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Does receiving a penalty under Medicare’s Hospital-Acquired Condition (HAC) program really mean a hospital is a poor performer? An online article published February 16 in the Journal for Healthcare Quality by the AHA and KNG Health Consulting shows that getting a HAC penalty resembles a game of chance for many hospitals, rather than a fair and meaningful determination of their performance in caring for patients with complex health needs.  

Since 2015, the HAC program, by law, has penalized hospitals with scores in the lowest performing quartile of performance each year. Performance scores are determined using infection measures, and a measure of patient safety calculated using Medicare billing data.

Yet, here’s what this new study found. Of the 768 hospitals penalized in 2017, only 40.6% had scores that were statistically different from the threshold penalty score. The performance of the other 59.4% was not statistically different from that of the hospitals at the threshold that escaped the penalty. In other words, the majority of hospitals receiving a HAC penalty have performance indistinguishable from those that are not being penalized.

How can this be? It starts with the misguided statutory requirement that 25% of hospitals receive a penalty each year. This means the Centers for Medicare & Medicaid Services (CMS) must set a “cut point” score for penalties each year, regardless of whether that score reflects a statistically meaningful threshold for poor performance.

But that’s not the only problem. The measures used in the program – especially the safety measure derived from billing data – have deep flaws that bias the calculations of who should receive a penalty. Our previous research showed that large hospitals are far more likely to receive HAC penalties because of how CMS calculates the billing data-derived measures. And, other research has identified that a hospital’s diligence in looking for errors and the accuracy of the adjustments made to reflect differences in patients may bias the measures used in the HAC program. 

This latest study adds to the mounting evidence that the HAC program is the wrong approach to encouraging hospitals to improve quality and safety. Because hospitals that are more diligent in looking for errors may have worse scores, and because there is such a strong element of chance in determining who is penalized, the incentives actually work against safety improvement.

What can be done to improve the fairness of the program? Congress could widen the program’s range of consequences to recognize improvements in safety from year to year, so that a hospital that is effectively improving safety could reduce or eliminate the penalty it incurs. It also could limit penalties to only those hospitals performing at a statistically worse level than the performance threshold. Congress also might consider aligning the existing Hospital Value-Based Purchasing Program and the HAC program to send a more consistent signal about where hospitals need to focus attention.

America’s hospitals and health systems are deeply committed to keeping patients safe, and support well-designed programs that effectively promote patient safety improvements. Unfortunately, the HAC program misses the mark. With penalties over $1 billion and counting, the current law needs to be reformed and better measures are needed that accurately reflect performance on important issues

By Nancy Foster and Akin Demehin