Hospital Value-Based Purchasing

John Nelson, MD, MHM

Like all healthcare payors, Medicare has for some time tried to change from being a passive payor of services to a purchaser of value. There might be a lot of ways to do that, but one easy to conceptualize method is for Medicare to pay different amounts for a given service (i.e. a hospital stay for congestive heart failure) based on the quality of that service. Of course, the details of how to measure quality and implement such a program become terribly complex in a hurry.

Hospital value-based purchasing (HVBP), one of the provisions health reform, is one of the Centers for Medicare & Medicaid Services’ (CMS) first large-scale attempts to do just that.

CMS’ goals for this program include improving clinical quality, encouraging more patient-centered care, encouraging hospitals and clinicians to work together to improve quality of care, and empowering consumers to make value-based decisions about their healthcare (see “Value-Based Purchasing Raises the Stakes,” May 2011).

You already were aware that baseline measurements of quality performance for your hospital were collected from July 2009 through March 2010, right? And data collected from July 2010 through March 2011 serves as the first “Performance Period” to determine payment that will begin in October 2012. (If you are not aware, visit to see the performance your hospital is currently reporting. All the providers in your hospitalist group should be familiar with the data; another good site is But keep in mind there is a significant delay in getting the data to display on these sites. In many cases, the data they display today is from nearly a year prior.)

Some Generalizations

HVBP has a number of features that are typical of new reimbursement programs:

  • It is budget-neutral for Medicare. In other words, some hospitals will perform well and realize reimbursement increases; some hospitals will not perform well and will see reduced reimbursement.
  • It builds on previous programs. HVBP essentially moves performance on core measures and HCAHPS surveys, all of which have been in place several years, from being publically reported to serving as metrics that influence reimbursement.
  • The dollar amounts involved grow each year.
  • Expect the program to evolve continuously. For example, the number and type of quality metrics on which the program is based will increase each year.

How It Works

Medicare will start withholding a portion of diagnosis-related group (DRG) payments to hospitals, starting with 1% initially and increasing by 0.25% annually, so that 2% is withheld in 2017. Keep in mind that amount is withheld from all DRG payments to a hospital, not just those related to the diagnoses that are part of the HVBP program.

Leave a Reply

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