Medicare’s pay-for-performance incentives unfairly penalizing safety-net hospitals: Annals of Internal Medicine editorial

Using unproven, ‘value-based’ penalties and bonuses, and ignoring socioeconomic disparities between patient populations, Medicare is diverting money from hospitals serving largely minority and low-income Americans to hospitals serving the more affluent

Sept. 7, 2015

Mark Almberg, PNHP communications director, 312-782-6006,

Medicare’s pay-for-performance incentives, which financially reward or punish hospitals depending on whether they hit specific numerical targets in matters such as curbing inpatient readmissions, are having the unintended side effect of taking dollars away from the nation’s historically cash-strapped safety-net hospitals and boosting the revenue of wealthier hospitals that serve an economically better-off patient base.

That’s one of the conclusions of an evidence-based editorial in today’s [Tuesday, Sept. 8] Annals of Internal Medicine.

The article, titled “Collateral Damage: Pay-for-Performance Initiatives and Safety-Net Hospitals,” is written by two leading health-system researchers, Drs. Steffie Woolhandler and David U. Himmelstein, professors at the City University of New York School of Public Health and lecturers in medicine at Harvard Medical School.

“Medicare’s P4P [pay-for-performance] program, which does not adjust for patients’ socioeconomic status, assumes that bonuses and penalties will prod substandard providers to improve or see their patients migrate to higher-quality options,” Woolhandler and Himmelstein write. “However, when quality problems are due to a hospital’s financial distress and patients cannot go elsewhere, penalizing low scorers may well punish patients and exacerbate quality disparities. Prescribing a starvation diet for safety-net hospitals that are strapped for cash and are quality challenged makes no sense unless the goal is to close them.”

The Woolhandler-Himmelstein commentary appears alongside a study led by Matlin Gilman at Rollins School of Public Health at Emory University in Atlanta of more than 3,000 acute care hospitals in 2014. That study examines the financial impact of Medicare’s Value-based Purchasing program and Hospital Readmissions Reduction Program, two P4P initiatives inspired by the Affordable Care Act, and finds that, in fact, safety-net hospitals are suffering disproportionate penalties from the programs.

Woolhandler and Himmelstein say that the Gilman study’s findings were “not unexpected,” given the findings of related research. They also note, in view of the researchers’ methods, the study very likely understates the extent of the disparity in penalties.

The evidence for the efficacy of P4P measures in medicine is “surprisingly slim,” they write, and such programs can actually backfire by demoralizing physicians and crowding out the intrinsic motivation they have to do good work, for example.

The authors note that P4P schemes are easily “gamed” by hospital administrators who engage in such practices as encouraging physicians to upcode (that is, exaggerate) diagnoses to make the hospital’s medical outcomes look better, or to place early returning Medicare patients in extended “observation stays” (which Medicare doesn’t count as readmissions) rather than readmitting them as inpatients.

Even when it comes to gaming, the authors write, non-safety-net hospitals have a technological and economic advantage over safety-net hospitals – again, to the latter’s detriment.

Woolhandler and Himmelstein warn that Medicare’s P4P measures – particularly when combined with another provision of the ACA that mandates cuts to special federal payments (Disproportionate Share Hospital funds) to safety-net hospitals – will exacerbate existing inequalities and pose a threat to many large urban hospitals that have been mainstays of care for millions of people in low-income and minority communities.

“Paying for quality has strong intuitive appeal,” the authors write. “However, as with other medical interventions, intuition may mislead, and adopting everywhere policies that have been proven nowhere puts millions at risk for unintended consequences.”

In addition to their academic posts, Himmelstein and Woolhandler are primary care doctors in New York City. They are also co-founders of Physicians for a National Health Program (PNHP), an organization of 19,000 doctors who advocate for a single-payer national health insurance program. PNHP played no role in funding or otherwise supporting their article.

In a comment today, Woolhandler, who has worked as a primary care physician in safety-net hospitals for decades, said, “We need a single-payer system that treats all patients, and all hospitals, equitably.”

Dr. Claudia Fegan, who is the Chicago-based national coordinator of PNHP and who also works in a safety-net hospital, added: “We take care of patients that no one else is prepared to take care of. As a result, we are victimized by the adverse selection created by a society that has yet to fully accept its obligation to take care of everyone.”


Collateral Damage: Pay-for-Performance Initiatives and Safety-Net Hospitals.” Steffie Woolhandler, M.D., M.P.H., and David U. Himmelstein, M.D. Annals of Internal Medicine, online ahead of print, Sept. 8, 2015.

A copy of the article (in the form of an author’s proof) is available to media professionals here or upon request from Mark Almberg,

A copy of the related Gilman article is available upon request from Angela Collom at Annals of Internal Medicine. She may be reached at “The financial effect of value-based purchasing and the Hospital Readmissions Reduction Program on safety-net hospitals in 2014. A cohort study.” Gilman M, Hockenberry JM, Adams EK, Milstein AS, Wilson IB, Becker ER. Annals of Internal Medicine, online ahead of print, Sept. 8, 2015.

Physicians for a National Health Program ( is a nonprofit research and education organization of more than 19,000 doctors who support single-payer national health insurance. PNHP had no role in funding or otherwise supporting the study described above.