Share this:

value based purchasingIn response to the Patient Protection and Affordable Care Act (PPACA), the Centers for Medicare and Medicaid Services (CMS), formerly Health Care Financing Administration (HCFA), uses payments based on Medicare Severity Diagnosis-Related Groups (MS-DRG) to improve hospital care quality.  The program is a new reimbursement law which CMS implemented through Hospital Value-based Purchasing (HVBP).


The HVBP commenced in October 2012, when Medicare-Medicaid reimbursement would be based on the quality of care the patients get from accredited hospitals, not just services quantity.  This pay-per-performance program will affect Medicare spending for inpatient stays in more than 3,500 hospitals in the United States.  Medicare will make incentive payments to hospitals during the 2013 fiscal year based on either how well the hospitals improve their performance compared to their own performance on a specific period; or how well they do compared to other hospitals.  This program aims to promote for patients, enhanced clinical outcomes and make their hospital care experience better.

How HVBP Works

In the Affordable Care Act Section 3001 (a), the HVBP is authorized by Congress to use hospital quality data which were originally developed for Hospital Inpatient Quality Reporting (IQR) Program and authorized by Medicare Prescription Drug, Improvement, and Modernization Act of 2003 at Section 501 (b).  It is part of CMS’ effort to connect Medicare-Medicaidreimbursement to improve the quality of healthcare provided to patients, including inpatient hospitalization.

Withholding Payments

Medicare will withhold a part of MS-DRG payments to hospitals, called hospital percentage withhold, for each patient discharge.  Withheld payment starts at 1.0% and will increase by 0.25% per year to 2.0% in Federal Fiscal Year 2017.  Thus, based on hospital core measure performance and satisfaction of patients, hospitals get the chance to earn back their withhold.  Hospitals that are high-performing are likely to recoup all of their withhold incentives, provided their ranked performance is adequate, and/or improving.

Two Ways for Hospitals to Benefit From HVBP

A hospital can avail the Medicare-Medicaid reimbursement of Hospital Value-Based Purchasing in two ways – to become a most improved hospital or a most valuable performing hospital.  The former way also called “improvement” pathway is to improve hospital performance based on a previous baseline.  The second way called “achievement” pathway is grading the hospital based on an established curve from an all-collected hospital data a year before.  The hospitals falling on the curve’s high-end can be paid over the amount withheld from them, making them “net winners”.  No withholds will be paid to hospitals at the curve’s bottom because “net losers” let loose of the opportunity to earn back withheld amount.

Performance Benchmarks

The HBVP of Medicare shall give incentive payments to hospitals based on their performance of Eight Patient Experience of Care Measures and 12 Clinical Process of Care Measures.  The details on how to measure hospital performance quality to implement the HVBP were a lot more complex and in an extreme hurry.  Hospitals in performance periods earn scores for their performance on July 1, 2011 to March 31, 2013.  The 2013 Fiscal Year baseline performance is July 1, 2009 to March 31, 2010.  CMS administrator Dr. Don Berwick said that the Affordable Care Act moves people from asking “How much did you do?” to “How well did you do?” and “How well the patient do?”.  Since the hospital earns scores based on both achievement and improvement, the higher score shall be the one to be used.

This program ushers in an era of “sliding scale” performance ranking as the basis for the precise hospital payment rate.  All hospitals are compelled to maintain and improve quality performance.



Leave a Reply

Your email address will not be published. Required fields are marked *