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A reason to renovate: The association between hospital age of plant and value-based purchasing performance

April 2022
The Center For Health Design

Why does this study matter?
For many of you that know me, I’m all about that business case, and we don’t have many, so this was one for me.

How was the study done?
This study was done using data from the AHA Annual Survey Database, with more than 2,900 organizations that participate in the hospital value-based purchasing program. If you’re not be familiar with this program, the Centers for Medicare and Medicaid takes 2% of the hospital's reimbursement off the table, and hospitals are incentivized to earn that money back – it’s about quality, not quantity.

In this study, researchers were looking at some of these VBP measures – first and foremost, the total performance score, or TPS. TPS is derived from equally weighted domains, as shown on the slide. The analysis looked at the relationship of these scores to Average age of plant, which is established by accumulated depreciation / depreciation expense. Depreciation is broken down into 4 categories: “Buildings” are the basic structure; “Fixed equipment” includes the attachments: wiring, electrical fixtures, plumbing, elevators, HVAC, etc.; “Major movable equipment” is the medical and office equipment that are not permanently attached; and “Minor equipment” is the stuff used by various departments, small in size/cost, inventory control, and a useful life less than 3 years.
The researchers conducted a regression analysis of average age of plant on VBP score performance. They controlled for issues such as the number of beds, ALOS, case mix, wage index, service mix, location, ownership/teaching status.     

So what do we learn from the study?
On average, hospitals with the lowest age of plant (up to about 8 years) reflect a TPS score of 2.35 points higher than hospitals with the highest age of plant (about 14.5 years and older – up to 100 years). After controlling for all of those other issues I mentioned, this accounts for more than 20% of the variance. The relationship of the Clinical Care domain score was 4 points higher and 13.7% of variability.  For the Patient Experience domain, it was 3.4 points higher accounting for 23.8% of the variance.

The team found non-significant relationships for safety and cost effectiveness, which may be more closely aligned with operational execution. But they went further. When they focused down on the subsets of depreciation, the results show a significant association between buildings and TPS. No other depreciation categories were significant. Yes, for any doubters, the built environment matters.

Let’s look at these.  The researchers suggest these results mean that for every $100,000 in accumulated building deprecation per bed in service, overall TPS decreases by 0.25, the Clinical Care score decreases by 0.31, and the Patient Experience score decreases by 0.45. This shows a clear relationship between the age of the setting and scores used for reimbursement.

Can we define an actual dollar value? Unfortunately, no. It’s more complicated than that, because we’re talking about a pool of money, about $2B that gets allocated, up to 2%, according to a hospital’s overall reimbursement, so there are a lot of variables to consider.

Can we say the results are definitive?
First, we can’t assume causation from these results, and the authors point out that data only included a single cross section of the data for one year, so it’s a snapshot in time for facilities that participate in the program. They also point out that this was a first step to evaluate infrastructure investment and value-based performance. The model might be improved by controlling for other factors that drive performance.

Of course, as architects, designers, and owners, we know that this analysis is happening at a very high-level and we don’t have access to plans or images that help us understand the design of the included facilities, but it is a large sample size, and it is a first step.

What’s the takeaway?
There is a potential ROI for capital projects, which may have previously been unknown, ignored, or at least, not defined. The authors note that not every organization has the financial ability to fund capital projects, and the investments may cost more than the return associated solely with bonus payments from reimbursement. But to me, this just adds to the argument that building-related capital costs are an investment, not just a sunk cost, where it’s seen as gone, and you never get that money back. But this study suggests you can, and we know we can have a return for other outcomes, too. It’s another piece of the puzzle, and maybe it helps us define the edge before we fill in the pieces. 

Interested in the topic? Visit The Center for Health Design Knowledge Repository for more.

Summary of:
Beauvais, B., Richter, J. P., Kim, F. S., Palmer, E. L., Spear, B. L., & Turner, R. C. (2021). A reason to renovate: The association between hospital age of plant and value-based purchasing performance. Health Care Management Review, 46(1), 66–74. https://doi.org/10.1097/HMR.0000000000000227

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