Medicare pays hospitals for ambulatory services provided in outpatient departments. These payments are based on the classification of each service into more than 750 categories and incorporate service payments and payments packaged with other services, partial hospitalization payments, and several exceptions.

Hospitals may receive additional payments for outpatient department services such as specific drugs and devices, outlier services, and adjustments for some rural and cancer hospitals.
Medicare reimburses physicians and health care professionals on a fee-for-service basis for more than 7,000 services. Payment rates for these services are determined on the relative average costs of providing them to a Medicare patient. The payment is adjusted to account for other expenses, such as malpractice insurance and office-based practice costs. This payment system is known as the Resource-Based Relative
Update Scale. Generally, health professionals who aren’t physicians but bill Medicare independently, such as nurse practitioners, receive less than their physician counterparts.

The way hospital physicians, or hospitalists, are paid is changing, however. While a fixed salary is still the biggest component of hospitalist compensation, increasingly salary plus incentives is more common.
These incentives generally are based on performance, productivity, or both. Expect this trend to continue as hospitals seek to encourage physicians to focus on costs and outcomes and to reward high achievers.
“Hospitals hope to get better outcomes—such as lower infection rates and quicker, safer discharges—by offering these incentives,” says Jason Heffernan, MD, of West Coast TeamHealth.

New Hospital Incentives

Add to all of these issues the Centers for Medicare & Medicaid Services’ (CMS’) “Triple Aim” of improving the patient’s care experience, improving the health of populations, and reducing per capita health care costs, and the result is growing accountability on the part of both skilled nursing centers and hospitals, says Dheeraj Mahajan, MD, of Chicago Internal Medicine Practice and Research.

For instance, CMS recently introduced the Hospital Value-Based Purchasing (VBP) Program, which rewards hospitals based on how closely best clinical practices are followed and how well hospitals enhance patients’ experiences of care during hospital stays.

Hospitals are no longer paid solely on the quality of services provided, CMS says. Under the VBP program, Medicare makes incentive payments to hospitals based on either how well they perform on identified measures compared with others during a baseline period or how much they improve performance on each measure compared with their performance during a baseline period.

The measures are categorized in one of four domains—safety, clinical care, efficiency and cost reduction, and patient and caregiver-centered experience of care and care coordination.