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Value-Based Purchasing

In October 2012, Medicare began rewarding hospitals that provide high-quality care for their patients through the Hospital Value-Based Purchasing (VBP) Program. Under VBP, hospitals paid through the Inpatient Prospective Payment System (IPPS) are paid for inpatient acute care services based on quality of careā€”not the volume of services they provide. As the Medicare Quality Improvement Organization for Minnesota, Stratis Health offers technical assistance and support for Minnesota hospitals to be successful in this value-driven environment.

Value-Based Purchasing fact sheet. (Updated Oct. 2015) Learn more about how the Value-Based Purchasing Program applies to your hospital, with information for FY 2013, FY 2014, FY 2015, FY 2016, FY 2017, and FY2018. (10-page PDF)


The Hospital Value-Based Purchasing Program marks the beginning of a historic change in how the Centers for Medicare & Medicaid Services (CMS) pays health care providers and facilities. For the first time, approximately 3,500 hospitals across the country will be paid for inpatient acute care services based on care quality. The Patient Protection and Affordable Care Act requires that the total amount of value-based incentive payments available for distribution be equal to the total base operating Diagnosis-Related Group (DRG) payments reduction, as estimated by the Secretary of the Department of Health and Human Services.

The Law also requires that CMS redistribute that available amount across all participating hospitals based on their performance scores. In Fiscal Year (FY) 2013, approximately 1 percent of DRG payments to eligible hospitals will be withheld to provide the estimated $800 million that will be allocated to hospitals based on their overall performance. This is based on a set of quality measures that have been shown to improve clinical processes of care and patient experience. This report is the result of a simulation of the FY 2013 Program, using data from 2008 and 2010 as the Baseline and Performance Periods, respectively. This report will not result in any financial impact to your hospital. Instead, this report is intended to provide insight into how the Hospital VBP Program will use your performance data from Baseline and Performance Periods to calculate your Total Performance Score, which is the basis for the incentive adjustment that will be made in the FY 2013 Program, starting on October 1, 2012.

The Hospital Inpatient Quality Reporting (IQR) Program was originally mandated by Section 501(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). This section of the MMA authorized CMS to reduce the annual payment rate update for a hospital that does not successfully report designated quality measures. The Deficit Reduction Act of 2005 increased the original reduction to 2.0 percentage points. The Hospital VBP Program uses some quality measures that hospitals are already reporting via the Hospital IQR Program. For FY 2013, the Hospital VBP Program will use 12 Clinical Process of Care measures and 8 dimensions of the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey.
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Hospital Value-Based Purchasing: Program final rule. The final rule for the Medicare Hospital Value-Based Purchasing Program from the Department of Health and Human Services, Federal Register, Vol. 76, No. 88, May 6, 2011, Rules and Regulations. (58-page PDF)

Hospital Value-Based Purchasing: FY2013 Overview for Beneficiaries, Providers, and Stakeholders, July 27, 2011. A recorded Open Door Forum presentation from the Centers for Medicare & Medicaid Services. (72-page PDF)

Improvement resources

More information

  • Hospital Value-Based Purchasing Program. The official CMS website for the Medicare Hospital Value-based Purchasing Program.
  • Hospital Compare. Hospital Compare is a consumer-oriented website that provides information on how well hospitals provide recommended care to their patients. The consumer can see the recommended care that an adult should get if being treated for a heart attack, heart failure, or pneumonia, or having surgery.