Angela Smith, an attorney for hospitals and physicians at Indianapolis-based Hall Render Killian Heath & Lyman P.C., spoke about Medicare’s value-based purchasing program, one of several federal initiatives coming out of the 2010 Patient Protection and Affordable Care Act that will attempt to shift health care payments from the fee-for-service model to one based on health outcomes. On July 1, hospitals began being scored on their performance in 13 categories, including processes, patient outcomes and patient satisfaction surveys. How hospitals score could boost or diminish all their Medicare payments by as much as 1 percent, beginning in October 2012.

IBJ: Describe in concept the difference between the current fee-for-service payment system and the value-based purchasing system?

A: Generally, providers get paid more the more volume [of procedures] they perform. Hospitals try to save money under the current system by shifting costs to other providers, by saving costs, by buying cheaper implants, by limiting services that cost a lot and don’t really have a lot of bang for the buck. Under the value-based purchasing system, the emphasis is flip-flopped. Now the goal is on what is the right service to give a patient.

IBJ: The value-based purchasing program really dates back to the Medicare Modernization Act of 2003, which gave small bonuses to hospitals that reported on these metrics. Is the fact that Medicare is now going to reward or punish hospitals based on their performance getting hospitals to make changes?

A: This is just the first big step in what I think is a very long evolution. And I think the providers do, too. We just can’t afford to pay for more care in the way we have. Most of our clients, hospital clients, have been moving toward this for a long time. Hospitals have made a significant investment in their electronic infrastructure, in electronic medical records. A lot of hospitals are integrating with physicians.

IBJ: Since value-based purchasing will affect only 1 percent of a hospital’s reimbursement from Medicare, is that really enough to induce major changes?

A: Yes, it has their attention. Because, while it’s 1 percent now, by 2017 it’s going to be 2 percent. A survey by the Healthcare Financial Management Association asked “How much of your reimbursement is going to be at risk within 10 years?” Thirty-two percent of [hospital] financial leaders expect it to be 20 percent or more of reimbursement, and another 27 percent expect it to be between 10 [percent] and 20 percent. Everybody fully anticipates that it’s going to increase.