provides just a 0.8% increase in Medicare inpatient payment rates over 2013. 30. Various reforms under the PPACA are slowly increasing the percentage of Medicare payment rates, under the formula CMS uses, that are tied to hospital performance. The PPACA implemented the hospital Value-Based Purchasing program, which in FY 2014 will tie 1.25 percent of hospital payments to their performance on various quality and patient experience indicators. Under the Hospital Readmissions Reduction program, hospitals would concede a maximum of 2 percent of Medicare payments for excessive readmissions in FY 2014. And, as the adage goes: "where Medicare goes, so goes private payers." Many private payers have entered into various types of value-based contracts with providers. Recently UnitedHealthcare said it plans to double the number of its value-based contracts . 31. The financial impact of these value-based reforms is expected to have a significant impact on low-performing hospitals. For example, a 300-bed hospital with poor quality metrics would be penalized approximately $1.3 million a year, beginning in 2015, under CMS value-based reforms. 14 32. The impetus for value-based care is driven by two core forces: 1) the rising cost of medical care and 2) the lack of predictable quality. In regard to the latter force, medical errors and healthcare-associated infections continue to occur at alarming rates in U.S. hospitals. According to a 2007 study by the CDC 15 that examined hospital data from 2002, approximately 1.7 million HAIs occur annually. The number of estimated deaths associated with HAIs in U.S. hospitals was 98,987. Of these, 35,967 were for pneumonia, 30,665 for bloodstream infections, 13,088 for urinary tract infections, 8,205 for surgical site infections and 11,062 for infections of other sites. According to the CDC's analysis of the study, "HAIs in hospitals are a significant cause of morbidity and mortality in the United States." 33. Hospitals and health systems are entering into a variety of value-based payment models with CMS and private payers. Many value-based agreements with private payers are similar to CMS' VBP program where there are incentives for providing high-quality care that meets certain benchmarks. Others are more complex and may include accountable care organization arrangements, capitated payments for a patient over a set period of time, or bundled payments for certain medical and surgical services. 34. Accountable care organizations have proven a popular value-based model, at least in terms of systems willing to test their viability. ACOs were one of several programs created by the Center for Medicare & Medicaid Innovation, a center created and funded by the PPACA to pilot new patient care models intended to reduce costs and improve quality. CMS created several programs for ACOs, including the Medicare Shared Savings Program and the Pioneer ACO program. The CMMI also launched the Bundled Payments for Care Improvement Program, which will pay hospitals a bundled rate for certain hospital-based and outpatient services associated with selected DRGs.
35. ACOs are also now being operated by private payers. In February 2013, Leavitt Partners
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