Medicare Will Eventually Pay Nursing Homes Based on Quality, Still Figuring Out Plan

Medicare is planning on eventually introducing a payment system for skilled nursing facilities that’s based on the quality of care being given rather than on costs and resources, but first it needs to figure out a system for doing so by analyzing results from its three-year “Nursing Home Value-Based Purchasing Demonstration” project, which ended on July 1. 

The national incentive pay program for nursing homes to provide superior quality in order to receive better payments is an initiative of the Affordable Care Act, but it will be several years in coming, according to a Department of Health and Human Services report to Congress on the demonstration project. 

More than 180 nursing homes across Arizona, New York, and Wisconsin took part in the demonstration project, which gathered data on nursing staffing, potentially avoidable hospitalizations, clinical measures, and information about deficiencies from state survey inspections. The information is currently being reviewed and analyzed—a process that could take more than a year—but initial results are mixed, according to researchers. 


During the pilot program, participating facilities were given incentives based on two criteria: whether they improved performance, and whether they appeared in the top 20% of nursing homes, based on a composite score. Those ranking in the top 10% got a higher Medicare payment.

However, the facilities showed varying levels of performance, with Wisconsin nursing homes achieving substantial savings, which could lead to significant incentive payments, while savings at Arizona facilities were more modest, and New York nursing homes didn’t see any savings. 

“The results are somewhat disconcerting,” David Grabowski, a professor of health policy at Harvard Medical School and lead investigator responsible for evaluating the demonstration project, is quoted as saying in a Kaiser Health News article on the report. “There does appear to be some opportunity for cost savings, but we don’t have a good sense yet as to whether this (demonstration project) will actually improve the quality of care.”


However, health policy experts remain optimistic that the current system can be transformed into a “higher performing, value-driven” healthcare system. 

“Harnessing the significant and growing purchasing power of Medicare in this [skilled nursing] sector can provide incentives for providers to improve the quality of care for their patients,” wrote HHS. “MedPAC stated that linking payments to beneficiary outcomes could help improve SNF quality and redistribute payments from low-quality to high-quality providers.”

The Centers for Medicare and Medicaid Services (CMS) views the implementation of this sort of quality-based payment program as an important step in revamping how Medicare pays for healthcare services, says HHS, aiming to hold providers accountable for the quality of care they provide to Medicare beneficiaries, promote more effective, efficient and high quality care processes, and address the variation in quality across care settings. 

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The plan for this program will link payment to performance to “improve value for Medicare beneficiaries and other residents residing in SNFs by promoting the development and use of robust quality measures to allow patients and providers to assess the quality of skilled and non-skilled care furnished in SNFs,” says the report. “[T]he emphasis on Medicare beneficiares’ functional status can help prepare them for discharge to a less intensive non-institutional setting.” 

Access the report to Congress

Written by Alyssa Gerace