Hospitals in State-Federal Initiative Will Get Funds Tied to How Well They Perform

Andrew Kitchenman | May 7, 2014 | Health Care
55 participants in NJ will focus on treating specific medical conditions as part of Medicaid waiver

State Health Commissioner Mary O'Dowd testifies yesterday in Trenton about state's participation in the Medicaid-linked Delivery System Reform Incentive Program.
New Jersey hospitals that rely on government subsidies will have to target specific illnesses – and succeed in making progress in treating them – as part of a new federal program.

Under the Delivery System Reform Incentive Program (DSRIP, pronounced “diss-rip”), $166.6 million annually is being divided among 55 participating hospitals based on their performance in treating a single condition that each hospital chose.

The program, funded equally by the state and federal governments, is part of a national move toward paying healthcare providers based on how successful they are in improving health of their patients, rather than on the amount of services that they provide. New Jersey is only the fourth state to have a similar program.

“We’re really on the cutting edge, in terms of providing incentives for improving the quality of care and population health, using hospitals to be able to do so,” state Health Commissioner Mary O’Dowd said yesterday.

As part of the comprehensive Medicaid waiver that the state received in 2012 – which emphasized home- and community-based long-term care – the state agreed to participate in DSRIP. The program replaces the 20-year-old Hospital Relief Subsidy Fund, which provided payments to hospitals based on the amount of care they provided to patients who receive Medicaid or who are uninsured.

CMS allowed hospitals to choose an initiative to improve care for one of eight conditions. Of the hospitals, 23 chose cardiac care; 17, diabetes; five, substance abuse; four each chose asthma and behavioral health; and one each chose obesity and pneumonia. No hospitals chose to focus on HIV/AIDS.

For example, Saint Michael’s Medical Center in Newark is launching a patient-centered medical home – a model that focuses on care coordination — to serve patients with diabetes and hypertension. The program will include community health screenings and education; referrals and access to services; assistance with lifestyle changes and nutritional counseling; and help making appointments and receiving social services.

The fiscal year starting on July 1 is officially the third year of the five-year DSRIP, but some important details have yet to be finalized, such as how hospitals’ performance will be measured to determine how much they are paid. Roughly 100 different measurements will be used, depending on which condition a hospital chooses to focus on. Until those details are finalized, hospitals are continuing to receive money based on how much they were receiving under the relief subsidy program.

However, once the details are worked out, hospitals will be paid based on achieving “measurable, incremental clinical outcome results demonstrating the initiatives’ impact on improving the New Jersey healthcare system,” according to a state description of the program.

Suzanne Ianni, president and CEO of the Hospital Alliance of New Jersey, said hospitals chose the areas that they would focus on based on assessments of their communities’ health needs.

Ianni said DSRIP presents a challenge to hospitals. She is one of three co-chairs of a state-appointed committee that helped design the program.

“Hospitals are being asked to do more to keep existing dollars,” Ianni said of the program, noting that some other states received additional federal funding to launch their DSRIP programs. That’s because New Jersey had to agree to join DSRIP as part of the negotiations to receive the waiver, in order to keep the federal funding that had been part of the relief subsidy program. The alliance includes the “safety-net” hospitals concentrated in cities that serve much of the state’s low-income population.

Ianni emphasized that the subsidy funds have been critically important to the hospitals that received them. She noted that researchers have found that safety-net hospitals suffer in comparison with hospitals that serve higher-income communities in efforts to reduce hospital readmission rates. This could prove a challenge in the DSRIP program, since readmission rates will be among the measurements used to measure some hospitals’ performance.

But Ianni lauded the motivation behind paying for performance, adding that urban hospitals are concentrating on improving access to preventive care as well as other strategies that could improve residents’ health while lowering costs. She also emphasized that since DSRIP is funded through the federal Medicaid program, the money ultimately must benefit the hospitals that serve low-income populations.

“It is a much more challenging task for a safety-net hospital when the population is so used to relying on the emergency room, and may not have additional social supports,” she said.

That point was reinforced by O’Dowd, who said the hospitals that disproportionately serve Medicaid and uninsured patients will receive more of the funding.

Sen. Nellie Pou (D-Bergen and Passaic) expressed concern that hospitals must pay some costs upfront to develop their DSRIP initiatives, without knowing what their ultimate funding levels will be.

O’Dowd said state officials “were very successful at negotiating a glide path” that allows the hospitals to continue to receive monthly payments until the program is fully implemented. CMS officially initially suggested a faster transition “and we said we can’t disrupt their cash flow and expect to get good results,” and CMS agreed to a slower transition, O’Dowd said.

While some hospitals may experience some pain as they sustain upfront costs, “I think we’ll all be better off in the long run,” O’Dowd said.

All but six of the 55 hospitals had their applications to participate in the program approved in April by the federal Centers for Medicare & Medicaid Services (CMS), although some received conditional approvals that depend on making adjustments to their applications. CMS officials have indicated that they expect to approve the remaining six hospitals in the coming weeks, after the hospitals made changes to their applications based on comments from CMS, according to state officials.

The participating hospitals all serve enough low-income residents to make their participation in the program potentially worthwhile. Nine of the 64 hospitals that had received money from the subsidy fund decided against participating in DSRIP, perhaps because the amount of work needed to be in the program wouldn’t be worth the amount they would likely receive in payments. The roughly $1.2 million these hospitals received will be given to the participating hospitals.

The state has hired Indiana-based accounting firm Myers and Stauffer to manage the program. O’Dowd said state officials determined that hiring a contractor for a five-year program “was the most appropriate and responsible action.”