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DAVID GREENE, HOST:

Now let's talk about an economic change that's already in effect. Starting in January, about half of the hospitals in America are going to see their payments from Medicare go down. That's because the care they offer gets a low grade.

STEVE INSKEEP, HOST:

The other half of American hospitals will see their payments rise because they're meeting new standards. This is all according to the new federal health care law.

GREENE: The change affects the cash flow at countless hospitals, and this is the subject of today's business bottom line.

INSKEEP: Reporter Jordan Rau, with Kaiser Health News, has analyzed the data that Medicare just released on its hospital payments. He's with us; welcome to the program.

JORDAN RAU: Thanks for having me.

INSKEEP: OK, so what's Medicare trying to do?

RAU: Well, one thing that they're trying to do is actually, get hospitals to do a better job. Right now, if you go in and get a knee surgery, they'll pay you the same amount whether they make a perfect knee, or put a spatula in.

INSKEEP: Hmm.

RAU: And so they're trying to do that. And then down the line, this is part of the overhaul of the system. They're trying to get away from paying for every single thing. But in order to do that, you want to be able to track how good a job hospitals are doing.

INSKEEP: This is reminding me a little bit of the No Child Left Behind education law from years ago; where the top half of schools were going to get all kinds of benefits, and the bottom half were going to be penalized.

RAU: Yeah, it has a lot of parallels to that. It's a lot less money; initially, just 1 percent of Medicare payments are in play. But there are a lot of concerns, in fact, about this - that some of the hospitals that have less money to make improvements, will keep on doing worse and worse; and the other hospitals will do better and better; and the gap will widen.

INSKEEP: Well, help me understand this. How do you determine whether a hospital is doing well with its patients, or not?

RAU: Right now, they have some very rudimentary metrics, and they use two things. One - are called process metrics, and this is, literally - just, did you do a certain obviously right thing - like, give a patient an antibiotic right before a surgery.

INSKEEP: Mm-hmm.

RAU: The second one is that they give - hospitals have been, for a long time, giving surveys to patients after they leave; and asking them questions like, did your doctor or nurse communicate well? Did you get the medications, and were they explained to you? Was your room quiet and clean? And they're using those; and then they're compiling them all, and rating all the hospitals against each other, and in how much they improved over time.

INSKEEP: Customer satisfaction surveys, in effect.

RAU: Yeah, that's exactly right.

INSKEEP: So are we talking about a lot of money - many, many millions of dollars - that hospitals could gain or lose here?

RAU: Initially, it's a total of about a billion dollars. But it's only about 1 percent of their Medicare payments; it's not that much. But over the course of several years, they're going to rise it incrementally. And they're also adding in other performance-based measures, like how many patients are readmitted. And if too many are readmitted, hospitals lose money. So by the time that they're done with this, and by the time that private insurers follow suit, a sizable amount of money is going to be affected by quality.

INSKEEP: Enough that even a really big hospital, with a lot of income, is really going to care.

RAU: Oh, yeah. They care now.

INSKEEP: OK. So you're getting a look at which hospitals Medicare's going to pay a little bit more; which hospitals Medicare's going to penalize, and pay a little bit less. Do you see any trends?

RAU: Well, one of the interesting things is that the hospitals that are the big names in that, you know, people love to send their people to, don't necessarily do the best. For instance, in New York City, New York Presbyterian is losing money. In Los Angeles, Cedars-Sinai is pretty much breaking even. So the big winners, some of them are very obscure. I mean, the biggest winner is a hospital in Boise, Idaho, called Treasure Valley.

INSKEEP: Treasure Valley?

RAU: Treasure Valley. It's a 10-bed hospital.

INSKEEP: OK, I guess they're doing very well on patient satisfaction. Is that what that means?

RAU: That, actually, is one of them. They actually send notes to their patients, thanking them after they come in.

INSKEEP: I'm curious, though, if you're going to end up with the same kinds of complaints that people had about No Child Left Behind, in education; that the schools that take on the tough kids, end up having a tougher time getting good results - or hospitals that take on the tough cases - or the big, urban hospitals - are going end up being penalized here.

RAU: There's some concern about that, particularly about the patient satisfaction surveys. And there's been some research that found that if you take a patient and keep him in the hospital for a long time, and if they're depressed - which often goes along with very sick illnesses - then they're more likely to say, eh, I didn't have such a great time in that hospital. But Medicare is adjusting some of these, to take some of that into account.

INSKEEP: Are hospitals doing anything to get their scores up?

RAU: Yes. They're doing a lot on the patient satisfaction side. Hospitals are scripting doctors now, and nurses, on what to say to patients. For instance, if you're in maternity care, and you're moving off, the nurse might say, "Oh, you're going to nurse so and so. Well, she's a wonderful nurse; you're so lucky to have her."

Auburn Community Hospital, in upstate New York, has replaced the squeaky wheels on their food carts because their scores are very low when patients are asked, how noisy was your room?

INSKEEP: So changing the old saying - the squeaky wheel gets less money.

RAU: (LAUGHTER) Exactly.

INSKEEP: OK, thanks very much. That's Jordan Rau, of Kaiser Health News. Thanks for coming by.

RAU: Thank you.

INSKEEP: He brings us today's business bottom line.

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