CMS recently announced that 774 hospitals will face Medicare payment cuts in fiscal year (FY) 2021 under Medicare's Hospital-Acquired Condition (HAC) Reduction Program.

Cheat sheet: Hospital-Acquired Condition Reduction Program

Background

The HAC program, which launched in October 2014, evaluates hospitals based on their rates of several avoidable complications, including bed sores, blood clots, central line infections, falls, and infection from methicillin-resistant Staphylococcus aureus (MRSA) or Clostridium difficile (C. diff).

Every year, the facilities in the lowest-performing 25% are penalized by losing 1% of their Medicare payments. So far, the program has penalized 1,978 hospitals at least once since it was established in 2014, according to a Kaiser Health News analysis. Of those, 1,360 hospitals have been penalized at least twice, and 77 hospitals have been penalized each year the program has been in place.

Congress exempts the more than 1,000 critical access hospitals, as well as Maryland hospitals, and certain specialized hospitals (children's, psychiatric, and veterans) from the penalties. Overall, according to KHN, 2,057 hospitals were exempt from this year's HAC program.

Details on this year's penalties

This year, 774 hospitals will have their Medicare payment rates reduced for having high infection rates and other patient complications between mid-2017 and 2019, before the Covid-19 pandemic hit the United States.

According to a KHN analysis, penalties under the program were not evenly distributed across states. For instance, about 50% of the hospitals in Rhode Island and 30% of those in Nevada were penalized, whereas no hospitals in Delaware were.

The program has faced opposition from the hospital industry, which has argued that the HAC methodology relies on an arbitrary cutoff to distinguish between high and low performers, KHN reports. In 2018, the American Hospital Association (AHA) published an analysis showing that only 41% of the 768 hospitals penalized in 2017 had HAC rates significantly higher than the hospitals that were not penalized. The industry has also argued that the methodology punishes hospitals that thoroughly test for infections and other patient safety hazards, as they may uncover more problems and appear statistically worse than others with lower testing standards.

The penalties are "a game of chance " based on "badly flawed" measures, argued Akin Demehin, director of policy at AHA.

For its part, the Medicare Payment Advisory Committee (MedPAC) in a 2019 report said while "it is important to drive quality improvement by tying infection rates to payment," the HAC program's "tournament" model—which pits hospitals against one another—artificially limits how many hospitals can succeed. MedPAC recommended providing hospitals with fixed targets so they know the expected standard  (Rau, Kaiser Health News, 2/19; Ellison, Becker's Hospital Review, 2/19).