in a 
form and manner, and at a time, specified by the Secretary. Section 
1886(b)(3)(B)(viii)(I) of the Act also provided that any reduction in a 
hospital's annual percentage increase will apply only with respect to 
the fiscal year involved, and will not be taken into account for 
computing the applicable percentage increase for a subsequent fiscal 
year.
    In the FY 2007 IPPS final rule (71 FR 48045), we amended our 
regulations at Sec.  412.64(d)(2) to reflect the 2.0 percentage point 
reduction required under the DRA.
2. Selection of Quality Measures
    Section 1886(b)(3)(B)(viii)(V) of the Act, before it was amended by 
section 3001(a)(2)(B) of the Affordable Care Act, required that, 
effective for payments beginning with FY 2008, the Secretary add other 
measures that reflect consensus among affected parties, and to the 
extent feasible and practicable, have been set forth by one or more 
national consensus building entities. The National Quality Forum (NQF) 
is a voluntary consensus standard-setting organization with a diverse 
representation of consumer, purchaser, provider, academic, clinical, 
and other health care stakeholder organizations. The NQF was 
established to standardize health care quality measurement and 
reporting through its consensus development process. We have generally 
adopted NQF-endorsed measures for purposes of the Hospital IQR program. 
However, we believe that consensus among affected parties also can be 
reflected by other means, including consensus achieved during the 
measure development process, consensus shown through broad acceptance 
and use of measures, and consensus achieved through public comment.
    Section 1886(b)(3)(B)(viii)(VI) of the Act authorizes the Secretary 
to replace any quality measures or indicators in appropriate cases, 
such as when all hospitals are effectively in compliance with a 
measure, or the measures or indicators have been subsequently shown to 
not represent the best clinical practice. We interpreted this provision 
to give us broad discretion to replace measures that are no longer 
appropriate for the Hospital IQR program.
    We have adopted 45 measures under the Hospital IQR program for the 
FY 2011 payment determination. Of these measures, 27 are chart-
abstracted process of care measures, which assess the quality of care 
furnished by hospitals in connection with four topics: Acute Myocardial 
Infarction (AMI); Heart Failure (HF); Pneumonia (PN); and Surgical Care 
Improvement (SCIP) (75 FR 50182). Fifteen of the measures are claims-
based measures, which assess the quality of care furnished by hospitals 
on the following topics: 30-day mortality and 30-day readmission rates 
for Medicare patients diagnosed with either AMI, HF, or PN; Patient 
Safety Indicators/Inpatient Quality Indicators/Composite Measures; and 
Patient Safety Indicators/Nursing Sensitive Care. Three of the measures 
are structural measures that assess hospital participation in cardiac 
surgery, stroke care, and nursing sensitive care systemic databases. 
Finally, the Hospital Consumer Assessment of Healthcare Providers and 
Systems (HCAHPS) patient experience of care survey is included as a 
measure for the FY 2011 payment determination.
    The technical specifications for the Hospital IQR program measures, 
or links to Web sites hosting technical specifications, are contained 
in the CMS/The Joint Commission Specifications Manual for National 
Hospital Inpatient Quality Measures (Specifications Manual). This 
Specifications Manual is posted on the CMS QualityNet Web site at 
https://www.QualityNet.org/. We maintain the technical specifications 
by updating this Specifications Manual semiannually, or more frequently 
in unusual cases, and include detailed instructions and calculation 
algorithms for hospitals to use when collecting and submitting data on 
required measures. These semiannual updates are accompanied by 
notifications to users, providing sufficient time between the change 
and the effective date in order to allow users to incorporate changes 
and updates to the specifications into data collection systems.
3. Public Display of Quality Measures
    Section 1886(b)(3)(B)(viii)(VII) of the Act, before it was amended 
by section 3001(a)(2)(C) of the Affordable Care Act, required that the 
Secretary establish procedures for making data submitted under the 
Hospital IQR program available to the public after ensuring that a 
hospital has the opportunity to review the data before it is made 
public. To meet this requirement, we have displayed most Hospital IQR 
program data on the Hospital Compare website, http://www.hospitalcompare.hhs.gov, after a 30-day preview period. An 
interactive Web tool, this Web site assists beneficiaries by providing 
information on hospital quality of care to those who need to select a 
hospital. It further serves to encourage beneficiaries to work with 
their doctors and hospitals to discuss the quality of care hospitals 
provide to patients, thereby providing an additional incentive to 
hospitals to improve the quality of care that they furnish. The 
Hospital Compare website currently makes public data on clinical 
process of care measures, risk adjusted outcome measures, the HCAHPS 
patient experience of care survey, and structural measures. However, 
data that we believe is not suitable for inclusion on Hospital Compare 
because it is not salient or will not be fully understood by 
beneficiaries, as well as data for which there are unresolved display 
or design issues may be made available on other CMS Web sites that are 
not intended to be used as an interactive Web tool, such as http://www.cms.hhs.gov/HospitalQualityInits/. In such circumstances, affected 
parties are notified via CMS listservs, CMS e-mail blasts, national 
provider calls, and QualityNet announcements regarding the release of 
preview reports followed by the posting of data on a Web site other 
than Hospital Compare.

D. 2007 Report to Congress: Plan To Implement a Medicare Hospital 
Value-Based Purchasing Program

    Section 5001(b) of the DRA required the Secretary to develop a plan 
to implement a value-based purchasing program for payments made under 
the Medicare program for subsection (d) hospitals. In developing the 
plan, we were required to consider the on-going development, selection, 
and modification process for measures of

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quality and efficiency in hospital inpatient settings; the reporting, 
collection, and validation of quality data; the structure, size, and 
sources of funding of value-based payment adjustments; and the 
disclosure of information on hospital performance.
    In 2007, we submitted to Congress a report that discusses options 
for a plan to implement a Medicare hospital VBP program that builds on 
the Hospital IQR program. We recommended replacing the Hospital IQR 
program with a new program that would include both a public reporting 
requirement and financial incentives for better performance. We also 
recommended that a hospital VBP program be implemented in a manner that 
would not increase Medicare spending.
    To calculate a hospital's total performance score under the plan, 
we analyzed a potential performance scoring model that incorporated 
measures from different quality ``domains,'' including clinical process 
of care and patient experience of care. We examined ways to translate 
that score into an incentive payment by making a portion of the base 
diagnosis-related group (DRG) payment contingent on performance. We 
analyzed criteria for selecting performance measures and considered a 
potential phased approach to transition from Hospital IQR to value-
based purchasing. In addition, we examined redesigning the current data 
transmission process and validation infrastructure, including making 
enhancements to the Hospital Compare Web site, as well as an approach 
to monitor the impact of value-based purchasing.

E. Provisions of the Affordable Care Act

    Section 3001(a) of the Patient Protection and Affordable Care Act 
(Pub. L. 111-148), enacted on March 23, 2010, as amended by the Health 
Care and Education Reconciliation Act of 2010 (Pub. L. 111-152), 
enacted on March 30, 2010 (collectively known as the Affordable Care 
Act), added a new section 1886(o) to the Social Security Act (the Act) 
which requires the Secretary to establish a hospital value-based 
purchasing program under which value-based incentive payments are made 
in a fiscal year to hospitals meeting performance standards established 
for a performance period for such fiscal year. Both the performance 
standards and the performance period for a fiscal year are to be 
established by the Secretary. Section 1886(o)(1)(B) of the Act directs 
the Secretary to begin making value-based incentive payments under the 
Hospital VBP program to hospitals for discharges occurring on or after 
October 1, 2012. These incentive payments will be funded for FY 2013 
through a reduction to FY 2013 base operating DRG payments for each 
discharge of 1%, as required by section 1886(o)(7). Section 
1886(o)(1)(C) provides that the Hospital VBP program applies to 
subsection (d) hospitals (as defined in section 1886(d)(1)(B)), but 
excludes from the definition of the term ``hospital,'' with respect to 
a fiscal year: 1) a hospital that is subject to the payment reduction 
under section 1886(b)(3)(B)(viii)(I) for such fiscal year; 2) a 
hospital for which, during the performance period for the fiscal year, 
the Secretary cited deficiencies that pose immediate jeopardy to the 
health and safety of patients; and 3) a hospital for which there is not 
a minimum number (as determined by the Secretary) of applicable 
measures for the performance period for the fiscal year involved, or 
for which there is not a minimum number (as determined by the 
Secretary) of cases for the applicable measures for the performance 
period for such fiscal year.

II. Provisions of the Proposed Regulations

A. Overview of the Proposed Hospital VBP Program

    This proposed rule proposes to implement a Hospital Value-Based 
Purchasing program (``Hospital VBP program'' or ``the program'') under 
section 1886(o) of the Social Security Act (``Act''), under which 
value-based incentive payments will be made in a fiscal year (beginning 
FY 2013) to hospitals that meet performance standards established with 
respect to a performance period ending prior to the beginning of such 
fiscal year. This proposed rule was developed based on extensive 
research we conducted on hospital value-based purchasing, including 
research that formed the basis of a 2007 report we submitted to 
Congress, entitled ``Report to Congress: Plan to Implement a Medicare 
Hospital Value-Based Purchasing Program'' (November 21, 2007), a copy 
of which is available on the CMS Web site, and takes into account input 
from both stakeholders and other interested parties. As described more 
fully below, we are proposing to initially adopt for the FY 2013 
Hospital VBP program 18 measures that we have already adopted for the 
Hospital IQR Program, categorized into two domains, as follows: 17 of 
the proposed measures will be clinical process of care measures, which 
we will group into a clinical process of care domain, and 1 measure 
will be the HCAHPS survey, which will fall under a patient experience 
of care domain. With respect to the clinical process of care and HCAHPS 
measures, we are proposing to use a three-quarter performance period 
from July 1, 2011 through March 31, 2012 for the FY 2013 payment 
determination and to determine whether hospitals meet the proposed 
performance standards for these measures by comparing their performance 
during the proposed performance period to their performance during a 
proposed three-quarter baseline period from July 1, 2009 through March 
31, 2010. We are also proposing to initially adopt for the FY 2014 
Hospital VBP program three outcome measures. With respect to the 
proposed outcome measures, we are proposing to use an 18-month 
performance period from July 1, 2011 to December 31, 2012. Furthermore, 
for the proposed outcome measures, we are proposing to establish 
performance standards and to determine whether hospitals meet those 
standards by comparing their performance during the proposed 
performance period to their performance during a proposed baseline 
period of July 1, 2008 to December 31, 2009.
    In general, we are proposing to implement a methodology for 
assessing the total performance of each hospital based on performance 
standards, under which we will score each hospital based on achievement 
and improvement ranges for each applicable measure. Additionally, we 
are proposing to calculate a total performance score for each hospital 
by combining the greater of the hospital's achievement or improvement 
points for each measure to determine a score for each domain, 
multiplying each domain score by a proposed weight (clinical process of 
care: 70 percent, patient experience of care: 30 percent), and adding 
together the weighted domain scores. We are proposing to convert each 
hospital's total performance score into a value-based incentive payment 
utilizing a linear exchange function. All of these proposals are 
addressed in greater detail below.

B. Proposed Performance Period

    Section 1886(o)(4) of the Act requires the Secretary to establish a 
performance period for a fiscal year that begins and ends prior to the 
beginning of such fiscal year. In considering various performance 
periods that could apply for purposes of the fiscal year 2013 payment 
adjustments, we recognized that hospitals submit data on the chart-
abstracted measures adopted for the Hospital IQR Program on a quarterly

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basis, and for that reason, we would propose that the performance 
period commence at the beginning of a quarter. We also recognize that 
we must balance the length of the period for collecting measure data 
with the need to undertake the rulemaking process in order to establish 
the performance period and provide the public with an opportunity to 
meaningfully comment on that proposal. With these considerations in 
mind, we concluded that July 1, 2011 is the earliest date that the 
performance period could begin.
    We then considered how long the performance period should be. Our 
preference would have been to propose to use a full year as the 
performance period for the clinical process of care and HCAHPS measures 
we are proposing to initially adopt for the FY 2013 Hospital VBP 
program, consistent with our analysis that using a full year 
performance period provides high levels of data accuracy and 
reliability for scoring hospitals on these measures. We concluded, 
however, that this would not give us sufficient time to calculate the 
total performance scores, calculate the value-based incentive payments, 
notify hospitals regarding their payment adjustments, and implement the 
payment adjustments. We subsequently analyzed how a shorter performance 
period might affect a hospital's performance score. Using the most 
recent clinical process of care and HCAHPS measure data available, we 
examined the feasibility of proposing to adopt a one quarter, two 
quarter, or three quarter performance period by comparing each of these 
periods to a four quarter baseline period. We did this to determine how 
closely a hospital's total performance score calculated using one, two, 
or three quarters of data would approximate what the hospital's total 
performance score would be if we proposed to use four quarters of data. 
Under our analysis, the total performance scores approximated using 
three quarters of data closely correlated with total performance scores 
approximated using four quarters of data. Specifically, our analysis 
showed that the three quarter performance period would have a 
correlation coefficient of 0.96815 (p-value .0001), while a two quarter 
performance period would have a correlation coefficient of 0.90358 (p-
value .0001).
    We also recognize that under the Hospital IQR program, hospitals 
have 135 days to submit chart abstracted data following the close of 
each quarter. Because we are proposing to implement a Hospital VBP 
program that builds on the Hospital IQR program, we would like, to the 
extent possible, to maintain our existing Hospital IQR program 
requirements. We believe that the 135 day time lag supports the 
adoption of a three quarter performance period based on the analysis 
discussed above, and that a one or two quarter performance period would 
provide lower data accuracy for scoring hospitals and adjusting their 
payments.
    Therefore, we propose to use the fourth quarter of FY 2011 (July 1, 
2011-September 30, 2011) and the first and second quarters of FY 2012 
(October 1, 2011-March 31, 2012) as the performance period for proposed 
clinical process of care and HCAHPS measures we are proposing to 
initially adopt for the FY 2013 Hospital VBP program. Hospitals will be 
scored based on how well they perform on the proposed clinical process 
of care and HCAHPS measures during this proposed performance period. We 
note that we anticipate proposing to use a full year as the performance 
period for the clinical process of care and HCAHPS measures in the 
future. For the three mortality outcome measures currently specified 
for the Hospital IQR program for the FY 2011 payment determination 
(MORT-30-AMI, MORT-30-HF, MORT-30-PN) that we propose below to adopt 
for the FY 2014 Hospital VBP program payment determination, we are 
proposing to establish a performance period of July 1, 2011 to December 
31, 2012. An eighteen-month performance period for mortality measures 
is intended to ensure the measures' reliability by capturing more cases 
than could be observed over one year of measurement. We plan to add 
additional measures to the Hospital VBP program, including but not 
limited to AHRQ and HAC measures that have been specified for the 
Hospital IQR program and propose that the performance period for those 
measures will begin one year after these measures have been displayed 
on the Hospital Compare Web site for the reasons discussed below.

C. Proposed Measures

    Section 1886(o)(2)(A) of the Act requires the Secretary to select 
for the Hospital VBP program measures, other than readmission measures, 
from the measures specified for the Hospital IQR program. Section 
1886(o)(2)(B)(i) requires the Secretary to ensure that the selected 
measures include measures on six specified conditions or topics: Acute 
Myocardial Infarction (AMI); Heart Failure (HF); Pneumonia (PN); 
Surgeries, as measured by the Surgical Care Improvement Project (SCIP); 
Healthcare-Associated Infections (HAI); and, the Hospital Consumer 
Assessment of Healthcare Providers and Systems survey (HCAHPS). Section 
1886(o)(2)(C)(i) provides that the Secretary may not select a measure 
with respect to a performance period for a fiscal year unless the 
measure has been specified under section 1886(b)(3)(B)(viii) of the Act 
and included on the Hospital Compare website for at least one year 
prior to the beginning of the performance period. Section 
1886(o)(2)(C)(ii) provides that a measure selected under section 
1886(o)(2)(A) shall not apply to a hospital if the hospital does not 
furnish services appropriate to the measure.
    Our measure development and selection activities for the Hospital 
IQR Program take into account national priorities, such as those 
established by the National Priorities Partnership,\1\ and the 
Department of Health and Human Services,\2\ as well as other widely 
accepted criteria established in medical literature.\3\ Because we must 
select measures for the Hospital VBP program from the pool of measures 
that have been adopted for the Hospital IQR program, the measures to be 
selected for inclusion in Hospital VBP would also reflect these 
priorities.
---------------------------------------------------------------------------

    \1\ http://www.nationalprioritiespartnership.org/.
    \2\ http://www.hhs.gov/secretary/about/priorities/priorities.html.
    \3\ Chassin, M.R.; Loeb, J.M.; Schmaltz, S.P. and Wachter, R.M. 
(2010) ``Accountability Measures--Using Measurement to Promote 
Quality Improvement.'' New England Journal of Medicine. Vol 363: 
683-688.
---------------------------------------------------------------------------

    In the FY 2011 IPPS/RY 2011 LTCH PPS final rule, we stated that in 
future expansions and updates to the Hospital IQR program measure set, 
we would be taking into consideration several important goals. These 
goals include: (a) Expanding the types of measures beyond process of 
care measures to include an increased number of outcome measures, 
efficiency measures, and patients' experience of care measures; (b) 
expanding the scope of hospital services to which the measures apply; 
(c) considering the burden on hospitals in collecting chart-abstracted 
data; (d) harmonizing the measures used in the Hospital IQR program 
with other CMS quality programs to align incentives and promote 
coordinated efforts to improve quality; (e) seeking to use measures 
based on alternative sources of data that do not require chart 
abstraction or that utilize data already being reported by many 
hospitals, such as data that hospitals report to clinical data 
registries, or all payer claims databases; and (f) weighing the 
relevance and utility of the measures compared to the burden on 
hospitals in submitting data under the Hospital IQR program. In 
addition, we believe that we

[[Page 2459]]

must act with all speed and deliberateness to expand the pool of 
measures used in the Hospital VBP program. This goal is supported by at 
least two Federal reports documenting that tens of thousands of 
patients do not receive safe care in the nation's hospitals.\4\ For 
this reason, we believe that we need to adopt measures for the Hospital 
VBP program relevant to improving care, particularly as these measures 
are directed toward improving patient safety, as quickly as possible. 
We believe that speed of implementation is a critical factor in the 
success and effectiveness of this program.
---------------------------------------------------------------------------

    \4\ See OEI-06-09-00090 ``Adverse Events in Hospitals: National 
Incidence Among Medicare Beneficiaries.'' Department of Health and 
Human Services, Office of Inspector General, November 2010. See 
also, 2009 National Healthcare Quality Report, pp. 107-122. 
``Patient Safety,'' Agency for Healthcare Research and Quality.
---------------------------------------------------------------------------

    The Hospital VBP program that we are proposing to implement has 
been developed with the focused intention to motivate all subsection 
(d) hospitals to which the program applies to take immediate action to 
improve the quality of care they furnish to their patients. Because we 
view as urgent the necessity to improve the quality of care furnished 
by these hospitals, and because we believe that hospitalized patients 
in the United States currently face patient safety risks on a daily 
basis, we are proposing in this proposed rule to adopt an initial 
measure set for the Hospital VBP program. However, we are also 
proposing to add additional measures to the Hospital VBP program in the 
future in such a way that their performance period will begin 
immediately after they are displayed on Hospital Compare for a period 
of time of at least one year, but without the necessity of notice and 
comment rulemaking. We propose this because of the urgency to improve 
the quality of hospital care, and in order to minimize any delay to 
take substantive action in favor of patient safety. The details of this 
proposal are discussed below.
    We have stated that for the Hospital IQR Program, we give priority 
to quality measures that assess performance on: (a) Conditions that 
result in the greatest mortality and morbidity in the Medicare 
population; (b) conditions that are high volume and high cost for the 
Medicare program; and (c) conditions for which wide cost and treatment 
variations have been reported, despite established clinical guidelines. 
In addition, we stated that we seek to select measures that address the 
six quality aims of effective, safe, timely, efficient, patient-
centered, and equitable healthcare. Current and long term priority 
topics include: Prevention and population health; safety; chronic 
conditions; high cost and high volume conditions; elimination of health 
disparities; healthcare-associated infections and other adverse 
healthcare outcomes; improved care coordination; improved efficiency; 
improved patient and family experience of care; effective management of 
acute and chronic episodes of care; reduced unwarranted geographic 
variation in quality and efficiency; and adoption and use of 
interoperable health information technology.
    We have also stated that these criteria, priorities, and goals are 
consistent with section 1886(b)(3)(B)(viii)(X) of the Act, as added by 
section 3001(a)(2)(D) of the Affordable Care Act, which requires the 
Secretary, to the extent practicable and with input from consensus 
organizations and other stakeholders, to take steps to ensure that the 
Hospital IQR program measures are coordinated and aligned with quality 
measures applicable to physicians and other providers of services and 
suppliers under Medicare.
    Currently, there are 45 measures specified under the Hospital IQR 
program for the FY 2011 payment determination. We view all of these 
measures (with the exception of the measures of readmission) as 
``candidate measures'' for the Hospital VBP program. We recognize that 
we cannot add any measure to the program unless it meets the 
requirements of section 1886(o). In determining what measures to 
initially propose for the FY 2013 Hospital VBP program we considered 
several factors. First, a measure must be included on the Hospital 
Compare Web site for at least one year prior to the beginning of the 
performance period and specified under the Hospital IQR program. The 
SCIP-Inf-9 and 10 measures do not meet this requirement nor do any of 
the nine (previously ten given the Nursing Sensitive Care--Failure to 
Rescue measure was harmonized with the Death Among Surgical Patients 
with Serious, treatable Complications) Agency for Healthcare Research 
and Quality (AHRQ) measures. Therefore, these measures were not 
considered candidate measures. It is our intention to add measures to 
the Hospital VBP program as soon as this requirement is met in order to 
help improve patient care as quickly as possible.
    As noted above, we recognize that we cannot include in the measure 
set any readmission measures in accordance with section 1886(o)(2)(A) 
of the Act. We also are not proposing at this time to adopt the current 
Hospital IQR structural measures because we believe that these measures 
require further development if they are to be used for the Hospital VBP 
program. We seek public comment at this time on the possible utility of 
adopting structural measures for the Hospital VBP program measure set 
and how these measures might contribute to the improvement of patient 
safety and quality of care. Table 1 contains a list of the remaining 
initial eligible measures.

 Table 1--Initial Eligible Measures for the FY 2013 Hospital VBP Program
------------------------------------------------------------------------
            Measure ID                       Measure description
------------------------------------------------------------------------
                            Process Measures
------------------------------------------------------------------------
AMI-1.............................  Aspirin at Arrival.
AMI-2.............................  Aspirin Prescribed at Discharge.
AMI-3.............................  ACE/ARB Inhibitor.
AMI-4.............................  Adult Smoking Cessation Advice/
                                     Counseling.
AMI-5.............................  Beta Blocker Prescribed at
                                     Discharge.
AMI-7a............................  Fibrinolytic Therapy Received Within
                                     30 Minutes of Hospital Arrival.
AMI-8a............................  Primary PCI Received Within 90
                                     Minutes of Hospital Arrival.
HF-1..............................  Discharge Instructions.
HF-2..............................  Evaluation of LVS Function.
HF-3..............................  ACEI or ARB for LVSD.
HF-4..............................  Adult Smoking Cessation Advice/
                                     Counseling.

[[Page 2460]]

 
PN-2..............................  Pneumococcal Vaccination.
PN-3b.............................  Blood Cultures Performed in the
                                     Emergency Department Prior to
                                     Initial Antibiotic Received in
                                     Hospital.
PN-4..............................  Adult Smoking Cessation Advice/
                                     Counseling.
PN-5c.............................  Timing of Receipt of Initial
                                     Antibiotic Following Hospital
                                     Arrival.
PN-6..............................  Initial Antibiotic Selection for CAP
                                     in Immunocompetent Patient.
PN-7..............................  Influenza Vaccination.
SCIP-Inf-1........................  Prophylactic Antibiotic Received
                                     Within One Hour Prior to Surgical
                                     Incision.
SCIP-Inf-2........................  Prophylactic Antibiotic Selection
                                     for Surgical Patients.
SCIP-Inf-3........................  Prophylactic Antibiotics
                                     Discontinued Within 24 Hours After
                                     Surgery End Time.
SCIP-Inf-4........................  Cardiac Surgery Patients with
                                     Controlled 6AM Postoperative Serum
                                     Glucose.
SCIP-Inf-6........................  Surgery Patients with Appropriate
                                     Hair Removal.
SCIP-Card-2.......................  Surgery Patients on a Beta Blocker
                                     Prior to Arrival That Received a
                                     Beta Blocker During the
                                     Perioperative Period.
SCIP-VTE-1........................  Surgery Patients with Recommended
                                     Venous Thromboembolism Prophylaxis
                                     Ordered.
SCIP-VTE-2........................  Surgery Patients Who Received
                                     Appropriate Venous Thromboembolism
                                     Prophylaxis Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery.
------------------------------------------------------------------------
                            Outcome Measures
------------------------------------------------------------------------
MORT-30-AMI.......................  Acute Myocardial Infarction (AMI) 30-
                                     Day Mortality Rate.
MORT-30-HF........................  Heart Failure (HF) 30-Day Mortality
                                     Rate.
MORT-30-PN........................  Pneumonia (PN) 30-Day Mortality
                                     Rate.
------------------------------------------------------------------------
                             Survey Measures
------------------------------------------------------------------------
HCAHPS............................  Hospital Consumer Assessment of
                                     Healthcare Providers and Systems
                                     Survey.
------------------------------------------------------------------------

    To determine which measures we would propose to initially adopt for 
the FY 2013 Hospital VBP program, we then examined whether any of the 
eligible Hospital IQR measures (table above) should be excluded from 
the Hospital VBP program measure set because hospital performance on 
them is ``topped out,'' meaning that all but a few hospitals have 
achieved a similarly high level of performance on them. We believe that 
measuring hospital performance on topped-out measures will have no 
meaningful effect on a hospital's total performance score. Scoring a 
topped-out measure for purposes of the Hospital VBP program would also 
present a number of challenges. First, as we discuss below, we are 
proposing that the benchmark performance standard for all measures will 
be the performance at the mean of the top decile (defined in section 
II. E. of this proposed rule). Applied to a topped-out measure, the 
benchmark would be statistically indistinguishable from the highest 
attainable score for the measure and, in our view, could lead to 
unintended consequences as hospitals strive to meet the benchmark. 
Examples of unintended consequences could include, but are not limited 
to, inappropriate delivery of a service to some patients (such as 
delivery of antibiotics to patients without a confirmed diagnosis of 
pneumonia), unduly conservative decisions on whether to exclude some 
patients from the measure denominator, and a focus on meeting the 
benchmark at the expense of actual improvements in quality or patient 
outcomes. Second, we have found that for topped-out measures, it is 
significantly more difficult to differentiate among hospitals 
performing above the median. Third, because a measure cannot be applied 
to a hospital unless the hospital furnishes services appropriate to the 
measure, data reporting under the Hospital VBP program will not be the 
same for all hospitals. To the extent that a hospital can report a 
higher proportion of topped-out measures, for which its scores would 
likely be high, we believe that such a hospital would be unfairly 
advantaged in the determination of its total performance score.
    To determine whether an eligible Hospital IQR measure is topped 
out, we initially focused on the top distribution of hospital 
performance on each measure and noted if their 75th and 90th 
percentiles were statistically indistinguishable. Based on our 
analysis, we identified 7 topped-out measures: AMI-1 Aspirin at 
Arrival; AMI-5 Beta Blocker at Discharge; AMI-3 ACEI or ARB at 
Discharge; AMI-4 Smoking Cessation; HF-4 Smoking Cessation; PN-4 
Smoking Cessation; and SCIP-Inf-6 Surgery Patients with Appropriate 
Hair Removal. We then observed that two of these measures identified as 
topped out (AMI-3 ACEI or ARB at Discharge and HF-4 Smoking Cessation) 
had significantly lower mean scores than the others, which led us to 
question whether our analysis was too focused on the top ends of 
distributions and whether additional criteria that could account for 
the entire distribution might be more appropriate. To address this, we 
analyzed the truncated coefficient of variation for each of the 
measures. The coefficient of variation (CV) is a common statistic that 
expresses the standard deviation as a percentage of the sample mean in 
a way that is independent of the units of observation. Applied to this 
analysis, a large CV would indicate a broad distribution of individual 
hospital scores, with large and presumably meaningful differences 
between hospitals in relative performance. A small CV would indicate 
that the distribution of individual hospital scores is clustered 
tightly around the mean value, suggesting that it is not useful to draw 
distinctions between individual hospital performance scores. We used a 
modified version of the CV, namely a truncated CV, for each measure, in 
which the five percent of hospitals with the lowest scores, and the 
five percent of hospitals with highest scores were first truncated (set 
aside) before calculating the CV. This was done to avoid undue effects 
of the highest and lowest outlier hospitals, which if included, would 
tend to greatly widen the dispersion of the distribution and make the 
measure appear to be more reliable or discerning. For example, a 
measure for which most hospital scores are tightly clustered

[[Page 2461]]

around the mean value (a small CV) might actually reflect a more robust 
dispersion if there were also a number of hospitals with extreme 
outlier values, which would greatly increase the perceived variance in 
the measure. Accordingly, the truncated CV was added as an additional 
criterion requiring that a topped-out measure also exhibit a truncated 
CV < 0.10. Using both the truncated CV and data showing whether 
hospital performance at the 75th and 90th percentiles was statistically 
indistinguishable, we reexamined the available measures and determined 
that the same seven measures continue to meet our proposed definition 
for being topped-out.
    Our priorities for the Hospital VBP program are to transform how 
Medicare pays for care and to encourage hospitals to continually 
improve the quality of care they furnish. Our analysis of the impact of 
including the topped-out measures discussed above shows that their use 
would mask true performance differences among hospitals and, as a 
result, would fail to advance these priorities. Therefore, we are 
proposing to not include these 7 topped-out measures (AMI-1 Aspirin at 
Arrival; AMI-5 Beta Blocker at Discharge; AMI-3 ACEI or ARB at 
Discharge; AMI-4 Smoking Cessation; HF-4 Smoking Cessation; PN-4 
Smoking Cessation; and SCIP-Inf-6 Surgery Patients with Appropriate 
Hair Removal) in the list of measures we are proposing to initially 
adopt for the FY 2013 Hospital VBP program.
    We examined whether the following outcome measures adopted for the 
Hospital IQR program are appropriate for inclusion in the FY 2013 
Hospital VBP program. These measures are as follows: (1) AHRQ patient 
safety indicators (PSIs), inpatient quality indicators (IQIs) and 
composite measures; (2) AHRQ PSI and nursing sensitive care measure; 
and (3) AMI, HF, and PN mortality measures (Medicare patients). We 
believe that these outcome measures provide important information 
relating to treatment outcomes and patient safety. We also believe that 
adding these outcome measures would significantly improve the 
correlation between patient outcomes and Hospital VBP performance. 
However, because under section 1886(o)(2)(C)(i) of the Act, we may only 
select measures if they have been included on the Hospital Compare 
Internet website for a least one year prior to the beginning of the 
performance period, we believe that the AHRQ Patient Safety Indicators 
(PSI) and Inpatient Quality Indicators (IQI) and composite measures, 
and the AHRQ Nursing Sensitive Care measure are not yet eligible for 
inclusion in the FY 2013 Hospital VBP program. These measures are 
currently specified for the Hospital IQR program but have not yet been 
included on Hospital Compare. Because of the urgency to act quickly to 
improve patient safety, we plan to adopt them for use in the Hospital 
VBP Program as rapidly as possible and will continue working to develop 
additional robust outcome measures for the Hospital VBP program. We 
invite comments on the addition of the AHRQ PSI, IQI, and Nursing 
Sensitive Care measures for Hospital VBP program inclusion in FY 2014 
and future years.
    We considered whether the current publicly-reported 30-day 
mortality claims-based measures (Mort-30-AMI, Mort-30-HF, Mort-30-PN) 
should be included in the FY 2013 Hospital VBP program. The mortality 
measures assess hospital-specific, risk-standardized, all-cause 30-day 
mortality rates for patients hospitalized with a principal diagnosis of 
heart attack, heart failure, and pneumonia. All-cause mortality is 
defined for purposes of these measures as death from any cause within 
30 days after the index admission date, regardless of whether the 
patient died while still in the hospital or after discharge. On July 1, 
2009, the specifications for these measures were changed from a one-
year reporting period to a three-year rolling average. This was done to 
address concerns regarding the reliability of the measures, and the 
three-year rolling average allows us to include a larger number of 
cases in the measure calculations, although our analysis shows that 
eighteen months of these data is also reliable. We do not believe that 
the three-quarter performance period we are proposing to use for the 
initial clinical process of care and HCAHPS measures for the FY 2013 
Hospital VBP program would be appropriate to use for these mortality 
outcome measures because we do not believe that the data collected for 
these mortality measures during those three quarters will provide us 
with sufficiently accurate information about a hospital's outcomes on 
which to score hospitals on these measures and base payment. The 
detailed methodology for the 30-day risk standardized mortality 
measures is available on http://www.qualitynet.org.
    However, we propose to adopt these currently reported 30-day 
mortality claims-based measures (MORT-30-AMI, MORT-30-HF, and MORT-30-
PN) as measures for the FY 2014 Hospital VBP program and, as proposed 
above, to establish a performance period with respect to these measures 
of July 1, 2011 to December 31, 2012.
    The eligible clinical process of care measures that have not been 
excluded for reasons previously discussed cover acute myocardial 
infarction, heart failure, pneumonia, and surgeries (as measured by the 
Surgical Care Improvement Project (SCIP)). Therefore, we believe that 
they meet the requirements in section 1886(o)(2)(B)(i)(I)(aa)-(dd) of 
the Act. Section 1886(o)(2)(B)(i)(ee) of the Act requires the Secretary 
to also select for purposes of the FY 2013 Hospital VBP program 
measures that cover healthcare-associated infections (HAI) ``as 
measured by the prevention metrics and targets established in the HHS 
Action Plan to Prevent Healthcare-Associated Infections (or any 
successor plan) of the Department of Health and Human Services.'' The 
SCIP measures that we discuss above were developed to support practices 
that have demonstrated an ability to significantly reduce surgical 
complications such as HAIs. Compliance with these SCIP infection 
measures is also included as a targeted metric in the HHS Action Plan 
to Prevent Healthcare-Associated Infections issued in 2009, available 
on the HHS website. As a result, we believe that the SCIP-Inf-1; SCIP-
Inf-2; SCIP-Inf-3; and SCIP-Inf-4 measures we have adopted for the 
Hospital IQR program meet the requirement in section 
1886(o)(2)(B)(i)(I)(ee) and we propose to categorize them under a HAI 
condition topic instead of under the SCIP condition topic.
    Under section 1886(o)(2)(B)(i)(II), the Secretary must select 
measures for the FY 2013 Hospital VBP program related to the Hospital 
Consumer Assessment of Healthcare Providers and Systems survey 
(HCAHPS). CMS partnered with the Agency for Healthcare Research and 
Quality (AHRQ) to develop HCAHPS. The HCAHPS survey is the first 
national, standardized, publicly reported survey of patients' 
experiences of hospital care, and we propose to adopt it for the FY 
2013 Hospital VBP program. HCAHPS, also known as the CAHPS[supreg] 
Hospital Survey, is a survey instrument and data collection methodology 
for measuring patients' perceptions of their hospital experience.
    The HCAHPS survey asks discharged patients 27 questions about their 
recent hospital stay that are used to measure the experience of 
patients across 10 dimensions in the Hospital IQR program. The survey 
contains 18 core questions about critical aspects of patients' hospital 
experiences (communication with nurses and doctors, the responsiveness 
of hospital staff, the cleanliness and quietness of the hospital 
environment, pain

[[Page 2462]]

management, communication about medicines, discharge information, 
overall rating of the hospital, and whether they would recommend the 
hospital). The survey also includes four items to direct patients to 
relevant questions if a patient did not have a particular experience 
covered by the survey, such as taking new medications or needing 
medicine for pain. Three items in the survey are used to adjust for the 
mix of patients across hospitals, and two items related to race and 
ethnicity support congressionally-mandated reports on disparities in 
health care.
    The HCAHPS survey is administered to a random sample of adult 
patients across medical conditions between 48 hours and six weeks after 
discharge; the survey is not restricted to Medicare beneficiaries. 
Hospitals must survey patients throughout each month of the year. The 
survey is available in official English, Spanish, Chinese, Russian and 
Vietnamese versions. The survey and its protocols for sampling, data 
collection and coding, and file submission can be found in the HCAHPS 
Quality Assurance Guidelines, Version 5.0, which is available on the 
official HCAHPS website, http://www.hcahpsonline.org.
    AHRQ carried out a rigorous, scientific process to develop and test 
the HCAHPS instrument. This process entailed multiple steps, including: 
A public call for measures; literature review; cognitive interviews; 
consumer focus groups; stakeholder input; a three-state pilot test; 
small-scale field tests; and soliciting public comments via several 
Federal Register notices. In May 2005, the HCAHPS survey was endorsed 
by the National Quality Forum (NQF). CMS adopted the entire HCAHPS 
survey as a measure in the Hospital IQR program in October 2006, and 
the first public reporting of HCAHPS results occurred in March 2008. 
The survey, its methodology and the results it produces are available 
on the HCAPHS website at http://www.hcahpsonline.org/home.aspx. With 
respect to our display of the HCAHPS measure on Hospital Compare for 
purposes of the Hospital IQR program, we publicly report the measure as 
10 separate items. The ``cleanliness of hospital environment,'' 
``quietness of hospital environment,'' ``overall rating of the 
hospital,'' and ``recommend the hospital'' survey items are displayed 
as stand-alone items. The remaining 6 items (communication with nurses, 
communication with doctors, responsiveness of hospital staff, pain 
management, communication about medicines, discharge information) are 
composites of the remaining survey items.
    Finally, we propose to not include the PN-5c measure in the 
Hospital VBP program. We do not believe that this measure is 
appropriate for inclusion because it could lead to inappropriate 
antibiotic use. We intend to propose to retire this measure, as well as 
several other measures that we are not proposing to adopt for the 
Hospital VBP program, from the Hospital IQR program in the near future.
    Accordingly, we propose to initially select the following 17 
clinical process of care measures, and the HCAHPS measure, for 
inclusion in the FY 2013 Hospital VBP program. The proposed list of 
initial measures is provided in Table 2.

   Table 2--Proposed Initial Measures for FY 2013 Hospital VBP Program
------------------------------------------------------------------------
            Measure ID                       Measure description
------------------------------------------------------------------------
                    Clinical Process of Care Measures
------------------------------------------------------------------------
Acute myocardial infarction:
AMI-2.............................  Aspirin Prescribed at Discharge.
AMI-7a............................  Fibrinolytic Therapy Received Within
                                     30 Minutes of Hospital Arrival.
AMI-8a............................  Primary PCI Received Within 90
                                     Minutes of Hospital Arrival.
Heart Failure:
HF-1..............................  Discharge Instructions.
HF-2..............................  Evaluation of LVS Function.
HF-3..............................  ACEI or ARB for LVSD.
Pneumonia:
PN-2..............................  Pneumococcal Vaccination.
PN-3b.............................  Blood Cultures Performed in the
                                     Emergency Department Prior to
                                     Initial Antibiotic Received in
                                     Hospital.
PN-6..............................  Initial Antibiotic Selection for CAP
                                     in Immunocompetent Patient.
PN-7..............................  Influenza Vaccination.
Healthcare-associated infections:
SCIP-Inf-1........................  Prophylactic Antibiotic Received
                                     Within One Hour Prior to Surgical
                                     Incision.
SCIP-Inf-2........................  Prophylactic Antibiotic Selection
                                     for Surgical Patients.
SCIP-Inf-3........................  Prophylactic Antibiotics
                                     Discontinued Within 24 Hours After
                                     Surgery End Time.
SCIP-Inf-4........................  Cardiac Surgery Patients with
                                     Controlled 6AM Postoperative Serum
                                     Glucose.
Surgeries:
SCIP-Card-2.......................  Surgery Patients on a Beta Blocker
                                     Prior to Arrival That Received a
                                     Beta Blocker During the
                                     Perioperative Period.
SCIP-VTE-1........................  Surgery Patients with Recommended
                                     Venous Thromboembolism Prophylaxis
                                     Ordered.
SCIP-VTE-2........................  Surgery Patients Who Received
                                     Appropriate Venous Thromboembolism
                                     Prophylaxis Within 24 Hours Prior
                                     to Surgery to 24 Hours After
                                     Surgery.
------------------------------------------------------------------------
                             Survey Measures
------------------------------------------------------------------------
HCAHPS............................  Hospital Consumer Assessment of
                                     Healthcare Providers and Systems
                                     Survey.\5\
------------------------------------------------------------------------

    \5\ Proposed dimensions of the HCAHPS survey for use in the FY 2013 
Hospital VBP program include: Communication with Nurses, Communication 
with Doctors, Responsiveness of Hospital Staff, Pain Management, 
Communication about Medicines, Cleanliness and Quietness of Hospital 
Environment, Discharge

[[Page 2463]]

Information and Overall Rating of Hospital.
    We solicit public comments on these proposed measures and also on 
our intention to add additional measures to the Hospital VBP Program as 
rapidly as possible going forward. To that end, we are proposing to 
implement a subregulatory process to expedite the timeline for adding 
measures to the Hospital VBP program beginning with the FY 2013 
program. Under this process we could add any measure to the Hospital 
VBP program if that measure is adopted under the Hospital IQR program 
and has been included on the Hospital Compare Web site for at least one 
year. We are proposing that the performance period for all of these 
measures would start exactly one year after the date these measures are 
publicly posted on Hospital Compare, consistent with section 
1886(o)(2)(C)(i). Under this proposed subregulatory process, we would 
solicit comments from the public on the appropriateness of adopting one 
or more Hospital IQR measures for the Hospital VBP program. We would 
also assess the Hospital IQR measure rates using the criteria we used 
to select the proposed measures for the initial FY 2013 Hospital VBP 
measure set and notify the public regarding our findings. We would 
propose performance period end dates for any measure we selected for 
Hospital VBP program in rulemaking. We are also proposing to implement 
a subregulatory process to retire Hospital VBP measures. Under this 
process, we would post our intention to retire measures on the CMS Web 
site at least 60 days prior to the date that we will retire the 
measure. We would also, as we do with respect to Hospital IQR measures 
that we believe pose immediate patient safety concerns if reporting on 
them is continued, notify hospitals and the public of the retirement of 
the measure and the reasons for its retirement through the usual 
hospital and QIO communication channels used for the Hospital IQR 
program, which include e-mail blasts to hospitals and the dissemination 
of Standard Data Processing System (SDPS) memoranda to QIOs, as well as 
posting the information on the QualityNet Web site. We would then 
confirm the retirement of the measure from the Hospital VBP program 
measure set in a rulemaking vehicle. We make this proposal because it 
will allow us to ensure that the Hospital VBP program measure set 
focuses on the most current quality improvement and patient safety 
priorities. We are seeking public comment on our proposals and other 
methods that allow for the addition of measures to the Hospital VBP 
program as rapidly as possible in order to improve quality and safety 
for patients.
    For value-based incentive payments made with respect to discharges 
occurring during FY 2014 or a subsequent fiscal year, CMS is required 
by statute to ensure that the measures selected for the Hospital VBP 
program include efficiency measures, including measures of ``Medicare 
Spending per beneficiary.'' CMS solicits public comment as to what 
services should be included and what should be excluded in a ``Medicare 
spending per beneficiary'' calculation. For example, the calculation 
could include outlier payments and/or Part B payments for services 
furnished during an inpatient hospital stay, or could include Part A 
and Part B payments for services received by a beneficiary during some 
window of time prior to the admission and/or after the discharge. We 
also solicit public comment on what, if any, type(s) of hospital 
segmentation or adjustment should be considered.
    In addition, we are considering different approaches for measuring 
internal hospital efficiency. Internal hospital efficiency measures 
could assess hospital spending per admission, as determined using cost 
reports or other sources. CMS seeks comment on this and other 
approaches for measuring internal hospital efficiency.

D. Proposed Performance Standards

    Section 1886(o)(3)(A) requires the Secretary to establish 
performance standards with respect to the measures selected under the 
Hospital VBP program for a performance period for a fiscal year. The 
performance standards must include levels of achievement and 
improvement (section 1886(o)(3)(B)), and must be established and 
announced not later than 60 days prior to the beginning of the 
performance period for the fiscal year involved (section 
1886(o)(3)(C)). Achievement and improvement levels are discussed more 
fully in section II. E. of this proposed rule. In addition, as part of 
the process for establishing the performance standards, the Secretary 
must take into account appropriate factors, such as: (1) Practical 
experience with the measures, including whether a significant 
proportion of hospitals failed to meet the performance standard during 
previous performance periods; (2) historical performance standards; (3) 
improvement rates; and (4) the opportunity for continued improvement 
(section 1886(o)(3)(D)).
    To determine what the proposed performance standard for each 
proposed clinical process of care measure and the proposed HCAHPS 
measure should be for purposes of the FY 2013 Hospital VBP program, we 
analyzed the most reliable and current hospital data that we have on 
each of these measures by virtue of the Hospital IQR program. Because 
we are proposing to adopt a performance period that is less than a full 
year for FY 2013, we were also sensitive to the fact that hospital 
performance on the proposed measures may be affected by seasonal 
variations in patient mix, case severity, and other factors.
    To address this potential variation and ensure that the hospital 
scores reflect their actual performance on the measures, we believe 
that the performance standard for each clinical process of care measure 
and HCAHPS should be based on how well hospitals performed on the 
measure during the same three quarters in a baseline period. In 
determining what three-quarter baseline period would be the most 
appropriate to propose to use for the FY 2013 Hospital VBP program, we 
wanted to ensure that the baseline would be as close in time to the 
proposed performance period as possible. We believe that selecting a 
three-quarter baseline period from July 1, 2009 to March 31, 2010 will 
enable us to achieve this goal. Although the proposed baseline period 
has ended, we are still in the process of validating this data and 
expect the validation process to be complete by the end of January 
2011.
    We also believe that an essential goal of the Hospital VBP program 
is to provide incentives to all hospitals to improve the quality of 
care that they furnish to their patients. In determining what level of 
hospital performance would be appropriate to select as the performance 
standards for each measure, we focused on selecting levels that would 
challenge hospitals to continuously improve or maintain high levels of 
performance. As required by Section 1886(o)(3)(D), we specifically 
considered hospitals' practical experience with the measures, 
particularly through the Hospital IQR program, examining how different 
achievement and improvement thresholds would have historically impacted 
hospitals, how hospital performance may have changed over time, and how 
hospitals could continue to improve. For these reasons, we propose to 
set the achievement performance standard (achievement threshold) for 
each proposed measure at the median of hospital performance (50th 
percentile) during the baseline period of July 1, 2009 through March 
31, 2010. As proposed in section II. E. of

[[Page 2464]]

this proposed rule, hospitals would receive achievement points only if 
they exceed the achievement performance standard and could increase 
their achievement score based on higher levels of performance. We 
believe these achievement performance standards represent achievable 
standards of excellence. We also propose to set the improvement 
performance standard (improvement threshold) for each proposed measure 
at each specific hospital's performance on the measure during the 
proposed baseline period of July 1, 2009 through March 31, 2010. We 
believe that these improvement performance standards ensure that 
hospitals will be adequately incentivized to improve.
    Because our process for validating the proposed baseline period of 
data is not yet complete, we are unable to provide the precise 
achievement threshold values for what these performance standards will 
be at this time. These values will be specified in the final rule. We 
specify example achievement performance standards, using July 1, 2008 
through March 31, 2009 data, in Table 3 below.

 Table 3--Example Achievement Performance Standards for FY 2013 Hospital
                          VBP Proposed Measures
------------------------------------------------------------------------
                                                             Example
          Measure ID              Measure description      performance
                                                            standard
------------------------------------------------------------------------
                            Process Measures
------------------------------------------------------------------------
AMI-2.........................  Aspirin Prescribed at              0.987
                                 Discharge.
AMI-7a........................  Fibrinolytic Therapy               0.673
                                 Received Within 30
                                 Minutes of Hospital
                                 Arrival.
AMI-8a........................  Primary PCI Received               0.856
                                 Within 90 Minutes of
                                 Hospital Arrival.
HF-1..........................  Discharge Instructions             0.872
HF-2..........................  Evaluation of LVS                  0.983
                                 Function.
HF-3..........................  ACEI or ARB for LVSD..             0.944
PN-2..........................  Pneumococcal                       0.929
                                 Vaccination.
PN-3b.........................  Blood Cultures                     0.951
                                 Performed in the
                                 Emergency Department
                                 Prior to Initial
                                 Antibiotic Received
                                 in Hospital.
PN-6..........................  Initial Antibiotic                 0.909
                                 Selection for CAP in
                                 Immunocompetent
                                 Patient.
PN-7..........................  Influenza Vaccination.             0.909
SCIP-Inf-1....................  Prophylactic                       0.955
                                 Antibiotic Received
                                 Within One Hour Prior
                                 to Surgical Incision.
SCIP-Inf-2....................  Prophylactic                       0.978
                                 Antibiotic Selection
                                 for Surgical Patients.
SCIP-Inf-3....................  Prophylactic                       0.927
                                 Antibiotics
                                 Discontinued Within
                                 24 Hours After
                                 Surgery End Time.
SCIP-Inf-4....................  Cardiac Surgery                    0.912
                                 Patients with
                                 Controlled 6AM
                                 Postoperative Serum
                                 Glucose.
SCIP-VTE-1....................  Surgery Patients with              0.938
                                 Recommended Venous
                                 Thromboembolism
                                 Prophylaxis Ordered.
SCIP-VTE-2....................  Surgery Patients Who               0.913
                                 Received Appropriate
                                 Venous
                                 Thromboembolism
                                 Prophylaxis Within 24
                                 Hours Prior to
                                 Surgery to 24 Hours
                                 After Surgery.
------------------------------------------------------------------------
                             Survey Measures
------------------------------------------------------------------------
HCAHPS........................  Hospital Consumer                   .500
                                 Assessment of
                                 Healthcare Providers
                                 and Systems Survey.
                                 Communication
                                 with Nurses.
                                 Communication
                                 with Doctors.
                                
                                 Responsiveness of
                                 Hospital Staff.
                                 Pain
                                 Management.
                                 Communication
                                 About Medicines.
                                 Cleanliness
                                 and Quietness of
                                 Hospital Environment.
                                 Discharge
                                 Information.
                                 Overall
                                 Rating of Hospital.
------------------------------------------------------------------------

    We also propose to use an 18-month performance period of July 1, 
2011 to December 31, 2012, with a baseline period of July 1, 2008 to 
December 31, 2009, for the mortality measures (MORT-30-AMI, MORT-30-HF, 
MORT-30-PN) we are proposing to initially include in the FY 2014 
Hospital VBP program. Like the proposed clinical process of care and 
HCAHPS measures, we propose to set the achievement performance standard 
(achievement threshold) for each proposed outcome measure at the median 
of hospital performance (50th percentile) during the proposed baseline 
period. Similarly, we propose to set the improvement performance 
standard (improvement threshold) for each proposed outcome measure at 
each specific hospital's performance on each measure during the 
proposed baseline period of July 1, 2008 to December 31, 2009. We 
provide the following sample achievement thresholds, (displayed as 
survival rates) derived from July 2006-July 2009 as examples of the 
achievement performance standards for that period:
     MORT-30-AMI: 83.7%
     MORT-30-HF: 88.8%
     MORT-30-PN: 88.5%.
    We solicit public comments on the proposed performance standards as 
described above.

E. Proposed Methodology for Calculating the Total Performance Score

1. Statutory Provisions--Proposed Methodology for Calculating the Total 
Performance Score
    Section 1886(o)(5)(A) of the Act requires the Secretary to develop 
a methodology for assessing each hospital's total performance based on 
performance standards with respect to the measures selected for a 
performance period. Using such methodology, the Secretary must provide 
for an assessment for each hospital for each performance period. 
Section 1886(o)(5)(B) of the Act sets forth four additional 
requirements related to the scoring methodology developed by the

[[Page 2465]]

Secretary under section 1886(o)(5)(A). Specifically, section 
1886(o)(5)(B)(i) requires the Secretary to ensure that the application 
of the scoring methodology results in an appropriate distribution of 
value-based incentive payments among hospitals receiving different 
levels of hospital performance scores, with hospitals achieving the 
highest hospital performance scores receiving the largest value-based 
incentive payments. Section 1886(o)(5)(B)(ii) provides that under the 
methodology, the hospital performance score must be determined using 
the higher of its achievement or improvement score for each measure. 
Section 1886(o)(5)(B)(iii) requires that the hospital scoring 
methodology provide for the assignment of weights for categories of 
measures as the Secretary deems appropriate. Section 1886(o)(5)(B)(iv) 
prohibits the Secretary from setting a minimum performance standard in 
determining the hospital performance score for any hospital. Finally, 
section 1886(o)(5)(B)(v) requires that the hospital performance score 
for a hospital reflect the measures that apply to the hospital.
2. Additional Factors for Consideration--Proposed Methodology for 
Calculating the Total Performance Score
    In addition to statutory requirements, we also considered several 
additional factors when developing the proposed performance scoring 
methodology for the Hospital Value-Based Purchasing program. First, we 
believe it is important that the performance scoring methodology is 
straight forward and transparent to hospitals, patients, and other 
stakeholders. Hospitals must be able to clearly understand performance 
scoring methods and performance expectations to maximize quality 
improvement efforts. The public must understand performance score 
methods to utilize publicly reported information when choosing 
hospitals. Second, we believe the scoring methodologies for all 
Medicare Value-Based Purchasing programs, including (but not limited 
to) the End Stage Renal Disease Quality Incentive Program (42 CFR Part 
413) should be aligned as appropriate given their specific statutory 
requirements. This alignment will facilitate the public's understanding 
of quality information disseminated in these programs and foster more 
informed consumer decision making about health care. Third, we believe 
differences in performance scores must reflect true differences in 
performance. In order to ensure this in the proposed Hospital Value-
Based Purchasing Program, we assessed the quantitative characteristics 
of the measures we are proposing to use to calculate a performance 
score, including the current state of measure development, distribution 
of current hospital performance in the proposed measure set, number of 
measures, and the number and grouping of measure domains. Fourth, we 
must appropriately measure both quality achievement and improvement in 
our Hospital Value-Based Purchasing program. Section 1886(o)(5)(B)(ii) 
of the Act specifies that performance scores under the Hospital Value-
Based Purchasing program be calculated utilizing the higher of 
achievement and improvement scores for each measure, and that explicit 
direction has implications for the design of the performance scoring 
methodology. We must also consider the impact of performance scores 
utilizing achievement and improvement on hospital behavior due to 
payment implications. Fifth, we wish to eliminate unintended 
consequences for rewarding inappropriate hospital behavior and outcomes 
to patients in our performance scoring methodology. Sixth, we wish to 
utilize the most currently available data to assess hospital 
improvement in a performance score methodology. We believe that more 
current data would result in a more accurate performance score, but 
recognize that hospitals require time to abstract and collect quality 
information. We also require time to process this information 
accurately.
    This proposed rule's method for calculating the improvement score 
relies on a comparison of the current payment year's performance period 
with a ``baseline'' period of July 1, 2008 through December 31, 2009 
for the three 30-day mortality measures, rather than a comparison of 
the current year with the previous year (as outlined in the 2007 report 
to Congress). We propose this baseline period because these data are 
the most currently available data at this time for public comment. We 
plan to propose future annual updates to the baseline period through 
future rulemaking. We recognize that comparing a payment year's 
performance period with the previous year's performance period may be a 
better estimate of incremental improvement. As noted above, we solicit 
comment on the merits and impact of all of the factors related to our 
performance score methodology alternatives, including the choice of how 
to define the baseline year.
    We solicit comment on the merits and impact of all of these factors 
related to our performance score methodology alternatives described in 
the next section of this proposed rule. Specifically, we welcome 
suggestions on improving the simplicity of the Hospital Value-Based 
Purchasing program performance score methodology and its alignment with 
other CMS Value-Based Purchasing programs. We recognize that 
statutorily mandated differences may require differences in performance 
score methodologies among the CMS Value-Based Purchasing programs.
3. Background--Proposed FY 2013 Hospital VBP Program Scoring 
Methodology
    In November 2007, CMS published a report entitled, ``Report to 
Congress: Plan to Implement a Medicare Hospital Value-Based Purchasing 
Program'' (referred to in this proposed rule as the ``2007 Report to 
Congress'').\6\ In addition to laying the groundwork for hospital 
value-based purchasing, the 2007 Report to Congress analyzed and 
presented a potential performance scoring methodology (called the 
Performance Assessment Model) for the Hospital VBP program. The 
Performance Assessment Model combines scores on individual measures 
across different quality categories or ``domains'' (for example, 
clinical process of care, patient experience of care) to calculate a 
hospital's total performance score. The Performance Assessment Model 
provides a methodology for evaluating a hospital's performance on each 
quality measure based on the higher of an attainment score in the 
measurement period or an improvement score, which is determined by 
comparing the hospital's current measure score with a baseline period 
of performance. The use of an improvement score is intended to provide 
an incentive for a broad range of hospitals that participate in a 
hospital VBP program by awarding points for showing improvement on 
quality measures, not solely for outperforming other hospitals.
---------------------------------------------------------------------------

    \6\ The report may be found at http://www.cms.gov/AcuteInpatientPPS/downloads/HospitalVBPPlanRTCFINALSUBMITTED2007.pdf.
---------------------------------------------------------------------------

    Under the Performance Assessment Model, measures are grouped into 
domains, for example, clinical process of care (which could include 
AMI, HF, PN, and SCIP) and patient experience of care (for example, 
HCAHPS). A score is calculated for each domain by combining the measure 
scores within that domain, weighting each measure equally. The domain 
score reflects the percentage of points earned out of the total 
possible points for which a hospital is eligible. A hospital's total 
performance score is determined by aggregating the scores across all

[[Page 2466]]

domains. In aggregating the scores across domains, the domains could be 
weighted equally or unequally, depending on the policy goals. The total 
performance score is then translated into the percentage of Hospital 
VBP incentive payment earned using an exchange function, which aligns 
payments with desired policy goals.
4. Proposed FY 2013 Hospital VBP Program Scoring Methodology
    We believe that the Performance Assessment Model presented and 
analyzed in the 2007 Report to Congress provides a useful foundation 
for developing a FY 2013 Hospital VBP program performance scoring 
methodology that comports with the requirements in section 1886(o) of 
the Act. The Performance Assessment Model outlines an approach that we 
believe is well-understood by patient advocates, hospitals and other 
stakeholders, was developed during a year-long process that involved 
extensive stakeholder input, and was presented by us to Congress. Since 
issuing the report, we have conducted further, extensive research on a 
number of important methodology issues for the Hospital VBP program, 
including the impact of topped-out measures on scoring, appropriate 
case minimum thresholds for measures, appropriate measure minimum 
thresholds per domain, and other issues required to ensure a high level 
of confidence in the scoring methodology (all of which we discuss in 
this proposed rule).
    After carefully reviewing and evaluating a number of potential 
performance scoring methodologies for the Hospital VBP program, we 
propose to use a Three-Domain Performance Scoring Model, although only 
two domains will receive weight in FY 2013. This methodology is very 
similar to the Performance Assessment Model; however it incorporates an 
outcome measures domain in addition to the clinical process of care and 
patient experience of care domains. While we do not propose to adopt 
any outcome measures for the FY 2013 Hospital VBP program, we propose 
to adopt these measures as part of an outcome measures domain for FY 
2014. Therefore, we refer to the proposed methodology as the Three-
Domain Performance Scoring Model and describe how the outcomes measures 
would apply when the domain is eventually given weight.
    We present below the proposed Three-Domain Performance Scoring 
Model, which includes setting benchmarks and thresholds, scoring 
hospitals on achievement and improvement for three domains (clinical 
process of care, patient experience of care, and outcomes), weighting 
the domains, and calculating the hospital total performance score. In 
the discussion, we highlight any differences between the Three-Domain 
Performance Scoring Model and the Performance Assessment Model, along 
with our reasons for the departure.
a. Clinical Process of Care and Outcome Measures Scoring Under the 
Three-Domain Performance Scoring Model: Setting Performance Benchmarks 
and Thresholds
    As stated above, section 1886(o)(5)(B)(ii) of the Act requires that 
under the Hospital VBP performance scoring methodology, hospital 
performance scores be determined using the higher of achievement or 
improvement scores for each measure. With respect to scoring hospital 
performance on the proposed clinical process of care and outcome 
measures, we propose to use a methodology based on the scoring 
methodology set forth in the 2007 Report to Congress Performance 
Assessment Model. Under this methodology, a hospital's performance on 
each quality measure is evaluated based on the higher of an attainment 
score (herein, ``achievement score'') in the performance period or an 
improvement score, which is determined by comparing the hospital's 
score in the performance period with its score during a baseline period 
of performance. In determining the achievement score, we propose that 
hospitals would receive points along an achievement range, which is a 
scale between the achievement threshold (the minimum level of hospital 
performance required to receive achievement points) and the benchmark 
(the mean of the top decile of hospital performance during the baseline 
period). In determining the improvement score, we propose that 
hospitals would receive points along an improvement range, which is a 
scale between the hospital's prior score on the measure during the 
baseline period and the benchmark.
    Under this methodology, we propose to establish the benchmarks and 
achievement thresholds using national data from a three-quarter 
baseline period of July 1, 2009 through March 31, 2010. We discuss our 
rationale for proposing to use this baseline period in section D. of 
this proposed rule.
    To define a high level of hospital performance on a given measure, 
we propose to set the benchmark at the mean of the top decile of 
hospital scores on the measure during the baseline period. We believe 
this will ensure that the benchmark represents demonstrably high but 
achievable standards of excellence; in other words, the benchmark will 
reflect observed scores for the group of highest-performing hospitals 
on a given measure.
    We considered several options for setting the achievement 
threshold, including the 25th, 50% (median), and 75th percentile 
scores. The higher and lower options were rejected for being too 
stringent and too lenient, respectively. Setting the achievement 
threshold at the 50th percentile, however, balances the agency's goal 
to reward only those hospitals that can demonstrate a certain level of 
quality with the desire to set the bar at an attainable level. We 
decided that the median score (that is, the point at which the 
performance of the hospital is better than the performance of half of 
all hospitals during the baseline period) would be an appropriate 
threshold for earning some merit, that is, to earn one or more points 
for achievement. The higher the hospital's achievement falls over the 
achievement performance standard, the higher the score, until the 
hospital reaches what we believe to be an empirical standard of 
excellence (that is, the benchmark). Therefore, we propose to set the 
achievement threshold at the 50th percentile of hospital performance on 
the measure during the baseline period. Hospitals will have to score at 
or above this threshold to earn achievement points.
    We believe that these proposed definitions are in keeping with the 
statutory requirements and reflect the evidence-based approach for 
determining thresholds and benchmarks set forth in the 2007 Report to 
Congress.
b. Clinical Process of Care and Outcome Measures Scoring Under the 
Three-Domain Performance Scoring Model: Scoring Hospital Performance 
Based on Achievement
    Like the Performance Assessment Model set forth in the 2007 Report 
to Congress, for each of the proposed clinical process and outcome 
measures that apply to the hospital, we propose that a hospital would 
earn 0-10 points for achievement based on where its performance for the 
measure fell relative to the achievement threshold (which we propose 
above to define as performance during the baseline period at the 50th 
percentile) and the benchmark (which we propose above to define as 
performance during the baseline period at the mean of the top decile), 
according to the following formula:

[9 * ((Hospital's performance period score-achievement threshold)/
(benchmark-achievement threshold))] + .5, where the hospital

[[Page 2467]]

performance period score falls in the range from the achievement 
threshold to the benchmark
All achievement points would be rounded to the nearest whole number 
(for example, an achievement score of 4.5 would be rounded to 5). If a 
hospital's score was:

     Equal to or greater than the benchmark, the hospital would 
receive 10 points for achievement
     Equal to or greater than the achievement threshold (but 
below the benchmark), the hospital would receive a score of 1-9 based 
on a linear scale established for the achievement range (which 
distributes all points proportionately between the achievement 
threshold and the benchmark so that the interval in performance between 
the score needed to receive a given number of achievement points and 
one additional achievement point is the same throughout the range of 
performance from the achievement threshold to the benchmark).
     Less than the achievement threshold (that is, the lower 
bound of the achievement range), the hospital would receive 0 points 
for achievement.
c. Clinical Process of Care and Outcome Measures Scoring Under the 
Three-Domain Performance Scoring Model: Scoring Hospital Performance 
Based on Improvement
    In keeping with the approach analyzed for the 2007 Report to 
Congress, for the proposed clinical process of care and outcome 
measures, we propose that a hospital would earn 0-9 points based on how 
much its performance on the measure during the performance period 
improved from its performance on the measure during the baseline 
period. A unique improvement range for each measure would be 
established for each hospital that defines the distance between the 
hospital's baseline period score and the national benchmark for the 
measure (the mean of the top decile), according to the following 
formula:

[10 * ((Hospital performance period score-Hospital baseline period 
score)/(Benchmark-Hospital baseline period score))]-.5, where the 
hospital performance score falls in the range from the hospital's 
baseline period score to the benchmark
All improvement points would be rounded to the nearest whole number. If 
a hospital's score on the measure during the performance period was:

     Greater than its baseline period score but below the 
benchmark (within the improvement range), the hospital would receive a 
score of 0-9 based on the linear scale that defines the improvement 
range
     Equal to or lower than its baseline period score on the 
measure, the hospital would receive 0 points for improvement.
d. Examples To Illustrate Clinical Process of Care and Outcome Measures 
Scoring Under the Three-Domain Performance Scoring Model
    Three examples are presented to illustrate how the proposed Three-
Domain Performance Scoring Model would be applied in the context of the 
proposed clinical process of care and outcome measures. The hospitals 
were selected from an empirical database created from 2004-2005 data to 
support the development of the Performance Assessment Model, and all 
performance scores are calculated for the pneumonia measure, ``patients 
assessed and given pneumococcal vaccine.'' Figure 1 shows the scoring 
for Hospital B. The benchmark calculated for the pneumonia measure in 
this case was 0.87 (the mean value of the top decile in 2004), and the 
achievement threshold was 0.47 (the performance of the median or the 
50th percentile hospital in 2004). Hospital B's 2005 performance rate 
of 0.91 during the performance period for this measure exceeds the 
benchmark, so Hospital B would earn 10 (the maximum) points for 
achievement. The hospital's performance rate on a measure is expressed 
as a decimal. In the illustration, Hospital B's performance rate of 
0.91 means that 91 percent of applicable patients admitted for 
pneumonia were assessed and given the pneumococcal vaccine. (Because 
Hospital B has earned the maximum number of points possible for this 
measure, its improvement score would be irrelevant.)

[[Page 2468]]

[GRAPHIC] [TIFF OMITTED] TP13JA11.033

    Figure 2 shows the scoring for another hospital, Hospital I. As can 
be seen below, the hospital's performance on this measure went from 
0.21 (below the achievement threshold) in the baseline period to 0.70 
(above the achievement threshold) in the performance period. Applying 
the achievement scale, Hospital I would earn 6 points for this measure, 
calculated as follows:

    [9 * ((0.70 - 0.47)/(0.87 - 0.47))] + 0.5 = 5.175 + 0.5 = 5.675, 
rounded to 6 points.
    However, because Hospital I's performance during the performance 
period is also greater than its performance during the baseline period, 
it would be scored based on improvement as well. According to the 
improvement scale, based on Hospital I's period-to-period improvement, 
from 0.21 to 0.70, Hospital I would earn 7 points, calculated as 
follows:

    [10 * ((0.70 - 0.21)/(0.87 - 0.21))] - 0.5 = 6.92, rounded to 7 
points.

    Because the higher of the two scores is used for determining the 
measure score, Hospital I would receive 7 points for this measure 
(rounded to the nearest whole number).

[[Page 2469]]

[GRAPHIC] [TIFF OMITTED] TP13JA11.034

    In Figure 3 shown below, Hospital L's performance on the pneumonia 
measure drops from 0.57 to 0.46 (a decline of 0.11 points). Because 
this hospital's performance during the performance period is lower than 
the achievement threshold of 0.47, it receives 0 points based on 
achievement. It would also receive 0 points for improvement, because 
its performance during the performance period is lower than its 
performance during the baseline period. In this example, Hospital L 
would receive 0 points for the measure.

[[Page 2470]]

[GRAPHIC] [TIFF OMITTED] TP13JA11.035

e. Calculation of the Overall Clinical Process of Care and Outcome 
Measure Domain Scores Under the Three-Domain Performance Scoring Model
    We propose that both a hospital's overall clinical performance 
score and outcome performance score would be based on all measures that 
apply to the hospital. We propose that a measure applies to a hospital 
if, during the performance period, the hospital treats a minimum number 
of cases (which we propose to define as 10 cases in section F of this 
proposed rule) that meet the technical specifications for reporting the 
measure. We also propose that at least 4 measures within a domain must 
apply to the hospital in order for the hospital to receive a 
performance score on that domain (this proposal is also discussed more 
fully in section F of this proposed rule). Thus, the number and type of 
measures that apply to each hospital will vary, depending on the 
services the hospital provides (for example, some hospitals may not 
perform percutaneous coronary intervention; therefore, this measure 
would not apply to them). As proposed above, for each applicable 
measure, a hospital would receive a score based on the higher of its 
achievement and improvement scores. Because the clinical process of 
care and outcome measure performance scores will be based only on the 
measures that apply to the hospital, we propose to normalize the domain 
scores across hospitals by converting the points earned for each domain 
to a percentage of total points.
    With respect to the clinical process of care and outcome domains, 
we propose that the points earned for each measure that applies to the 
hospital would be summed (weighted equally) to determine the total 
earned points for the domain:

Total earned points for domain = Sum of points earned for all 
applicable domain measures
    Under the proposed approach, each hospital would also have a 
corresponding universe of total possible points for each of the 
clinical process and outcome domains calculated as follows:

Total possible points for domain = Total number of domain measures that 
apply to the hospital multiplied by 10 points
    We also propose that the hospital's clinical process of care and 
outcome domain scores would each be a percentage, calculated as 
follows:

Domain score = Total earned points divided by Total possible points 
multiplied by 100%
    As an example, four clinical process of care measures apply to 
Hospital E, and Hospital E reports data on at least 10 cases for each 
of these measures. Under the proposed scoring methodology discussed 
above, Hospital E is awarded 9, 5, 3, and 10 points, respectively, for 
these measures. Hospital E's total earned points for the clinical 
process of care measure domain would be calculated by adding together 
all the points Hospital E was awarded, resulting in a total of 27 
points. Hospital E's total possible points would be the total number of 
measures that apply to the hospital (four measures) and for which the 
hospital had the minimum number of cases multiplied by 10 points, for a 
total of 40 points. Hospital E's clinical process of care domain score 
would be the total earned points (that is, 27 points) divided by the 
total possible

[[Page 2471]]

points (that is, 40 points) multiplied by 100, which yields a result of 
67.5.
5. Scoring Patient Experience of Care Measures (HCAHPS) Under the 
Three-Domain Performance Scoring Model
    Since the 2007 Report to Congress was published, we have performed 
additional analyses on methods of scoring HCAHPS measures for purposes 
of the Hospital VBP program using data collected from a greater number 
of hospitals and over a longer period of time. We have found that the 
model laid out in the 2007 Report to Congress has good measurement 
properties and functions as intended with respect to achievement, 
consistency, and improvement. We believe that the scoring approach 
proposed here, which is based on the HCAHPS model set forth in the 2007 
Report to Congress, reflects both the interrelated nature of HCAHPS 
dimensions and the importance of providing incentives to hospitals to 
improve on each of eight dimensions of patient experience.
    The scoring approach we propose for HCAHPS performance for the FY 
2013 Hospital VBP program captures eight HCAHPS dimensions (seven 
composites and one global rating of care) and would seek to incentivize 
hospitals to improve on each of the eight dimensions of patient 
experience (See Table 4). We propose that the 8 dimensions will be 
structured similar to the 10 HCAHPS items that we currently report on 
Hospital Compare, except that we are proposing to combine the 
cleanliness of hospital environment and quietness of hospital 
environment items into a single dimension and to not include the 
recommend the hospital item. We are proposing these changes because we 
did not want to give more weight to the two items capturing 
environmental issues by treating them as separate dimensions and the 
``Recommend the hospital'' item is very similar to the included 
``Overall rating'' item.
    We are proposing to score each of the eight HCAHPS dimensions using 
an approach that parallels the one we are proposing to use to score the 
clinical process measures, using an achievement point range from 0-10 
and an improvement point range from 0-9, with the total score on each 
HCAHPS dimension being the higher of the achievement or improvement 
score. In order to ensure statistical reliability, we are also 
proposing that, for inclusion in the Hospital VBP program for FY 2013, 
hospitals report a minimum of 100 HCAHPS surveys during the performance 
period (we discuss this proposal further in section F of this proposed 
rule).
    In order to be consistent with what we do under the Hospital IQR 
program, we are also proposing to give hospitals that have 5 or fewer 
HCAHPS-eligible discharges in a month the option to not submit HCAHPS 
surveys for that month as part of their quarterly data submission. 
However, in contrast to the proposed clinical process of care measure 
scoring methodology, under which different numbers of measures might 
apply to different hospitals, all hospitals that report HCAHPS data 
would be expected to report the complete survey.
    As we are proposing to do with respect to scoring the proposed 
clinical process of care measures, we are proposing that achievement 
thresholds and benchmarks would be used to score hospital performance 
during the performance period, and these achievement thresholds and 
benchmarks would be established using data from the proposed baseline 
period. Thus, a hospital's achievement score would be based on a fixed 
standard rather than on its current standing relative to its peers. The 
achievement threshold for each HCAHPS dimension would correspond to 
median performance in the baseline period (50th percentile 
performance). Therefore, hospitals would earn points for achievement if 
they performed at least as well in the performance period as the mid-
performing hospital performed during the baseline period. The benchmark 
corresponds to excellent performance observed in the baseline period 
and we are proposing to set it such that the maximum achievement points 
(10 points) would be awarded if the hospital performed at least at the 
95th percentile of performance during the baseline period. We are 
proposing to set the actual benchmarks and achievement thresholds for 
the FY 2013 Hospital VBP program using data from the proposed baseline 
period (July 1, 2009 through March 31, 2010).
    Similar to the proposed clinical process measures, we are proposing 
that each of the eight HCAHPS dimensions would be given equal weight in 
calculating the overall HCAHPS score. However, unlike the proposed 
scoring approach for the proposed clinical process of care measures, we 
are proposing to construct the patient experience of care measures 
score for the FY 2013 Hospital VBP using three elements: Achievement 
points, improvement points, and consistency points.
    As shown in Table 4, for each of the eight HCAHPS dimensions we 
propose for the FY 2013 Hospital VBP program, scores would be based on 
the publicly reported adjusted proportions of best category (``top-
box'') responses. (Top-box responses, as publicly reported on the 
Hospital Compare website, are the most positive responses to HCAHPS 
survey questions.) Please note that the ``Cleanliness and Quietness'' 
dimension is the average of the publicly reported stand-alone 
``Cleanliness'' and ``Quietness'' ratings.

 Table 4--Eight Proposed HCAHPS Dimensions for the FY 2013 Hospital VBP
                                 Program
------------------------------------------------------------------------
                                              Constituent HCAHPS survey
 Dimension (Composite or stand-alone item)              items
------------------------------------------------------------------------
1. Nurse communication....................  Nurse-Courtesy/Respect.
(% ``Always'')............................  Nurse-Listen.
                                            Nurse-Explain.
2. Doctor communication...................  Doctor-Courtesy/Respect.
(% ``Always'')............................  Doctor-Listen.
                                            Doctor-Explain.
3. Cleanliness and quietness..............  Cleanliness.
(% ``Always'')............................  Quietness.
4. Responsiveness of hospital staff.......  Bathroom Help.
(% ``Always'')............................  Call Button.
5. Pain management........................  Pain Control.
(% Always'')..............................  Help with Pain.
6. Communication about medications........  New Medicine-Reason.
(% ``Always'')............................  New Medicine-Side Effects.
7. Discharge information..................  Discharge-Help.
(% ``Yes'')...............................  Discharge-Systems.
8. Overall rating.........................  Overall Rating.
------------------------------------------------------------------------

    a. Patient Experience of Care Measure (HCAHPS) Scoring Under the 
Three-Domain Performance Scoring Model: Scoring Hospitals on 
Achievement
    Section 1886(o)(3)(A) requires the Secretary to establish 
performance standards with respect to the measures selected under the 
Hospital VBP program for a performance period for a fiscal year. The 
performance standards must include levels of achievement and 
improvement (section 1886(o)(3)(B)). The scoring methodology we are 
proposing to implement for HCAHPS includes achievement, improvement and 
consistency points. The achievement and improvement points are very 
similar to what is proposed for clinical measures. The consistency 
points measure whether hospitals are meeting the achievement thresholds 
across the eight proposed HCAHPS dimensions, which we believe will 
encourage hospitals to meet those thresholds for all of them. 
Consistency points are an additional form of achievement measurement 
that

[[Page 2472]]

complements achievement points earned through hospital performance on 
individual HCAHPS dimensions.
    The first proposed component of the patient experience of care/
HCAHPS Hospital VBP program scoring algorithm is achievement points, 
which rewards hospital performance at or above the proposed baseline 
median on each of the eight HCAHPS dimensions. A minimum score of 0 
corresponds to all eight dimensions being below the baseline median 
(that is, the dimension-specific achievement threshold), while a 
maximum score of 80 corresponds to all eight dimensions being at or 
greater than the 95th percentile from the baseline period (that is, the 
dimension-specific benchmark). We propose to assign 0 to 10 points for 
each of the eight HCAHPS dimensions as follows:
     If the hospital's score on a dimension is equal to or 
greater than the benchmark (that is, the baseline 95th percentile 
performance), the hospital would receive 10 points for achievement on 
that dimension
     If the hospital's score on a dimension is within the 
achievement range (that is, equal to or greater than the achievement 
threshold of 50th percentile performance but below the benchmark of 
95th percentile performance), the hospital would receive a score of 1-
9, based on a linear scale established for the achievement range and 
rounding to the nearest whole point according to the following formula:

((Hospital HCAHPS performance period dimension score - 50)/5) + 0.5 For 
example, if performance on a given dimension is at the 60th percentile, 
the hospital would receive 3 achievement points, calculated as follows: 
((60 - 50)/5) + 0.5 = 2 + 0.5 = 2.5, which would be rounded to 3.
     If the hospital's score on a dimension is less than the 
achievement threshold for the dimension (that is, less than the 50th 
percentile of performance), the hospital would receive 0 points for 
achievement.
b. HCAHPS Performance Scoring Under the Three-Domain Performance 
Scoring Model: Scoring Hospitals on Improvement
    The second proposed component of the HCAHPS Hospital VBP scoring 
algorithm is improvement points. For each HCAHPS dimension, a hospital 
could earn from 0-9 improvement points for each dimension depending on 
how much its performance on the dimension improved from its performance 
on the dimension during the baseline period. This proposed approach 
would recognize and encourage improvement for each of the eight HCAHPS 
dimensions. A unique improvement range for each hospital on each HCAHPS 
dimension would be established. Improvement points would be awarded 
proportionately and would be rounded to the nearest whole number. The 
score is based on the proportion of possible improvement in the 
performance period from the baseline period score on a given dimension 
to the benchmark on the same dimension, We propose to calculate 
improvement points for each of the eight dimensions according to the 
following formula:

[10*((Hospital performance period score - Hospital baseline period 
score)/(Benchmark - Hospital baseline period score))] - 0.5, where the 
hospital performance score falls in the range from the hospital's 
baseline period score to the benchmark

    All improvement points would be rounded to the nearest whole 
number. If a hospital's score on the measure during the performance 
period was:
     Greater than its baseline period score but below the 
benchmark (within the improvement range), the hospital would receive a 
score of 0-9 based on the linear scale that defines the improvement 
range
     Equal to or lower than its baseline period score on the 
measure, the hospital would receive 0 points for improvement.
     If there is no improvement or if the score from the 
baseline period was already at the benchmark, the improvement score is 
0.
    For example, if a hospital's baseline score on a given dimension 
was at the 45th percentile and the hospital's score on the dimension 
during the performance period was at the 70th percentile, the 
hospital's improvement points on that dimension would be 5, calculated 
as follows:

[10 * ((70 - 45)/(95 - 45))] - 0.5 = 4.5, which would be rounded to 5.

    c. HCAHPS Performance Scoring Model: Calculation of Consistency 
Points
    The third proposed component of the HCAHPS Hospital VBP scoring 
algorithm is the consistency score. The consistency score recognizes 
consistent achievement across dimensions. To ensure at least adequate 
performance across all HCAHPS dimensions, we are proposing that for the 
FY 2013 Hospital VBP program hospitals earn consistency points ranging 
from 0-20 based on how many of their dimension scores meet or exceed 
the achievement threshold. The purpose of the consistency score 
(referred to as the ``minimum performance score'' in the 2007 Report to 
Congress), is to incentivize hospitals to continually improve on all 
HCAHPS dimensions to the point where their score on each dimension is 
at or above the achievement threshold. We believe that providing this 
type of incentive that applies to an entire domain is consistent with 
promoting wider systems changes within hospitals to improve quality.
    We are proposing that a hospital would receive 0 consistency points 
if its performance on one or more HCAHPS dimensions during the 
performance period was at least as poor as the worst-performing 
hospital's performance on that dimension during the baseline period. A 
hospital would receive a maximum score of 20 consistency points if its 
performance on all eight HCAHPS dimensions was at or above the 
achievement threshold (50% of hospital performance during the baseline 
period).
    We propose for the FY 2013 Hospital VBP program that a maximum of 
20 consistency points would be awarded proportionately based on the 
single lowest of a hospital's 8 HCAHPS dimension scores during the 
performance period compared to the median baseline performance score 
for that specific HCAHPS dimension. If all 8 of a hospital's dimension 
scores during the performance period were at or above the 50th 
percentile achievement threshold in the baseline period, then that 
hospital would earn all 20 points. (That is, if the lowest of a 
hospital's eight HCAHPS dimension scores was at or above the 50th 
percentile of hospital performance on that dimension during the 
baseline period, then that hospital would earn the maximum of 20 
consistency points). Consistency points would be awarded 
proportionately according to the number of percentiles the lowest 
dimension score is between the 0th and 50th percentile of hospital 
performance during the baseline period. Consistency points would be 
rounded to the nearest whole number (for example, 9.5 consistency 
points would be rounded to 10 points). We propose to define the lowest 
percentile as the lowest dimension score among the eight HCAHPS 
dimensions that would be scored under the FY 2013 Hospital VBP program. 
The formula for the HCAHPS consistency score is as follows:

(2 * (lowest percentile/5))- 0.5, rounded to the nearest whole number, 
with a minimum of zero and a maximum of 20 consistency points

[[Page 2473]]

For example:

     If the lowest score a hospital receives on an HCAHPS 
dimension is at or below the 0th percentile of hospital performance on 
that dimension during the baseline period, then 0 consistency points 
would be awarded to that hospital.
     If the lowest score a hospital receives on an HCAHPS 
dimension is equal to the 10th percentile of hospital performance on 
that dimension during the baseline period, then 4 (that is, (2 * (10/
5)) - 0.5 = 3.5, rounded to 4) consistency points would be awarded to 
that hospital.
     If the lowest score a hospital receives on a HCAHPS 
dimension is equal to the 25th percentile of hospital performance on 
that dimension during the baseline period, then 10 (that is, (2 * (25/
5)) - 0.5 = 9.5, rounded to 10) consistency points would be awarded to 
that hospital.
     If a hospital's score on all eight HCAHPS dimensions were 
at or above the achievement threshold (50th percentile of hospital 
performance during the baseline period), then 20 consistency points 
would be awarded to that hospital.
d. Examples To Illustrate HCAHPS Measure Scoring Model
    Examples are presented here to illustrate how the proposed Three-
Domain Performance Scoring Model would apply in the context of scoring 
the proposed HCAHPS dimensions. The dimension used for this 
illustration is doctor communication. Figure 4 shows Hospital B's 
scoring on the doctor communication dimension. It was placed at the 
96th percentile, which exceeded the benchmark. Thus, Hospital B would 
earn the maximum of 10 points for achievement. Because this is the 
highest number of achievement points the hospital could attain for this 
dimension, its improvement from its baseline period score on this 
measure would not be relevant.
[GRAPHIC] [TIFF OMITTED] TP13JA11.036

    Figure 5 shows that Hospital I's performance on the doctor 
communication dimension rose from the 42nd percentile during the 
baseline period to the 64th percentile during the performance period. 
Because Hospital I's performance during the performance period exceeds 
the achievement threshold of the 50th percentile, Hospital I's score 
would be in the achievement range. According to the achievement scale, 
Hospital I would earn 3 achievement points. However, in this case, the 
hospital's performance in the performance period has improved from its 
performance during the baseline period, so Hospital I would be scored 
based on improvement as well as achievement. Applying the improvement 
scale, Hospital I's period-to-period improvement from the 42nd to the 
64th percentile would earn it 3.65 improvement points which would be 
rounded to 4 points. Using the greater of the two scores, Hospital I 
would receive 4 points for this dimension (rounded to the nearest whole 
number).

[[Page 2474]]

[GRAPHIC] [TIFF OMITTED] TP13JA11.037

    In Figure 6, Hospital L's performance in the baseline period was at 
the 11th percentile, and its performance declined in the performance 
period to the 6th percentile. Because Hospital L's performance during 
the performance period is lower than the achievement threshold of the 
50th percentile, it would receive 0 points based on achievement. 
Hospital L would also receive 0 points for improvement because its 
performance during the performance period is lower than its performance 
during the baseline period.

[[Page 2475]]

[GRAPHIC] [TIFF OMITTED] TP13JA11.038

e. Calculating the Overall Patient Experience of Care Domain (HCAHPS) 
Performance Score
    The proposed final step under the proposed HCAHPS scoring 
methodology for the FY 2013 Hospital VBP program is to combine the 
three proposed component scores into the overall patient experience of 
care domain (HCAHPS) performance score. We propose to calculate the 
overall HCAHPS performance score as follows:
    1. For each of the eight dimensions, determine the larger of the 0-
10 achievement score and the 0-9 improvement score.
    2. Sum these eight values to arrive at a 0-80 HCAHPS base score.
    3. Calculate the 0-20 HCAHPS consistency score.
    4. To arrive at the HCAHPS total earned points, or HCAHPS overall 
score, sum the HCAHPS base score and the consistency score.
    In summary, the overall HCAHPS performance score is calculated as 
follows:

HCAHPS total earned points = HCAHPS base score + consistency score.
6. Weighting of Hospital Performance Domains and Calculation of the 
Hospital VBP Total Performance Score
    Section 1886(o)(5)(B)(iii) requires that the methodology developed 
for assessing the total performance of each hospital must provide for 
the assignment of weights for categories of measures as the Secretary 
determines appropriate. As discussed above in section C. of this 
proposed rule, we have proposed to group the measures for the Hospital 
VBP program into domains, which we would define as categories of 
measures by measure type. For purposes of the Hospital VBP program in 
FY 2013, we propose that two domains will be scored, the clinical 
process of care and patient experience of care. We believe that 
hospital quality is multifaceted, requiring adherence to evidence-based 
practices, achieving good clinical outcomes, and having positive and 
effectual patient experiences. In determining how to appropriately 
weight quality measure domains, we considered a number of criteria. 
Specifically, we considered the number of measures that we have 
proposed to include in each domain and the reliability of individual 
measure data. We also considered the systematic effects of alternative 
weighting schemes on hospitals according to their location and 
characteristics (for example, by region, size, and teaching status). We 
also considered Departmental quality improvement priorities. We 
strongly believe that outcome measures are important in assessing the 
overall quality of care provided by hospitals. While we believe that 
the addition of an outcome domain will make public valuable and 
important quality information regarding hospital performance, and bring 
needed attention to patient outcomes, for reasons previously discussed 
in section II. C. of this proposed rule, we are not proposing to 
include outcome measures in the FY 2013 Hospital VBP program. Taking 
all of these considerations into account, we propose the use of a 70 
percent clinical process of care and 30 percent patient experience of 
care (HCAHPS) weighting scheme for the FY 2013 Hospital VBP program. We 
are proposing this weighting scheme because the 17 proposed clinical 
process of care measures comprise all but one of the measures we are 
proposing to include in the FY 2013 Hospital VBP program. We believe 
assigning a 30 percent weight to the

[[Page 2476]]

patient experience of care domain is appropriate because the HCAHPS 
measure is comprised of eight dimensions that address different aspects 
of patient satisfaction. For the FY 2014 Hospital VBP program, in 
addition to proposing to use the 30-day mortality claims-based measures 
currently displayed on Hospital Compare, we propose to adopt the 
following 8 Hospital Acquired Condition measures and 9 AHRQ Patient 
Safety Indicator and Inpatient Quality Indicator outcome measures:
    Hospital Acquired Condition measures:
     Foreign Object Retained After Surgery
     Air Embolism
     Blood Incompatibility
     Pressure Ulcer Stages III & IV
     Falls and Trauma: (Includes: Fracture, Dislocation, 
Intracranial Injury, Crushing Injury, Burn, Electric Shock)
     Vascular Catheter-Associated Infections
     Catheter-Associated Urinary Tract Infection (UTI)
     Manifestations of Poor Glycemic Control
    AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators 
(IQIs), and Composite Measures:
     PSI 06--Iatrogenic pneumothorax, adult
     PSI 11--Post Operative Respiratory Failure
     PSI 12--Post Operative PE or DVT
     PSI 14--Postoperative wound dehiscence
     PSI 15--Accidental puncture or laceration
     IQI 11--Abdominal aortic aneurysm (AAA) repair mortality 
rate (with or without volume)
     IQI 19--Hip fracture mortality rate
     Complication/patient safety for selected indicators 
(composite)
     Mortality for selected medical conditions (composite)
    We believe that these outcome measures provide important 
information relating to treatment outcomes and patient safety. All of 
these measures are currently included in the Hospital IQR program for 
the FY 2013 payment determination (75 FR 50209). We also believe that 
adding these outcome measures would significantly improve the 
correlation between patient outcomes and Hospital VBP performance. We 
will propose the FY 2014 Hospital VBP performance period end date and 
performance standards for these outcome measures in future rulemaking. 
We solicit public comment on what weight would be appropriate to assign 
to the outcome domain in future rulemaking.
    We propose to calculate a hospital's total performance score by 
multiplying its performance on each domain by the proposed weight for 
that domain (70 percent clinical process of care, 30 percent patient 
experience of care), and adding those weighted scores together.
    We solicit public comment on the proposed domain weighting approach 
and calculation of the total performance score, and are particularly 
interested in receiving comments regarding the utility and 
appropriateness of alternative methods.
    Earlier in this proposed rule, we articulated our principles for 
value-based purchasing programs. In order to address these principles 
in our proposed hospital value-based purchasing program, we considered 
several additional factors when developing our proposed performance 
scoring methodology for the Hospital Value-Based Purchasing Program. 
CMS is actively seeking all the comments and proposals about 
alternative scoring methodologies that may achieve all these principles 
in better, more efficient, or more straightforward ways. New, 
innovative ideas are particularly useful to the Agency as we seek to 
create a payment system fully aligned with the overall health system 
aims of better health, better health care, and more efficient care 
through improvement.
    Section 1886(o)(5)(B)(iv) states that the Secretary may not set a 
minimum performance standard in determining the hospital performance 
score for any hospital. We note that under the proposed Three-Domain 
Performance Scoring Model, the Secretary does not set the minimum 
performance standard for any hospital. Rather, the hospital in effect 
sets its own minimum performance standard based on how well it 
performed during the baseline period, and any improvement from that 
performance is sufficient for the hospital to earn improvement points.
7. Alternative Hospital Performance Scoring Models Considered
    Since the 2007 Report to Congress, CMS has performed additional 
research and analyses regarding alternative scoring approaches for 
hospital value-based purchasing. We primarily focused on the Three-
Domain Performance Scoring Model, the Six-Domain Performance Scoring 
Model, and the Appropriate Care Model (ACM). We are proposing to adopt 
the Three-Domain Performance Scoring Model as previously described.
    The Appropriate Care Model (ACM), also referred to as the ``all-or-
none'' model, is intended to be a more patient-centric method of 
assessing hospital performance on the clinical process of care 
measures. The ACM creates sub-domains by topic for the clinical process 
measures and is distinguished from the other two models in that it 
requires complete mastery for each topic area (``all-or-none'') in the 
clinical process of care domain at the patient level.
    Under the ACM, the patient encounter, rather than the clinical 
process of care measure itself, becomes the scored ``event,'' with a 
hospital receiving 1 point if it successfully provides to a patient the 
applicable processes under all of the measures within an applicable 
topic area, or 0 points if it fails to furnish one or more of the 
applicable processes. The hospital's condition-specific ACM score is 
the proportion of patients with the condition who receive the 
appropriate care as captured by the process measures that fall within 
the topic area.
    Within a condition, different sets of clinical processes may apply 
to a patient. For example, some AMI patients should receive aspirin at 
arrival but other AMI patients should not; some AMI patients smoke and 
should receive smoking cessation counseling, while others do not smoke 
and do not need to receive such counseling. Regardless of the number of 
clinical process of care measures within a topic that apply to a 
patient, each patient encounter to which a specific topic area applies 
weights equally with respect to the hospital's score for the topic 
area. Patients requiring many clinical processes within a topic are not 
weighted more heavily than patients requiring only a few clinical 
processes. There is no ``partial credit'' given to the hospital for a 
patient who is provided some, but not all, applicable clinical 
processes within a topic.
    Under the ACM, CMS would determine what percentage of a hospital's 
patients within each condition or topic area (for example, AMI, HF, PN, 
and SCIP) received all of the applicable processes covered by all of 
the measures that fall under that topic. A hospital's performance on 
each topic area (that is, the percentage of patients that received all 
the appropriate processes) would then be scored along achievement and 
improvement ranges similar to those we have proposed for the Three-
Domain Performance Scoring Model. These scores across the topic areas 
would then be equally weighted and combined to create a score for all 
of the clinical process measures. The hospitals would then be measured 
on the outcome and patient experience of care domains, just as in the 
Three-Domain Performance Scoring Model. The total performance score 
would be

[[Page 2477]]

computed as a weighted average across the three domains, calculated by 
weighting the scores for each of the domains.
    With each performance scoring model considered, we commissioned 
independent researchers at Brandeis University to examine the variation 
and stability of the clinical process of care domain under different 
combinations for the number of cases (patients) and number of measures 
and develop minimum numbers of cases and measures that provide a high 
level of confidence in the meaningfulness of performance scores across 
hospitals while at the same time providing scores for the largest 
possible number of hospitals. Based on this research, we concluded that 
in order to ensure the statistical reliability of a hospital's score 
under the ACM model, the hospital would need to have at least 25 
patients within a condition (or topic area) to be measured on that 
condition and have cases corresponding to at least two conditions to 
receive an overall ACM score.
    Under the ACM, for each condition measured in the clinical process 
of care domain, a hospital may earn points for achievement or for 
improvement. The method for determining earned points per condition in 
the ACM is analogous to the way points are determined per measure in 
the proposed Three-Domain Performance Scoring Model. Accordingly, the 
points a hospital earns for each condition is the higher of its points 
for achievement (that is, performance above the achievement threshold) 
or improvement (that is, performance better than the hospital's own 
performance during the baseline period). The hospital's overall ACM 
score for the clinical process of care domain is the sum of its 
condition-specific points equally weighted across all conditions 
measured for the hospital.
    Applied to the following five conditions (AMI, HF, PN, SCIP, and 
HAI), a hospital reporting on all five conditions could earn a maximum 
of 50 points under the ACM, while a hospital reporting only three 
conditions could earn at most 30 points. The final overall clinical 
process of care domain score for a hospital under the ACM would be the 
fraction of its actual sum of points divided by its maximum possible 
points (for example, 50 in most cases, but possibly 30, 20, or 10 
corresponding to the number of conditions reported).
    The Six-Domain Performance Scoring Model, like the ACM, would 
create and separately score individual sub-domains at the topic level 
for the clinical process measures. In other words, the clinical process 
of care domain would be further broken down into sub-domains 
characterized by condition (our earlier analysis of the Six-Domain 
Performance Scoring Model included the HAI measures under the SCIP 
topic area, using only the four following topic areas, AMI, HF, PN, and 
SCIP). We would assign intermediate scores to each hospital for each of 
the clinical process sub-domains (such as, AMI, HF, PN, and SCIP). Like 
the Three-Domain Performance Scoring Model, hospitals would be scored 
on each measure in the sub-domain and individual measures (such as, 
SCIP-Card-2 and AMI-3) would still be weighted equally within a sub-
domain. Scores across the topic area sub-domains would then be equally 
weighted and combined to create an overall clinical process score. The 
total performance score would be computed as an average across domains, 
calculated by weighting the scores for each of the three domains. At 
least two clinical process domains would be needed to calculate a total 
performance score. Based on the research conducted at Brandeis 
University discussed above, we concluded that a hospital would need to 
report at least 1 measure included within a domain (with a minimum of 2 
domains) and have 10 opportunities (that is, patients) included in the 
measure. If an outcome domain was included, a hospital would also need 
to report on at least one of the available outcome measures.
8. Hospital Performance Scoring Model Comparisons
    We assessed each of the models discussed above for purposes of 
structuring the performance scoring methodology for the Hospital VBP 
program. Specifically, we considered the following conceptual and 
empirical criteria:
     Impact on patients: The primary purpose of the Hospital 
VBP program is to drive improvements in clinical quality, patient-
centered care, and efficiency. Thus, consideration of the impact of the 
various models on quality improvement in patient care is paramount.
     Accuracy of comparisons made between hospitals: The 
Hospital VBP program should make fair comparisons between hospitals 
based on total performance scores that are affected predominantly or 
exclusively by the hospital's performance on the individual measures. 
However, differences in the TPS between hospitals may also be affected 
by differences in the scope of services offered, which would determine 
the mix of measures that comprise the TPS for each hospital. Thus, a 
critical aspect of developing and implementing the TPS is facilitating 
equivalent and accurate comparisons between hospitals.
     Rank Correlation Impact: In light of the fact that the 
value-based incentive payment amount will vary by hospital, based on 
the hospital's TPS, we must consider how each model will affect how 
hospitals rank in terms of their performance.
     Extent of variance across hospitals: In addition to 
accuracy, the second important property of a TPS is that it has 
sufficient variance to clearly differentiate between hospitals. The 
logic and purpose of the scoring is to discriminate among hospitals 
according to relative performance; hence, the TPS should capture 
meaningful variation and financial incentives should reflect that 
variation.
     Number of hospitals that receive a score from the Hospital 
VBP program: The models for calculating the total performance score use 
different criteria for hospitals' minimum cases per measure and 
measures per domain. Consequently, the number of hospitals scored will 
differ depending on the model used. Other things being equal, a greater 
number of hospitals receiving scores is preferable in our view.
    We analyzed how each of the scoring models discussed above best 
meet these criteria by modeling hospital performance on each model 
using data from 2007-2008 for the baseline period and 2008-2009 as the 
performance period. As discussed above, the primary difference between 
the Three-Domain Performance Scoring Model and the Six-Domain 
Performance Scoring Model is that the Six-Domain Performance Scoring 
model creates intermediate scores at the topic level for the clinical 
process measures, so that six domains are scored (AMI, HF, PN, SCIP, 
outcomes, and patient experience) rather than three domains (clinical 
process of care, outcomes, and patient experience). The Six-Domain 
model provides an intermediate, condition-specific score for prevalent 
and/or high-cost conditions in the Medicare population that could 
provide a useful summary when a more complete set of measures becomes 
available for those conditions. However, in light of the current set of 
measures available for use in the Hospital VBP program, we believe that 
the intermediate scores by condition would convey a false sense of 
precision about the quality of care for that condition. For this 
reason, and because hospital total performance scores that we modeled 
under the Six-Domain Performance Scoring Model were not substantively 
different from those we modeled under the Three-

[[Page 2478]]

Domain Performance Scoring Model, we chose to focus our continued 
analysis on the Three-Domain Performance Scoring Model and the ACM. We 
discuss the results of our analysis of the Three-Domain Performance 
Scoring Model and the ACM below.
    The scoring of the clinical process of care and outcome domains in 
the Three-Domain Performance Scoring Model is based on the Performance 
Assessment Model presented in the 2007 Report to Congress, but includes 
and scores the outcome domain as a separate domain. We believe that 
because each measure is scored independently under the Three-Domain 
Performance Scoring Model, the model will provide useful information to 
hospitals on aspects of care that may require improvement. The Three-
Domain Performance Scoring Model scores hospitals based on how they 
performed with respect to each opportunity to provide appropriate care 
as defined by the measures, in effect weighting hospital scores by 
service and patient mix. In contrast with the ACM, independent scoring 
provides opportunities for hospitals to receive credit for each measure 
for which they meet the performance standard. In addition, hospitals 
are scored on a curve at the measure level such that they only earn 
points when their performance on a measure is better than their peers' 
average performance during the baseline period, or better than their 
own previous performance, increasing the accuracy of comparisons made 
between hospitals. This aspect of the Three-Domain Performance Scoring 
Model differs from the ACM, because ACM scoring results in higher 
scores for hospitals that only report on ``easier'' measures (that is, 
measures for which performance is high for most hospitals), not every 
clinical process of care measure for each condition will apply to every 
hospital, and the ACM does not award points for hospitals that furnish 
most (but not all) recommended care with respect to a clinical process 
of care topic.
    Furthermore, in the Three-Domain Performance Scoring Model, the 
scoring of the clinical process of care measures in a single clinical 
process of care domain is consistent with the current level of 
precision on the measures. We believe that given the current set of 
measures available for adoption into the Hospital VBP program at this 
time, the intermediate scores created at the condition or topic level 
under the ACM would convey a false sense of precision about the quality 
of care provided for that condition. There are efforts in the industry 
to derive sets of measures that capture many aspects of quality for a 
certain condition. The measures currently in the Hospital IQR program 
were not developed with that aim; rather, they were developed and 
implemented as the best single quality measures for various conditions 
treated in the hospital and, as such, serve better as a proxy for 
overall quality than as a precise accounting of quality for individual 
topics. In other words, the measures now available for the Hospital VBP 
program do not represent all of the processes that constitute best 
practices for treating the condition in the inpatient setting, but 
collectively capture an array of clinical processes that are valid 
indicators representative of the overall quality of care provided in 
the hospital inpatient setting.
    We believe that the Three-Domain Performance Scoring Model and the 
ACM are similar in several ways. Rank correlations of hospitals' total 
performance scores based on the two models were extremely high (between 
89 percent and 94 percent). With respect to total performance score 
rank, most hospitals remain in the same quintile regardless of which 
model is used; only 8 to 18 percent of hospitals changed in rank 
quintile due to model choice. In addition, the number of hospitals with 
a sufficient number of cases and measures for inclusion under the ACM 
criteria (that is, at least 25 patients in 2 conditions) is similar to 
the number of hospitals qualifying under the criteria that we are 
proposing below to use for the Three-Domain Performance Scoring Model 
(that is, at least 10 patients for 4 measures).
    The ACM is considered to be ``patient focused'' rather than 
``opportunity focused.'' Since the unit of scoring is the patient 
encounter, and the hospital earns a clinical process of care domain 
score of zero for a patient if the hospital fails to provide any of the 
applicable processes covered by the measures in the applicable topic 
area, we believe that the hospital is likely to become aware of all of 
the processes the patient requires in order to treat the condition, 
rather than thinking in terms of individual opportunities. The ACM sets 
a high bar for quality improvement and sends a strong signal about 
complete mastery for each individual topic area (``all-or-none'') at 
the patient level. On the other hand, we believe that for complex 
patients or patients for whom one or more processes are not needed, the 
ACM model may provide a disincentive to providing quality care. Due to 
its all-or-nothing scoring approach, the ACM loses patient information 
that would have some effect on the total performance score under the 
Three-Domain Performance Scoring Model, under which hospitals would 
receive credit for all of the measures for which it met the performance 
standard. Furthermore, as a result of all-or-nothing scoring, the ACM 
approach will capture whether a patient received appropriate care, but 
it does not describe the extent of lacking care.
    With regard to the extent of variation between hospitals, in our 
analysis, hospital performance scores modeled under the ACM in general 
tended to be lower than scores modeled under the Three-Domain 
Performance Scoring Model. These lower scores would, in theory, allow 
more room for hospitals to improve in future years.
    We will continue analyzing alternative performance scoring models, 
including the ACM, and may consider proposing to implement scoring 
models other than the Three-Domain Performance Scoring Model in the 
future. We solicit public comments on the proposed Three Domain 
Performance Scoring Model as well as other potential performance 
scoring models.
9. Example of Applying the Three-Domain Performance Scoring Model to a 
Hospital and Calculating the Total Performance Score
    To illustrate the application of the proposed Three-Domain 
Performance Scoring Model, we offer the following example:
    For the performance period, Hospital E reports and receives raw 
scores on the measures as set forth in Table 5. (This example uses data 
from 2007 as the baseline period and 2009 as the performance period.)

                                      Table 5--Examples of Hospital Raw Scores on Hospital VBP Performance Measures
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                            Hospital
              Domain                     Condition           Measure name         Achievement        Benchmark      Hospital baseline     performance
                                                                                   threshold                              score           period score
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clinical Process of Care.........  HF-1................  Discharge                        0.778              0.989              0.4                0.952
                                                          Instructions.

[[Page 2479]]

 
                                   HF-2................  Evaluation of LVS                0.957              1.0                0.353              0.727
                                                          Function.
                                   PN-2................  Pneumococcal                     0.844              0.985              0.357              0.583
                                                          Vaccination.
                                   PN-7................  Initial Antibiotic               0.949              1.0                0.846              1.0
                                                          Received Within 6
                                                          Hours of Hospital
                                                          Arrival.
Patient Experience of Care.......  HCAHPS Base           ....................  ................  .................  .................             60
                                    Score[dagger].
                                   HCAHPS Consistency    ....................  ................  .................  .................              9
                                    Score.
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] The HCAHPS base score is calculated by summing the higher of the achievement or improvement score for each of the 8 HCAHPS dimensions.

    Table 6 below depicts the individual measure scores and total 
performance score Hospital E would receive after applying the proposed 
scoring methodology described above.

                                                   Table 6--Example of Hospital VBP Score Calculation
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Earned points
                                                                                     Achievement       Improvement       (higher of
                    Domain                                  Condition                  points            points        achievement of     Domain score
                                                                                                                        improvement)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Clinical Process of Care......................  HF-1............................                 8                 9                 9           67.5
                                                HF-2............................                 0                 5                 5
                                                PN-2............................                 0                 3                 3
                                                PN-7............................                10                10                10
Patient Experience of Care (HCAHPS)...........  HCAHPS Base Score...............                60                40        [dagger]60           69
                                                HCAHPS Consistency Score........  ................  ................                 9
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
    Total Performance Score...................  ................................  ................  ................  ................            0.6795
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] HCAHPS earned points are calculated by summing the higher of achievement or improvement points across the 8 HCAHPS dimensions.

10. Request for Comments--Proposed FY 2013 Hospital Value-Based 
Purchasing Performance Score Methodology and Alternatives
    As stated in Sections E(1) and E(2) of this proposed rule, we 
considered both statutorily mandated and additional factors when 
assessing the proposed FY 2013 Hospital Value-Based Purchasing program 
performance score methodology and the alternatives outlined in the 
previous sections. These additional factors include (1) simplicity and 
transparency of performance score methods to hospitals; (2) alignment 
of Hospital VBP performance score methodology with other CMS Value-
Based Purchasing programs; (3) quantitative characteristics of the 
measures and hospital-level data; (4) the relative emphasis placed on 
achievement and improvement in a performance score methodology; (5) 
elimination of unintended consequences for rewarding inappropriate 
hospital behaviors and patient outcomes, and (6) use of most currently 
available measure data to assess improvement in a performance score 
methodology.
    We solicit comment on the merits and drawbacks about all of these 
factors on our proposed performance score methodology, and our 
performance score methodology alternatives described in this proposed 
rule. We are particularly interested in all suggested new, improved 
scoring methodology alternatives that may achieve our objectives in 
better, straightforward, or more effective ways.

F. Applicability of the Value-Based Purchasing Program to Hospitals

    Section 1886(o)(1)(C) of the Act specifies the applicability of the 
value-based purchasing program to hospitals. For purposes of the 
Hospital VBP program, the term ``hospital'' is defined under section 
1886(o)(1)(C)(i) as a ``subsection (d) hospital,'' (as defined in 
section 1886(d)(1)(B) of the Act). Section 1886(d)(1)(B) of the Act 
defines a ``subsection (d) hospital'' as a ``hospital located in one of 
the fifty States or the District of Columbia.'' The term therefore does 
not include hospitals located in the territories or hospitals located 
in Puerto Rico. Section 1886(d)(9)(A) of the Act separately defines a 
``subsection (d) Puerto Rico hospital'' as a hospital that is located 
in Puerto Rico and that ``would be a subsection (d) hospital if it were 
located in one of the 50 states.'' Therefore, because 1886(o)(1)(C) 
does not refer to ``subsection (d) Puerto Rico hospitals,'' the 
Hospital VBP program would not apply to hospitals located in Puerto 
Rico. The statutory definition of a subsection (d) hospital under 
section 1886(d)(1)(B), however, does include inpatient, acute care 
hospitals located in the State of Maryland. These hospitals are not 
currently paid under the IPPS in accordance with a special waiver 
provided by section 1814(b)(3) of the Act. Despite this waiver, the 
Maryland hospitals continue to meet the definition of a ``subsection 
(d) hospital''

[[Page 2480]]

because they are hospitals located in one of the 50 states. Therefore 
we propose that the Hospital VBP program will apply to acute care 
hospitals located in the State of Maryland unless the Secretary 
exercises discretion pursuant to 1886(o)(1)(C)(iv), which states that 
``the Secretary may exempt such hospitals from the application of this 
subsection if the State which is paid under such section submits an 
annual report to the Secretary describing how a similar program in the 
State for a participating hospital or hospitals achieves or surpasses 
the measured results in terms of patient health outcomes and cost 
savings established under this subsection.''
    The statutory definition of a subsection (d) hospital also does not 
apply to hospitals and hospital units excluded from the IPPS under 
section 1886(d)(1)(B) of the Act, such as psychiatric, rehabilitation, 
long term care, children's, and cancer hospitals. In order to identify 
hospitals, we propose that, for purposes of this provision, we would 
adjust payments to hospitals as they are distinguished by provider 
number in hospital cost reports. We propose that payment adjustments 
for hospitals be calculated based on the provider number used for cost 
reporting purposes, which is the CMS Certification Number (CCN) of the 
main provider (also referred to as OSCAR number). Payments to hospitals 
are made to each provider of record.
    Section 1886(o)(1)(C)(ii) sets forth a number of exclusions to the 
definition of the term ``hospital.'' First, under section 
1886(o)(1)(C)(ii)(I) a hospital is excluded if it is subject to the 
payment reduction under section 1886(b)(3)(B)(viii)(I) (the Hospital 
IQR program) for the fiscal year. Therefore, any hospital that is 
subject to the Hospital IQR payment reduction because it does not meet 
the requirements for the Hospital IQR program will be excluded from the 
Hospital VBP program for the fiscal year. We are concerned about the 
possibility of hospitals deciding to ``opt out'' of the Hospital VBP 
program by choosing to not submit data under the Hospital IQR program, 
thereby avoiding both the base operating DRG payment reduction and the 
possibility to receive a value-based incentive payment, although we 
recognize that these hospitals would still be subject to the Hospital 
IQR program reduction to their annual payment increase for the fiscal 
year. We intend to track hospital participation in the Hospital IQR 
program and welcome public comment on this issue.
    With respect to hospitals for which we have measure data from the 
performance period but no measure data from the baseline period 
(perhaps because these hospitals were either not open during the 
baseline period or otherwise did not participate in the Hospital IQR 
program during that period), we are proposing that these hospitals will 
still be included in the Hospital VBP program, but that they will be 
scored based only on achievement. We invite public comments on this 
approach and welcome input on scoring hospitals without baseline 
performance data using this and other approaches.
    Under section 1886(o)(1)(C)(ii)(II), a hospital is excluded if it 
has been cited by the Secretary for deficiencies during the performance 
period that pose immediate jeopardy to the health or safety of 
patients. We are proposing to interpret this to mean that any hospital 
that is cited by the Centers for Medicare and Medicaid through the 
Medicare State Survey and Certification process for deficiencies during 
the proposed performance period (for purposes of the FY 2013 Hospital 
VBP program, July 1, 2011-March 31, 2012) that pose immediate jeopardy 
to patients will be excluded from the Hospital VBP program for the 
fiscal year. We are also proposing to use the definition of the term 
``immediate jeopardy'' that appears in 42 CFR 489.3.
    Section 1886(o)(1)(C)(ii)(III) requires the Secretary to exclude 
for the fiscal year hospitals that do not report a minimum number (as 
determined by the Secretary) of measures that apply to the hospital for 
the performance period for the fiscal year.
    Section 1886(o)(1)(C)(ii)(IV) requires the Secretary to exclude for 
the fiscal year hospitals that do not report a minimum number (as 
determined by the Secretary) of cases for the measures that apply to 
the hospital for the performance period for the fiscal year.
    In determining the minimum number of reported measures and cases 
under sections 1886(o)(1)(C)(ii)(III) and (IV), the Secretary must 
conduct an independent analysis of what minimum numbers would be 
appropriate. To fulfill this requirement, we commissioned Brandeis 
University to perform an independent analysis that examined technical 
issues concerning the minimum number of cases per measure and the 
minimum number of measures per hospital needed to derive reliable 
performance scores. This analysis examined hospital performance scores 
using data from 2007-2008 and 2008-2009. The researchers tested 
different minimum numbers of cases and measures and concluded that the 
most important factor in setting minimum thresholds for the Hospital 
VBP program is to determine a combination of thresholds that allows the 
maximum number of hospitals to be scored reliably. We note that such 
reliability depends on the combination of the two thresholds. For 
example, if we allowed the number of cases per measure to be small (for 
example, 5 cases), we might still have reliable overall scores if there 
were a sufficiently large number of measures.
    The independent analysis indicated that a smaller number of cases 
would yield less reliable results for any given measure, ultimately 
affecting results, when the measures were combined to create the domain 
scores. Because the proposed Hospital VBP scoring methodology 
aggregates information across all of the proposed measures, the 
analysis considered various thresholds for the minimum number of cases 
to include in a measure. We recognized that lowering the minimum number 
of cases required for each measure would allow a greater number of 
hospitals to participate in the Hospital VBP program. The analysis 
explored whether a lower threshold for each individual measure might be 
sufficient to make composite measures (that is, measures based on 
aggregations of individual measures), more statistically reliable.
    Brandeis researchers checked the reliability of the total 
performance score for hospitals with only 4 measures. One approach was 
to randomly select 4, 6, 10, or 14 measures and to compare the 
reliabilities that are determined using these different sets of 
measures per hospitals. The research found that using 4 randomly 
selected measures per hospital did not greatly reduce between-hospital 
reliability (particularly in terms of rank ordering) from what would 
have been determined using 10 or 14 measures. Examining hospitals with 
at least 10 cases for each measure, the analysis compared the 
reliability of clinical process measure scores for hospitals according 
to the number of such measures reported. Whisker plots and reliability 
scores revealed comparable levels of variation in the process scores 
for hospitals reporting even a small number of measures as long as the 
minimum of 10 cases per measure was met. Based on this analysis, we 
propose to establish the minimum number of cases required for each 
measure under the proposed Three Domain Performance Scoring Model at 
10, which we believe will allow us to include more hospitals in the 
Hospital VBP program.

[[Page 2481]]

    When examining the minimum number of measures necessary to derive 
reliable performance scores, the independent analysis revealed that the 
distribution of performance scores varied depending on the number of 
measures reported per hospital. The whisker plots and reliability 
scores demonstrated a clear difference in the distribution of scores 
for hospitals reporting 4 or more measures compared with those 
reporting fewer than 4 measures.
    We believe that setting the minimum number of measures and cases as 
low as is reasonable is an essential component of implementing the 
Hospital VBP program and will help to minimize the number of hospitals 
unable to participate due to not having the minimum number of cases for 
a measure, or the minimum number of measures. Therefore, as we stated 
above, we propose to exclude from hospitals' total performance score 
calculation any measures on which they report fewer than 10 cases. We 
also propose to exclude from the Hospital VBP program any hospitals to 
which less than 4 of the proposed measures apply.
    We are also proposing that, for inclusion in the Hospital VBP 
program for FY 2013, hospitals must report a minimum of 100 HCAHPS 
surveys during the performance period. The reliability of HCAHPS scores 
was determined through statistical analyses conducted by RAND, the 
statistical consultant for HCAHPS. Based on these analyses, we believe 
that a reliability rate of 85 percent or higher is desired for HCAHPS 
to ensure that true hospital performance, rather than random ``noise,'' 
is measured. RAND's analysis indicates that HCAHPS data do not achieve 
an 85 percent reliability level across all eight HCAHPS dimensions with 
a sample of less than 100 completed surveys.
    As proposed in this section and in section II. E. of this proposed 
rule, hospitals reporting insufficient data to receive a score on 
either the clinical process of care or HCAHPS domains will not receive 
a total performance score for the FY 2013 Hospital VPB program.
    We solicit public comments on our proposals regarding the minimum 
numbers of cases and measures necessary for hospitals' inclusion in the 
Hospital VBP program. We note that hospitals excluded from the Hospital 
VBP program will be exempt from the base operating DRG payment 
reduction required under section 1886(o)(7) as well as the possibility 
for value-based incentive payments.

G. The Exchange Function

    Section 1886(o)(6) of the Act governs the calculation of value-
based incentive payments under the Hospital VBP program. Specifically, 
section 1886(o)(6)(A) requires that in the case of a hospital that 
meets or exceeds the performance standards for the performance period 
for a fiscal year, the Secretary shall increase the base operating DRG 
payment amount (as defined in section 1886(o)(7)(D)), as determined 
after application of a payment adjustment described in section 
1886(o)(7)(B)(i), for a hospital for each discharge occurring in the 
fiscal year by the value-based incentive payment amount. Section 
1886(o)(6)(B) defines the value-based incentive payment amount for each 
discharge in a fiscal year as the product of (1) the base operating DRG 
payment amount for the discharge for the hospital for such fiscal year, 
and (2) the value-based incentive payment percentage for the hospital 
for such fiscal year. Section 1886(o)(6)(C)(i) provides that the 
Secretary must specify a value-based incentive payment percentage for 
each hospital for a fiscal year, and section 1886(o)(6)(C)(ii) provides 
that in specifying the value-based incentive payment percentage, the 
Secretary must ensure (1) that the percentage is based on the 
hospital's performance score, and (2) that the total amount of value-
based incentive payments to all hospitals in a fiscal year is equal to 
the total amount available for value-based incentive payments for such 
fiscal year under section 1886(o)(7)(A), as specified by the Secretary.
    Section 1886(o)(7) of the Act describes how the value-based 
incentive payments are to be funded. Under section 1886(o)(7)(A), the 
total amount available for value-based incentive payments for all 
hospitals for a fiscal year must be equal to the total amount of 
reduced payments for all hospitals under section 1886(o)(7)(B), as 
estimated by the Secretary. Section 1886(o)(7)(B)(i) requires the 
Secretary to adjust the base operating DRG payment amount for each 
hospital for each discharge in a fiscal year by an amount equal to the 
applicable percent of the base operating DRG payment amount for the 
discharge for the hospital for such fiscal year, and further requires 
that the Secretary make these reductions for all hospitals in the 
fiscal year involved, regardless of whether or not the hospital has 
been determined to have earned a value-based incentive payment for the 
fiscal year. With respect to fiscal year 2013, the term ``applicable 
percent'' is defined as 1.0 percent, but the amount gradually rises to 
2 percent by FY 2017 (section 1886(o)(7)(C)).
    The 2007 Report to Congress introduced the exchange function as the 
means to translate a hospital's total performance score into the 
percentage of the value-based incentive payment earned by the hospital. 
We believe that the selection of the exact form and slope of the 
exchange function is of critical importance to how the incentive 
payments reward performance and encourage hospitals to improve the 
quality of care they provide.
    As illustrated in Figure 7, we considered four mathematical 
exchange function options: Straight line (linear); concave curve (cube 
root function); convex curve (cube function); and S-shape (logistic 
function).

[[Page 2482]]

[GRAPHIC] [TIFF OMITTED] TP13JA11.039

    In determining which of these exchange functions would be most 
appropriate for translating a hospitals TPS into a value-based 
incentive payment percentage, we carefully considered four aspects of 
each option.
    First, we considered how each option would distribute the value-
based incentive payments among hospitals. Under section 1886(o)(7)(A) 
of the Act, the total amount available for value-based incentive 
payments for all hospitals for a fiscal year must be equal to the total 
amount of reduced payments for all hospitals for such fiscal year, as 
estimated by the Secretary. We interpret this section to mean that the 
redistribution of a portion of the IPPS payment to all hospitals under 
the Hospital VBP program must be accomplished in a way that is 
estimated to be budget neutral, without increasing or decreasing the 
aggregate overall IPPS payments made to the hospitals. As a result, if 
we award higher value-based incentive payments to higher performing 
hospitals, less money is available to make value-based incentive 
payments to lower performing hospitals. The reverse is also true. If we 
give higher value-based incentive payments to lower performing 
hospitals, less money is available to reward higher performing 
hospitals. The form and slope of each exchange function also affects 
the level of value-based incentive payments available to hospitals at 
various performance levels. Under both the cube and logistic functions, 
lower incentive payments are available to lower performing hospitals 
and aggressively higher payments are available for higher performing 
hospitals. These functions therefore distribute more incentive payments 
to higher performing hospitals. Under the cube root function, payments 
stay at relatively lower levels for higher performing hospitals; this 
function distributes more incentive payments to lower performing 
hospitals. The linear function moves more aggressively to higher levels 
for higher performing hospitals than the cube root function, but not as 
aggressively as the logistic and cube functions. It therefore 
distributes more incentive payments to higher performing hospitals than 
the cube root function, but not as aggressively as the logistic and 
cube functions.
    Second, we considered the potential differences between the value-
based incentive payment amounts for hospitals that do poorly and 
hospitals that do very well. Due to the fact that the cube root 
function distributes lower payment amounts to higher performing 
hospitals, the cube root function creates the narrowest distribution of 
incentive payments across hospitals. The linear is next, followed by 
the logistic. The cube

[[Page 2483]]

function, which most aggressively moves to higher payment levels for 
higher performing hospitals, creates the widest distribution.
    Third, we considered the different marginal incentives created by 
the different exchange function shapes. In the case of the linear 
shape, the marginal incentive does not vary for higher or lower 
performing hospitals. The slope of the linear function is constant, so 
any hospital with a TPS that is 0.1 higher than another hospital would 
receive the same increase in its value-based incentive payment across 
the entire TPS range. For the other shapes, the slope of the exchange 
function creates a higher or lower marginal incentive for higher or 
lower performing hospitals. Steeper slopes at any given point on the 
function indicate greater marginal incentives for hospitals to improve 
scores and obtain higher payments at that point, while flatter slopes 
indicate smaller marginal incentives. If the slope is steeper at the 
low end of performance scores than at the high end, as with the cube 
root function, hospitals at the low end have a higher marginal 
incentive to improve than hospitals at the high end. If the slope is 
steeper at the high end, as with the cube function, hospitals have a 
higher marginal incentive to improve at the high end than they do at 
the low end.
    Fourth, we weighed the relative importance of having the exchange 
function be as simple and straightforward as possible.
    Taking all of these factors into account, we propose to adopt a 
linear exchange function for the purpose of calculating the percentage 
of the value-based incentive payment earned by each hospital under the 
Hospital VBP program. The linear function is the simplest and most 
straightforward of the mathematical exchange functions discussed above. 
The linear function provides all hospitals the same marginal incentive 
to continually improve. The linear function more aggressively rewards 
higher performing hospitals than the cube root function, but not as 
aggressively as the logistic and cube functions. We propose the 
function's intercept at zero, meaning that hospitals with scores of 
zero will not receive any incentive payment. Payment for each hospital 
with a score above zero will be determined by the slope of the linear 
exchange function, which will be set to meet the budget neutrality 
requirement of section 1886(o)(6)(C)(ii)(II) that the total amount of 
value-based incentive payments equal the estimated amount available 
under section 1886(o)(7)(A). In other words, we will set the slope of 
the linear exchange function for FY 2013 so that the estimated 
aggregate value-based incentive payments for FY 2013 are equal to 1 
percent of the estimated aggregate base operating DRG payment amounts 
for FY 2013. Analogous estimates will be done for subsequent fiscal 
years.
    We believe that our proposed linear exchange function ensures that 
all hospitals have strong incentives to continually improve the quality 
of care they provide to their patients. We may revisit the issue of the 
most appropriate exchange function in future rulemaking as we gain more 
experience under the Hospital VBP program. We solicit public comments 
on our proposed exchange function and the resulting distribution of 
value-based incentive payments.
    We note that, in order to evaluate the different exchange 
functions, we needed to estimate the value-based incentive payment 
amount. As noted previously, section 1886(o)(6)(B) of the Act defines 
the value-based incentive payment amount as equal to the product of the 
base operating DRG payment amount for each discharge for the hospital 
for the fiscal year and the value-based incentive payment percentage 
specified by the Secretary for the hospital for the fiscal year. 
Section 1886(o)(7)(D)(i) defines the base operating DRG payment with 
respect to a hospital for a fiscal year as, unless certain special 
rules apply, ``the payment amount that would otherwise be made under 
subsection (d) (determined without regard to subsection (q)) for a 
discharge if [subsection (o)] did not apply; reduced by any portion of 
such payment amount that is attributable to payments under paragraphs 
(5)(A), (5)(B), (5)(F) and (12) of subsection (d); and such other 
payments under subsection (d) determined appropriate by the 
Secretary.'' Therefore, for estimation purposes, to calculate base 
operating DRG payments, we estimated the total payments using Medicare 
Part A claims data and subtracted from this number the estimates of 
payments made as outlier payments (authorized under section 
1886(d)(5)(A)), indirect medical education payments (authorized under 
section 1886(d)(5)(B)), disproportionate share hospital payments 
(authorized under section 1886(d)(5)(F)), and low-volume hospital 
adjustment payments (authorized under section 1886(d)(12)). We note 
that this approximation of base operating DRG payments made for the 
purpose of estimating the value-based payment amount to evaluate the 
different exchange functions is not a policy proposal. We will propose 
a definition of the term ``base operating DRG payment amount'' under 
section 1886(o)(7)(D), as well as how we would implement the special 
rules for certain hospitals described in section 1886(o)(7)(D)(ii), in 
future rulemaking. We invite public comment to inform our intended 
future policymaking on this issue.
    Furthermore, section 1886(o)(7)(A) states that the total amount 
available for value-based incentive payments for all hospitals for a 
fiscal year shall be equal to the total amount of reduced payments for 
all hospitals for such fiscal year. To calculate the total amount of 
reduced payments, section 1886(o)(7)(B) states that the base operating 
DRG payment amount shall be reduced by an applicable percent as defined 
under section 1886(o)(7)(C). This applicable percent is 1.0 percent for 
FY 2013, 1.25 percent for FY 2014, 1.5 percent for FY 2015, 1.75 
percent for FY 2016, and 2 percent for FY 2017 and subsequent years. To 
develop an estimation of the value-based incentive payment amount for 
the purposes of evaluating the different exchange functions, we used 
the FY 2013 1.0 as the applicable percent. We multiplied an estimate 
(described above) of the total aggregate base operating DRG payments 
for hospitals as defined under 1886(o)(1)(C) by 1.0 percent in order to 
derive the total amount available for value-based incentive payments 
that was used in the evaluation of the four exchange functions.

H. Proposed Hospital Notification and Review Procedures

    Section 1886(o)(8) requires the Secretary to inform each hospital 
of the adjustments to payments to the hospital for discharges occurring 
in a fiscal year as a result of the calculation of the value-based 
incentive payment amount (section 1886(o)(6)) and the reduction of the 
base operating diagnosis-related group (DRG) payment amount (section 
1886(o)(7)(B)(i)), not later than 60 days prior to the fiscal year 
involved. We propose to notify hospitals of the 1 percent reduction to 
their FY 2013 base operating DRG payments for each discharge in the FY 
2013 IPPS rule, which will be finalized at least 60 days prior to the 
beginning of the 2013 fiscal year. We expect to propose to incorporate 
this reduction into our claims processing system in January, 2013, 
which will allow the 1 percent reduction to be applied to the FY 2013 
discharges, including those that have occurred beginning on October 1, 
2012. We will address the operational aspects of the reduction as part 
of the FY 2013 IPPS rule.
    Because the proposed performance period would end only six months 
prior

[[Page 2484]]

to the beginning of FY 2013, CMS will not know each hospital's exact 
total performance score or final value-based incentive payment 
adjustment 60 days prior to the start of the 2013 fiscal year on 
October 1, 2012. Therefore, we propose to inform each hospital through 
its QualityNet account at least 60 days prior to October 1, 2012 of the 
estimated amount of its value-based incentive payment for FY 2013 
discharges based on estimated performance scoring and value-based 
incentive payment amounts, which will be derived from the most recently 
available data. We also propose that each hospital participating in the 
Hospital VBP program establish a QualityNet account if it does not 
already have one for purposes of the Hospital IQR program. We further 
propose to notify each hospital of the exact amount of its value-based 
incentive payment adjustment for FY 2013 discharges on November 1, 
2012. The value-based incentive payment adjustment would be 
incorporated into our claims processing system in January 2013, which 
will allow the value-based incentive payment adjustment to be applied 
to the FY 2013 discharges, including those that have occurred beginning 
on October 1, 2012.
    Section 1886(o)(10)(A)(i) of the Act requires the Secretary to make 
information available to the public regarding individual hospital 
performance in the Hospital VBP program, including: (1) Hospital 
performance on each measure that applies to the hospital; (2) the 
performance of the hospital with respect to each condition or 
procedure; and (3) the total hospital performance score. To meet this 
requirement, we propose to publish hospital scores with respect to each 
measure, each hospital's condition-specific score (that is, the 
performance score with respect to each condition or procedure, for 
example, AMI, HF, PN, SCIP, HAI), each hospital's domain-specific 
score, and each hospital's total performance score on the Hospital 
Compare website. We note that we are not proposing to use a hospital's 
condition-specific score for purposes of calculating its total 
performance score under the proposed Three-Domain Performance Scoring 
Model.
    Section 1886(o)(10)(A)(ii) requires the Secretary to ensure that 
each hospital has the opportunity to review and submit corrections 
related to the information to be made public with respect to the 
hospital under section 1886(o)(10)(A)(i) prior to such information 
being made public. As stated above, we propose to derive the Hospital 
VBP measures data directly from measures data submitted by each 
hospital under the Hospital IQR program. We propose that the procedures 
we adopt for the Hospital IQR program will also be the procedures that 
hospitals must follow in terms of reviewing and submitting corrections 
related to the information to be made public under section 1886(o)(10).
    With respect to the FY 2013 Hospital VBP program, we propose to 
make each hospital's Hospital VBP performance measure score, condition-
specific score, domain-specific score, and total performance score 
available on the hospital's QualityNet account on November 1, 2012. We 
propose to remind each hospital via the hospital's secure QualityNet 
account of the availability of its performance information under the 
Hospital VBP program on this date. Pursuant to section 
1886(o)(10)(A)(ii), we propose to provide hospitals with 30 calendar 
days to review and submit corrections related to their performance 
measure scores, condition-specific scores, domain-specific scores and 
total performance score.
    Section 1886(o)(10)(B) requires the Secretary to periodically post 
on the Hospital Compare website aggregate information on the Hospital 
VBP program, including: (1) The number of hospitals receiving value-
based incentive payments under the program as well as the range and 
total amount of such value-based incentive payments; and (2) the number 
of hospitals receiving less than the maximum value-based incentive 
payment available for the fiscal year involved and the range and amount 
of such payments. We propose to post aggregate Hospital VBP information 
on the Hospital Compare website in accordance with Section 
1886(o)(10)(B). We will provide further details on reporting aggregated 
information in the future.

I. Proposed Reconsideration and Appeal Procedures

    Section 1886(o)(11)(A) of the Act requires the Secretary to 
establish a process by which hospitals may appeal the calculation of a 
hospital's performance assessment with respect to the performance 
standards (section 1886(o)(3)(A)) and the hospital performance score 
(section 1886(o)(5)). Under section 1886(o)(11)(B), there is no 
administrative or judicial review under section 1869, section 1878, or 
otherwise of the following: (1) The methodology used to determine the 
amount of the value-based incentive payment under section 1886(o)(6) 
and the determination of such amount; (2) the determination of the 
amount of funding available for the value-based incentive payments 
under section 1886(o)(7)(A) and payment reduction under section 
1886(o)(7)(B)(i); (3) the establishment of the performance standards 
under section 1886(o)(3) and the performance period under section 
1886(o)(4); (4) the measures specified under section 
1886(b)(3)(B)(viii) and the measures selected under section 1886(o)(2); 
(5) the methodology developed under section 1886(o)(5) that is used to 
calculate hospital performance scores and the calculation of such 
scores; or (6) the validation methodology specified in section 
1886(b)(3)(B)(viii)(XI).
    We will propose an appeals process under section 1886(o)(11) in 
future rulemaking. We invite public comment, in general, on the 
structure and procedure of an appropriate appeals process. 
Specifically, CMS seeks comment on the appropriateness of a process 
that would establish an agency-level appeals process under which CMS 
personnel having appropriate expertise in the Hospital VBP program 
would decide the appeal. We seek insight on what qualifications such 
personnel should hold. Further, we invite comment on how the appeals 
process should be structured. Finally, we seek public input on the 
timeframe in which these appeals should be resolved.

J. Proposed FY 2013 Validation Requirements for Hospital Value-Based 
Purchasing

    In the FY 2011 IPPS final rule (75 FR 50227 through 50229), we 
adopted a validation process for the FY 2013 Hospital IQR program. We 
propose that this validation process will also apply to the FY 2013 
Hospital VBP program. We believe that using this process for both the 
Hospital IQR program and the Hospital VBP program is beneficial for 
both hospitals and CMS because no additional burden will be placed on 
hospitals to separately return requested medical records for the 
Hospital VBP program. Because the measure data we are using for the 
Hospital VBP program is the same as the data we collect for the 
Hospital IQR program, we believe that we can ensure that the Hospital 
VBP program measure data are accurate through the Hospital IQR program 
validation process.
    In future rulemaking related to the Hospital IQR program, we will 
consider proposing refinements to our annual Hospital IQR validation 
sample selection, targeting, and annual validation period for enhanced 
alignment and use in the Hospital VBP program. We seek to reduce 
hospital burden and ensure that the information we collect for both the 
Hospital IQR

[[Page 2485]]

program and the Hospital VBP program is accurate.

K. Additional Information

1. Monitoring and Evaluation
    As part of our ongoing effort to ensure that Medicare beneficiaries 
receive high-quality inpatient care, CMS plans to monitor and evaluate 
the new Hospital VBP program. Monitoring will focus on whether, 
following implementation of the Hospital VBP program, we observe 
changes in access to and the quality of care furnished to 
beneficiaries, especially within vulnerable populations. We will also 
evaluate the effects of the new Hospital VBP program in areas such as:
     Access to care for beneficiaries, including categories or 
subgroups of beneficiaries.
     Changes in care practices that might adversely impact the 
quality of care furnished to beneficiaries.
     Patterns of care suggesting particular effects of the 
Hospital VBP program (such as whether there are changes in the 
percentage of patients receiving appropriate care for conditions 
covered by the measures); or a change in the rate of hospital acquired 
conditions.
     Best practices of high-performing hospitals that might be 
adopted by other hospitals.

We currently collect data on readmission rates for beneficiaries 
diagnosed with myocardial infarction, heart failure, and pneumonia. We 
also collect chart abstracted data on a variety of quality of care 
indicators related to myocardial infarction, heart failure, pneumonia, 
and surgical care improvement. These sources and other available data 
will provide the basis for early examination of trends in care 
delivery, access, and quality. Assessment of the early experience with 
the Hospital VBP program will allow us to create an active learning 
system, building the evidence base essential for guiding the design of 
future Hospital VBP programs and enabling CMS to address any 
disruptions in access or quality that may arise. These ongoing 
monitoring and evaluation efforts will be part of CMS's larger efforts 
to promote improvements in quality and efficiency, both within CMS and 
between CMS and hospitals in the Hospital VBP program. We welcome 
public comments regarding approaches to monitoring and evaluating the 
Hospital VBP program.
2. Electronic Health Records (EHRs)
a. Background
    Starting with the FY 2006 IPPS final rule, we have encouraged 
hospitals to take steps toward the adoption of EHRs (also referred to 
in previous rulemaking documents as electronic medical records) that 
will allow for reporting of clinical quality data from the EHRs 
directly to a CMS data repository (70 FR 47420 through 47421). We 
encouraged hospitals that are implementing, upgrading, or developing 
EHR systems to ensure that the technology obtained, upgraded, or 
developed conforms to standards adopted by HHS. We suggested that 
hospitals also take due care and diligence to ensure that the EHR 
systems accurately capture quality data and that, ideally, such systems 
provide point of care decision support that promotes optimal levels of 
clinical performance.
    We also continue to work with standard setting organizations and 
other entities to explore processes through which EHRs could speed the 
collection of data and minimize the resources necessary for quality 
reporting as we have done in the past.
    We note that we have initiated work directed toward enabling EHR 
submission of quality measures through EHR standards development and 
adoption. We have sponsored the creation of electronic specifications 
for quality measures for the hospital inpatient setting, and will also 
work toward electronically specifying measures selected for the 
Hospital IQR program and the Hospital VBP program.
b. HITECH Act EHR Provisions
    The HITECH Act (Title IV of Division B of the ARRA, together with 
Title XIII of Division A of the ARRA) authorizes payment incentives 
under Medicare for the adoption and use of certified EHR technology 
beginning in FY 2011. Hospitals are eligible for these payment 
incentives if they meet requirements for meaningful use of certified 
EHR technology, which include reporting on quality measures using 
certified EHR technology. With respect to the selection of quality 
measures for this purpose, under section 1886(n)(3)(A)(ii) of the Act, 
as added by section 4102 of the HITECH Act, the Secretary shall select 
measures, including clinical quality measures, that hospitals must 
provide to CMS in order to be eligible for the EHR incentive payments. 
With respect to the clinical quality measures, section 1886(n)(3)(B)(i) 
of the Act requires the Secretary to give preference to those clinical 
quality measures that have been selected for the Hospital IQR program 
under section 1886(b)(3)(B)(viii) of the Act or that have been endorsed 
by the entity with a contract with the Secretary under section 1890(a) 
of the Act. Any clinical quality measures selected for the HITECH 
incentive program for eligible hospitals must be proposed for public 
comment prior to their selection, except in the case of measures 
previously selected for the Hospital IQR program under section 
1886(b)(3)(B)(viii) of the Act.
    Thus, the Hospital IQR program and Hospital VBP Program have 
important areas of overlap and synergy with respect to the reporting of 
quality measures under the HITECH Act using EHRs. We believe the 
financial incentives under the HITECH Act for the adoption and 
meaningful use of certified HER technology by hospitals will encourage 
the adoption and use of certified EHRs for the reporting of clinical 
quality measures under the Hospital IQR program which are subsequently 
used for the Hospital VBP Program.
    We note that the provisions in this proposed rule do not implicate 
or implement any HITECH statutory provisions. Those provisions are the 
subject of separate rulemaking and public comment.

L. QIO Quality Data Access

    The mission of the Quality Improvement Organization (QIO) Program, 
as authorized under section 1862(g) and Part B of title XI of the Act, 
is to promote the effectiveness, efficiency, economy, and quality of 
services delivered to Medicare beneficiaries. We contract with one 
organization in each state, as well as the District of Columbia, Puerto 
Rico, and the U.S. Virgin Islands, to serve as that state/
jurisdiction's QIO. QIOs are private, usually not-for-profit 
organizations, which are staffed mostly by doctors and other health 
care professionals. These professionals are trained to review medical 
care and help beneficiaries with complaints about the quality of care 
and to implement improvements in the quality of care available 
throughout the spectrum of care. Over time, QIOs have been instrumental 
in advancing national efforts that motivate providers to improve the 
quality of Medicare services, and in measuring and improving outcomes 
of quality.
    Data collected by QIOs to accomplish their mission represent an 
important tool for CMS in our efforts to improve quality. QIOs collect 
survey, administrative, and medical records data in order to monitor 
and assess

[[Page 2486]]

provider performance. The confidentiality and disclosure requirements 
associated with QIO information are set forth in Section 1160 of the 
Act. In particular, this section stipulates that QIOs are not Federal 
agencies for purposes of the Freedom of Information Act and specifies 
that ``any data or information acquired by [a QIO] in the exercise of 
its duties and functions shall be held in confidence and shall not be 
disclosed to any person.'' The section then authorizes certain 
exceptions that allow disclosures, including the authority of the 
Secretary to prescribe additional exceptions ``in such cases and under 
such circumstances as the Secretary shall by regulations provide * * * 
.'' Implementing regulations governing the QIO confidentiality and 
disclosure requirements were issued in 1985 (see 50 FR 15347, April 17, 
1985). In accordance with section 1881(c)(8), section 1160 and the 
confidentiality and disclosure requirements also apply to End Stage 
Renal Disease Networks.
    A key aspect of these regulations is the significant restriction 
placed on a QIO's ability to disclose QIO information, in particular 
information related to a Quality Review Study (QRS). A QRS is defined 
in Sec.  480.101(b) as ``an assessment, conducted by or for a QIO, of a 
patient care problem for the purpose of improving patient care through 
peer analysis, intervention, resolution of the problem and follow-up.'' 
QIOs are instrumental in collecting, maintaining, and processing 
certain data associated with the Hospital Inpatient Quality Reporting 
Program. Such data is considered to be QRS data. As such, these data 
are subject to the increased restrictions placed on disclosures of QRS 
information set forth in Sec.  480.140 of the QIO regulations. Section 
480.140 even places stringent restrictions on a QIO's ability to 
disclose to CMS. While the QIO regulations have gone largely unchanged 
since 1985, the regulations were recently updated to account for CMS' 
expanded role in quality reporting. Specifically, Sec.  480.140 was 
amended to add a new subparagraph (g), which ensures that CMS has 
access to QRS information collected as part of the Hospital Inpatient 
Quality Reporting Program, following hospital review of the data. 
However, CMS's access is restricted to the sole purpose of conducting 
certain activities related to MA organizations, as described in Sec.  
422.153. See 75 FR 19678, 19759 (April 15, 2010). CMS continues to be 
limited in other areas of quality reporting based on the current 
regulatory restrictions.
    In fact, many of the same regulatory restrictions that impact CMS' 
ability to properly coordinate quality reporting have also impacted 
CMS' ability to oversee and plan other QIO program activities and 
Departmental initiatives. As previously noted, the QIO regulations were 
originally issued in 1985. Although these regulations have not 
undergone significant change, there have been significant changes both 
within and outside the QIO program directly impacting the way the QIOs 
and CMS conduct business. In 1985, computers were still in their 
infancy, and QIO review activities were primarily conducted onsite at 
the provider's and/or practitioner's place of business. Similarly, CMS' 
oversight responsibilities were conducted onsite at the QIOs' offices. 
The QIO program regulations were written based on this reality. 
Additionally, the original restrictions were designed to enhance 
provider and practitioner participation in the QRS process, and in 
fact, were considered necessary to obtain the frank and open 
communication needed to improve the quality of health care.
    Since 1985 however, we have seen enormous technological advances, 
including improvements in the ability to electronically exchange large 
amounts of data safely and securely through the internet. Moreover, 
several laws, most notably the Health Insurance Portability and 
Accountability Act (HIPAA) and the Federal Information Security and 
Management Act (FISMA), have been established to protect sensitive 
information. In addition, despite the QIOs continued focus on 
information obtained directly from providers and practitioners, QIOs 
also obtain a large amount of CMS claims data electronically to 
complete their review activities. During this same time period, the QIO 
program has expanded and now includes more emphasis on quality 
reporting and additional responsibilities, for example, a broader range 
of beneficiary appeals of provider discharges. In turn, CMS' 
responsibilities have also been broadened both in terms of programmatic 
responsibilities, for example, quality reporting, and its contractor 
oversight responsibilities. Moreover, there are various initiatives 
designed to ensure transparency of our programs, as well as the 
operations of individual providers and practitioners. We have also 
identified several unintended consequences resulting from these 
regulatory restrictions, which need to be addressed to ensure better 
management of the QIOs. This includes improvements related to CMS' 
oversight of QIO physician reviewers.
    In light of the above, we are proposing several changes to the QIO 
regulations. We are amending the definition of the QIO review system in 
Sec.  480.101(b) to include CMS. The QIO review system currently 
consists of the QIO and the organizations and individuals who either 
assist the QIO or are directly responsible for providing care or for 
making review determinations with respect to that care. Particularly in 
the area of quality reporting, there is a need for increased 
coordination between CMS and the QIOs, which includes exchanges of data 
so that CMS can better manage and respond to new information.
    We are also modifying Sec.  480.130 to clarify the Department's 
general right to access non-QRS confidential information. We have made 
it clear that this provision includes Departmental components, 
including CMS as well as the Center for Disease Control and Prevention 
including those related to data exchanges associated with the National 
Health Care Safety Network. Additionally, we are modifying Sec.  
480.139(a) to remove limitations on CMS' access to information 
regarding the QIO's internal deliberations (as defined in Sec.  
480.101(b). The current regulation authorizes CMS' access to 
information in ``deliberations,'' but limits that access to onsite ``at 
the QIO office or at a subcontracted organization.'' This limitation is 
unrealistic in light of today's technologically advanced business 
environment.
    For the same reasons, we have modified Sec.  480.140 to eliminate 
the onsite restriction to CMS' access to QRS data. In addition to the 
reasoning we have presented above, we considered this change necessary 
in order to create a more consistent approach to how and when we could 
gain access to QRS information. In our recent addition of subparagraph 
(g) to Sec.  480.140, the ``onsite'' limitation was removed only in the 
context of MA organizations. We now see no reason to confine this 
change to such a narrow purpose. As a general matter, CMS must have 
access to QRS information not only for quality reporting purposes but 
also to ensure proper oversight and management of the QIOs. This 
includes access for the evaluation of specific contractor performance 
issues and for the long-term planning of the QIO program. In addition, 
the current state of technology, the use of electronic exchanges of 
data and information, and the speed at which data must be exchanged to 
ensure accomplishment of our work, warrants

[[Page 2487]]

the elimination of the restriction that data can only be accessed 
``onsite'' at the QIO. We also considered the fact that the current 
``onsite'' limitation does not establish realistic limits on the use of 
data CMS views onsite. While actual copies of materials cannot be 
removed from an onsite location, it is unlikely that the ``onsite'' 
restriction adequately prevents CMS from ``taking away'' information it 
has learned while viewing that information. Thus, the change presents a 
more realistic approach to access in light of today's environment. It 
will enable CMS to operate more efficiently, and account for the 
current information exchange methodologies used throughout the world. 
In fact, we are asking for comments regarding whether the ``onsite'' 
restriction should be eliminated entirely from subparagraph (a) of 
section 480.140. In order to reflect the specific changes we are now 
proposing in section 480.140, we are making corresponding changes in 
Sec.  422.153 to ensure consistency between the two provisions.
    In general, the changes will not only enable CMS to better monitor 
its programs and contractors, but will also help to ensure that CMS has 
access to information in a timely manner to account for any unintended 
consequences to patient care resulting from its programs. This 
increased access to QIO information is vital to achieving CMS' goal of 
developing a performance-based incentive payment program that rewards 
providers for high-quality care. Access to this data will enhance CMS' 
efforts to create a Hospital VBP program based on quality of care. The 
changes will also facilitate CMS' effort to improve coordination with 
its contractors. Moreover, CMS will be positioned to better leverage 
opportunities to improve the quality of health care and to oversee its 
contractor activities with less cost, including costs associated with 
travel.
    In addition to the proposed changes, we are also asking for 
comments regarding the disclosure of QIO information to researchers. 
Historically, QIOs have not disclosed confidential QIO information to 
researchers. However, we recognize the value that research can offer in 
improving the quality of health care, and researchers frequently 
contact QIO program representatives to gain access to QIO information. 
Thus, we are requesting comments on whether researchers should be 
allowed access to QIO information. This includes access to confidential 
information associated with quality review studies. Moreover, we are 
requesting comments on the process that should be used to evaluate 
these requests, for example, enabling QIOs to independently assess such 
requests or using the current CMS Privacy Board structure. Insight 
regarding criteria to be used in evaluating these requests should also 
be provided.

III. Collection of Information Requirements

    This document does not impose information collection and 
recordkeeping requirements. Consequently, it need not be reviewed by 
the Office of Management and Budget under the authority of the 
Paperwork Reduction Act of 1995.

IV. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the DATES section of this preamble, 
and, when we proceed with a subsequent document, we will respond to the 
comments in the preamble to that document.

V. Regulatory Impact Statement

A. Statement of Need

    The objectives of the Hospital VBP program include to transform how 
Medicare pays for care and to encourage hospitals to continually 
improve the quality of care they provide. In accordance with section 
1886(o) of the Act, we have proposed to accomplish these goals by 
providing incentive payments based on hospital performance on quality 
measures. This proposed rule was developed based on extensive research 
we conducted on hospital value-based purchasing, some of which formed 
the basis of the 2007 Report to Congress, as well as extensive 
stakeholder and public input. The proposed approach reflects the 
statutory requirements and the intent of Congress to promote increased 
quality of hospital care for Medicare beneficiaries by aligning a 
portion of hospital payments with performance.

B. Overall Impact

    We have examined the impact of this rule as required by Executive 
Order 12866 on Regulatory Planning and Review (September 30, 1993), the 
Regulatory Flexibility Act (RFA) (September 19, 1980, Pub. L. 96-354), 
section 1102(b) of the Social Security Act, section 202 of the Unfunded 
Mandates Reform Act of 1995 (March 22, 1995; Pub. L. 104-4), Executive 
Order 13132 on Federalism (August 4, 1999) and the Congressional Review 
Act (5 U.S.C. 804(2)).
    Executive Order 12866 directs agencies to assess all costs and 
benefits of available regulatory alternatives and, if regulation is 
necessary, to select regulatory approaches that maximize net benefits 
(including potential economic, environmental, public health and safety 
effects, distributive impacts, and equity). A regulatory impact 
analysis (RIA) must be prepared for major rules with economically 
significant effects ($100 million or more in any 1 year). To provide 
funding for value-based incentive payments, beginning in fiscal year 
2013 and in each succeeding fiscal year, section 1886(o)(7) of the Act 
governs the funding for the value-based incentive payments and requires 
the Secretary to reduce the base operating DRG payment amount for a 
hospital for each discharge in a fiscal year by an amount equal to the 
applicable percent of the base operating DRG payment amount for the 
discharge for the hospital for such fiscal year. We anticipate defining 
the term ``base operating DRG amount'' in future rulemaking. For 
purposes of this proposed rule, we have limited our analysis of the 
economic impacts to the value-based incentive payments. As required by 
section 1886(o)(7)(A), total reductions for hospitals under section 
1886(o)(7)(B) must be equal to the amount available for value-based 
incentive payments under section 1886(o)(6), resulting in a net budget-
neutral impact. Overall, the distributive impact of this proposed rule 
is estimated at $850 million for FY 2013. Therefore, this proposed rule 
is economically significant and thus a major rule under the 
Congressional Review Act.
    The objectives of the Hospital VBP program include to transform how 
Medicare pays for care and to encourage hospitals to continually 
improve the quality of care they provide. In accordance with section 
1886(o) of the Act, we have proposed to accomplish these goals by 
providing incentive payments based on hospital performance on quality 
measures. This proposed rule was developed based on extensive research 
we conducted on hospital value-based purchasing, some of which formed 
the basis of the 2007 Report to Congress, as well as extensive 
stakeholder and public input. The proposed approach reflects the 
statutory requirements and the intent of Congress to promote increased 
quality of hospital care for Medicare beneficiaries by aligning a 
portion of hospital payments with performance.

[[Page 2488]]

    The RFA requires agencies to analyze options for regulatory relief 
of small businesses. For purposes of the RFA, small entities include 
small businesses, nonprofit organizations, and small governmental 
jurisdictions. Most hospitals and most other providers and suppliers 
are considered to be small entities, either by nonprofit status or by 
having revenues $34.5 million or less in any 1 year. Individuals and 
States are not included in the definition of a small entity.
    Guidance issued by the Department of Health and Human Services 
interpreting the RFA considers effects to be economically significant 
if they reach a threshold of 3 to 5 percent or more of total revenues 
or costs. Among the 3,092 hospitals that would be participating in the 
Hospital VBP program, we estimate that percent increases in payments 
resulting from this proposed rule will range from 0.0236 percent for 
the lowest-scoring hospital to 1.817 percent for the highest-scoring 
hospital. When the reduction in base DRG operating payments to 
hospitals required under section 1886(o)(7) is taken into account, 
roughly half of participating hospitals will receive a net increase in 
payments and half will receive a net decrease in payments. However, we 
estimate that no participating hospital will receive more than a net 1 
percent increase or decrease in payments. This falls well below the 
threshold for economic significance established by HHS for requiring a 
more detailed impact assessment under the RFA. Thus, we are not 
preparing an analysis under the RFA because the Secretary has 
determined that this proposed rule would not have a significant 
economic impact on a substantial number of small entities.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of an urban area and has 
fewer than 100 beds. We are not preparing an analysis under section 
1102(b) of the Act because the Secretary has determined that this 
proposed rule would not have a significant impact on the operations of 
a substantial number of small rural hospitals.
    Section 202 of the Unfunded Mandates Reform Act of 1995 also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. In 2010, that 
threshold is approximately $135 million. This rule would not mandate 
any requirements for State, local, or tribal governments, nor would it 
affect private sector costs.
    Executive Order 13132 establishes certain requirements that an 
agency must meet when it promulgates a proposed rule (and subsequent 
final rule) that imposes substantial direct requirement costs on State 
and local governments, preempts State law, or otherwise has Federalism 
implications. As stated above, this final rule would not have a 
substantial effect on State and local governments.

C. Anticipated Effects

    Table 7 displays our analysis of the distribution of possible total 
performance scores based on 2009 data, providing information on the 
estimated impact of this proposed rule. Value-based incentive payments 
for the estimated 3,092 hospitals participating in Hospital VBP are 
stratified by hospital characteristic, including geographic region, 
urban/rural designation, capacity (number of beds), and percentage of 
Medicare utilization. For example, line 4 of Table 7 shows the 
estimated value-based incentive payments for the East South Central 
region, which includes the states of Alabama, Kentucky, Mississippi, 
and Tennessee. Column 2 relates that, of the 3,092 participating 
hospitals, 301 are located in the East South Central region. Column 3 
provides the estimated mean value-based incentive payment to those 
hospitals, which is 1.021 percent. The next columns provide the 
distribution of scores by percentile; we see that the value-based 
incentive percentage payments for hospitals in the East South Central 
region range from 0.550 at the 5th percentile to 1.482 at the 95th 
percentile, while the value-based incentive payment at the 50th 
percentile is 1.023 percent.

[[Page 2489]]



                 Table 7--Two-Domain Impact (Clinical Process and HCAHPS): Estimated Incentive Rates by Hospital Characteristic[dagger]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                       Percentile
      Hospital characteristic         N = 3,092       Mean    ------------------------------------------------------------------------------------------
                                                                   5th          10th         25th         50th         75th         90th         95th
--------------------------------------------------------------------------------------------------------------------------------------------------------
Region:
    New England....................          138        1.083        0.660        0.751        0.935        1.088        1.276        1.391        1.434
    Middle Atlantic................          370        0.955        0.542        0.619        0.766        0.963        1.152        1.288        1.352
    South Atlantic.................          518        1.041        0.551        0.661        0.822        1.039        1.255        1.420        1.499
    East North Central.............          475        1.022        0.555        0.652        0.840        1.025        1.214        1.380        1.472
    East South Central.............          301        1.021        0.550        0.634        0.810        1.023        1.235        1.413        1.482
    West North Central.............          248        1.083        0.638        0.721        0.866        1.075        1.283        1.470        1.567
    West South Central.............          457        1.014        0.477        0.597        0.784        0.997        1.248        1.432        1.563
    Mountain.......................          201        0.980        0.584        0.650        0.822        0.986        1.159        1.336        1.396
    Pacific........................          384        0.935        0.434        0.551        0.755        0.951        1.126        1.290        1.383
Urban/Rural:
    Large Urban....................        1,199        1.008        0.552        0.646        0.815        1.014        1.206        1.370        1.449
    Other Urban....................        1,010        1.016        0.551        0.646        0.817        1.015        1.209        1.379        1.484
    Rural..........................          883        1.007        0.487        0.607        0.788        1.009        1.239        1.398        1.499
Capacity (by  beds):
    1 to 99 beds...................        1,045        1.044        0.491        0.617        0.814        1.047        1.284        1.456        1.575
    100 to 199 beds................          939        1.002        0.500        0.598        0.815        1.015        1.201        1.360        1.452
    200 to 299 beds................          481        0.989        0.586        0.662        0.803        0.996        1.175        1.323        1.392
    300 to 399 beds................          279        0.995        0.577        0.668        0.821        1.022        1.167        1.293        1.379
    400 to 499 beds................          151        0.985        0.575        0.700        0.837        0.982        1.135        1.307        1.414
    500+ beds......................          197        0.960        0.562        0.652        0.766        0.960        1.146        1.265        1.314
Medicare Utilization:
    0 to 25%.......................          237        0.990        0.542        0.639        0.798        1.012        1.164        1.352        1.451
    >25% to 50%....................        1,508        1.016        0.528        0.642        0.818        1.020        1.224        1.381        1.459
    >50% to 65%....................        1,148        1.005        0.524        0.637        0.804        1.008        1.206        1.381        1.482
    > 65%..........................          196        1.02         0.52         0.60         0.80         1.02         1.28         1.42         1.53
--------------------------------------------------------------------------------------------------------------------------------------------------------
[dagger] Note: Because sufficient 2009 data was not available at the time of publication of this proposed rule, the measures SCIP-Card-2 and SCIP-Inf-4
  were not included in the calculation of estimated incentive rates. However, we believe that no significant change in estimated incentive rates results
  from the omission of these measures.


[[Page 2490]]

    Table 8 below shows the estimated percent distribution by hospital 
characteristic of the 1% reduction ($850 million) in the base operating 
DRG payment for fiscal year 2013.

  Table 8--Average Estimated Percentage Withhold Amount (as required by
       section 1886(o)(7) of the Social Security Act) by Hospital
                             Characteristic
------------------------------------------------------------------------
                                                               Estimated
                                                                percent
              Hospital characteristic                N=3,092   withhold
                                                                amount
------------------------------------------------------------------------
Region:                                             ........  ..........
    New England...................................       138         5.9
    Middle Atlantic...............................       370        15.9
    South Atlantic................................       518        19.5
    East North Central............................       475        17.5
    East South Central............................       301         7.8
    West North Central............................       248         7.2
    West South Central............................       457        10.3
    Mountain......................................       201         4.8
    Pacific.......................................       384        11.2
Urban/Rural:                                        ........  ..........
    Large Urban...................................     1,199        49.8
    Other Urban...................................     1,010        38.2
    Rural.........................................       883        11.1
Capacity (by  beds):                       ........  ..........
    1 to 99 beds..................................     1,045         8.1
    100 to 199 beds...............................       939        21.2
    200 to 299 beds...............................       481        20.5
    300 to 399 beds...............................       279        16.9
    400 to 499 beds...............................       151        11.0
    500+ beds.....................................       197        23.4
Medicare Utilization:                               ........  ..........
    0 to 25%......................................       237         3.9
    >25 to 50%....................................     1,508        60.0
    >50% to 65%...................................     1,148        32.8
    >65%..........................................       196         3.2
------------------------------------------------------------------------

    We also analyzed the characteristics of hospitals not receiving a 
Hospital VBP score based on the program requirements, which is shown 
below in Table 9. We estimate that 353 hospitals will not receive a 
Hospital VBP score in fiscal year 2013. We note that these hospitals 
will not be impacted by the reductions in base DRG operating payments 
under section 1886(o)(7). IPPS hospitals not included in this analysis 
were excluded due to the complete absence of cases applicable to the 
measures included, or due to the absence of a sufficient number of 
cases to reliably assess the measure.
    As might be expected, a significant portion of hospitals not 
receiving a Hospital VBP score are small providers because such 
entities are more likely to lack the minimum number of cases or 
measures required to participate in the Hospital VBP program. We 
anticipate conducting future research on methods to include small 
hospitals in the Hospital VBP program.

   Table 9--Projected Number of Hospitals Not Receiving a Hospital VBP
              Score in FY 2013, by Hospital Characteristic
------------------------------------------------------------------------
                                                             Number of
                                                           hospitals not
                 Hospital characteristic                     receiving
                                                           hospital VBP
                                                           Score (N=353)
------------------------------------------------------------------------
Region:                                                   ..............
    New England.........................................               6
    Middle Atlantic.....................................              18
    South Atlantic......................................              14
    East North Central..................................              31
    East South Central..................................              26
    West North Central..................................              17
    West South Central..................................              85
    Mountain............................................              25
    Pacific.............................................              26
    Puerto Rico.........................................              34
    Missing Region......................................              71
Urban/Rural:                                              ..............
    Large Urban.........................................             116
    Other Urban.........................................              83
    Rural...............................................              83
    Missing Urban/Rural.................................              71
Capacity (by  beds):                             ..............
    1 to 99 beds........................................             213
    100 to 199 beds.....................................              47
    200 to 299 beds.....................................              11
    300 to 399 beds.....................................               8
    400 to 499 beds.....................................               2
    500+ beds...........................................               0
    Missing Capacity....................................              72
Medicare Utilization:                                     ..............
    0 to 25%............................................              78
    >25% to 50%.........................................              75
    >50% to 65%.........................................              43
    >65%................................................              28
    Missing Medicare Utilization........................             129
------------------------------------------------------------------------

    We note that a number of hospitals were missing hospital 
characteristic data, including region, urban/rural classification, 
size, and Medicare utilization. All 353 hospitals included in Table 9, 
including those with missing hospital characteristic data, lacked 
sufficient clinical process of care data or HCAHPS data needed to 
calculate a total performance score.

D. Alternatives considered

    The major alternative performance scoring models considered for 
this proposed rule were the Six-Domain Performance Scoring Model and 
the Appropriate Care Model, and both of these models were discussed in 
Section II. E. of this proposed rule. Examining these alternative 
performance scoring models, our analyses showed only modest differences 
in financial reimbursements across the separate models considered by 
the various characteristics listed above. We believe that these 
observed transfers are within the limits of expected variation and do 
not reflect significant differences in financial reimbursements between 
the performance scoring models considered.

E. Accounting Statement

    As required by OMB Circular A-4 (available at http://www.whitehouse.gov/omb/circulars/a004/a-4.pdf), we have prepared an 
accounting statement showing the classification of the impacts 
associated with the provisions of this proposed rule.
    As required by section 1886(o)(7)(A), total reductions for 
hospitals under section 1886(o)(7)(B) must be equal to the amount 
available for value-based incentive payments under section 1886(o)(6), 
resulting in a net budget-neutral impact. Overall, the distributive 
impacts of this proposed rule, resulting from the incentive payments 
and the 1% reduction (withhold) in the base operating DRG payment for 
fiscal year 2013, are estimated at $850 million for fiscal year 2013 
(reflected in 2010 dollars).

Table 10--Accounting Statement: Classification of Estimated Expenditures
                               for FY 2013
------------------------------------------------------------------------
                 Category                             Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers............  $0 (distributive impacts
                                             resulting from the
                                             incentive payments and the
                                             1% reduction (withhold) in
                                             the base operating DRG
                                             payment are estimated at
                                             $850 million).
From Whom To Whom?                          Federal Government to
                                             Hospitals.
------------------------------------------------------------------------

    The analysis above, together with the remainder of this preamble, 
provides a Regulatory Impact Analysis. In accordance with the 
provisions of Executive Order 12866, this regulation was reviewed by 
the Office of Management and Budget.

List of Subjects

42 CFR Part 422

    Administrative practice and procedure, Health facilities, Health

[[Page 2491]]

maintenance organizations (HMO), Medicare, Penalties, Privacy, 
Reporting and recordkeeping requirements.

42 CFR Part 480

    Health care, Health professions, Health records, Peer Review 
Organizations (PRO), Penalties, Privacy, Reporting and recordkeeping 
requirements.

    For the reasons set forth in the preamble, the Centers for Medicare 
& Medicaid Services proposes to amend 42 CFR chapter IV as follows:

PART 422--MEDICARE ADVANTAGE PROGRAM

    1. The authority citation for part 422 continues to read as 
follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart D--Quality Improvement

    2. Section 422.153 is revised to read as follows:


Sec.  422.153  Use of quality improvement organization review 
information.

    CMS will acquire from quality improvement organizations (QIOs) as 
defined in part 475 of this chapter data collected under section 
1886(b)(3)(B)(viii) of the Act and subject to the requirements in Sec.  
480.140(g). CMS will acquire this information, as needed, and may use 
it for the following functions:
    (a) Enable beneficiaries to compare health coverage options and 
select among them.
    (b) Evaluate plan performance.
    (c) Ensure compliance with plan requirements under this part.
    (d) Develop payment models.
    (e) Other purposes related to MA plans as specified by CMS.

PART 480--ACQUISITION, PROTECTION, AND DISCLOSURE OF QUALITY 
IMPROVEMENT ORGANIZATION REVIEW INFORMATION

    3. The authority citation for part 480 continues to read as 
follows:

    Authority:  Secs. 1102 and 1871 of the Social Security Act (42 
U.S.C. 1302 and 1395hh).

Subpart B--Utilization and Quality Control Quality Improvement 
Organizations (QIOs)

    4. Section 480.101(b) is amended by revising the definition of 
``QIO review system'' to read as follows:


Sec.  480.101  Scope and definitions.

* * * * *
    QIO review system means the QIO and those organizations and 
individuals who either assist the QIO or are directly responsible for 
providing medical care or for making determinations with respect to the 
medical necessity, appropriate level and quality of health care 
services that may be reimbursed under the Act. The system includes--
    (1) The QIO and its officers, members and employees;
    (2) QIO subcontractors;
    (3) Health care institutions and practitioners whose services are 
reviewed;
    (4) QIO reviewers and supporting staff;
    (5) Data support organizations; and
    (6) CMS.
* * * * *
    5. Section 483.130 is revised to read as follows:


Sec.  480.130  Disclosure to the Department.

    Except as limited by Sec.  480.139(a) and Sec.  480.140 of this 
subpart, QIOs must disclose to the Department all information requested 
by the Department in the manner and form requested. The Information can 
include confidential and non-confidential information and requests can 
include those made by any component of the Department, such as CMS.
    6. Section 480.139 is amended by revising paragraph (a)(1) to read 
as follows:


Sec.  480.139  Disclosure of QIO deliberations and decisions.

    (a) QIO deliberations. (1) A QIO must not disclose its 
deliberations except to--
    (i) CMS; or
    (ii) The Office of the Inspector General, and the General 
Accounting Office as necessary to carry out statutory responsibilities.
* * * * *
    7. Section 480.140 is amended by revising paragraph (a)(1) and 
paragraph (g) to read as follows:


Sec.  480.140  Disclosure of quality review study information.

    (a) * * *
    (1) Representatives of authorized licensure, accreditation or 
certification agencies as is required by the agencies in carrying out 
functions which are within the jurisdiction of such agencies under 
state law; to federal and state agencies responsible for identifying 
risks to the public health when there is substantial risk to the public 
health; or to Federal and State fraud and abuse enforcement agencies;
* * * * *
    (g) A QIO must disclose quality review study information to CMS 
with identifiers of patients, practitioners or institutions--
    (1) For purposes of quality improvement. Activities include, but 
are not limited to, data validation, measurement, reporting, and 
evaluation.
    (2) As requested by CMS when CMS deems it necessary for purposes of 
overseeing and planning QIO program activities.

    Authority:  Catalog of Federal Domestic Assistance Program No. 
93.773, Medicare--Hospital Insurance; and Program No. 93.774, 
Medicare--Supplementary Medical Insurance Program.

    Dated: December 10, 2010.
Donald M. Berwick,
Administrator, Centers for Medicare & Medicaid Services.
    Approved: December 16, 2010.
Kathleen Sebelius,
Secretary.
[FR Doc. 2011-454 Filed 1-7-11; 4:15 pm]
BILLING CODE 4120-01-P