Medicare Hospital Value-Based Purchasing Program

The Centers for Medicare & Medicaid Services published a proposed rule on January 13, 2011 outlining the proposed Hospital Value-Based Purchasing Program(Hospital VBP Program) mandated by Section 3001(a) of the Patient Protection and Affordable Care Act (PPACA).

Although the Hospital VBP Program is not effective until October 1, 2012, Medicare hospitals must act now to ensure that they are eligible for incentive payments under the program as the initial performance period begins July 1, 2011.


CMS is required to establish a Hospital VBP Program that provides meaningful incentives to improve the quality of the care that Medicare hospitals provide. The program must be in place by Fiscal Year 2013 (October 1, 2012). The incentive payments are funded by a one percent reduction in hospital DRG payments beginning in Fiscal Year 2013.

CMS views the Hospital VBP program as a natural outgrowth to the collection of hospital quality data that was originally mandated in the Medicare Prescription Drug Improvement and Modernization Act of 2003, as modified by the Deficit Reduction Act of 2005. This program is known as the Medicare Hospital Inpatient Quality Reporting Program (Hospital IQR Program).

Proposed Measures

PPACA requires that the proposed measures for the Hospital VBP Program be measures that are currently used in the Hospital IQR Program. CMS has adopted 45 measures in the Hospital IQR program. Of these measures, 27 are chart-abstracted process of care measures that assess the quality of care furnished by hospitals in connection with treatment of acute myocardial infarction, heart failure, pneumonia, and surgical care improvement. Fifteen of the measures are claims-based measures that assess the quality of care furnished by hospitals as measured by 30-day mortality and 30-day readmission rates. Three of the measures are structural measures that assess hospital participation in cardiac surgery, stroke care, and nursing sensitive care systemic databases. The final measure is the Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey.

CMS may not select readmission measures or any measures that have been included in the Hospital IQR program for less than one year prior to the beginning of the performance period

Applying this criteria, there are twenty-nine initial eligible measures for the Fiscal Year 2013 Hospital VBP Program. Initially, CMS proposes to include only seventeen of these twenty-nine measures. It excluded measures that they consider to be “topped out,” meaning all but a few hospitals have achieved a similar high level of performance on them. They also excluded some measures that they intend to retire in the future.

CMS is proposing to add measures to the Hospital VBP Program in the future by implementing a “sub-regulatory process”. Under this process, CMS can add any measure to the Hospital VBP Program if that measure is adopted under the Hospital IQR Program and has been included on the Hospital Compare Website for at least one year. The performance period for new measures would start exactly one year after the date these measures are publicly posted on the Hospital Compare Website. There is some question whether this sub-regulatory process meets the requirements of the Administrative Procedures Act.

Proposed Performance Period

CMS is proposing a three quarter performance period from July 1, 2011 through March 31, 2012 for the clinical process of care and HCAHPS measures. The hospitals performance on these measures will be compared to a three quarter baseline period of July 1, 2009 through March 31, 2010. For the outcome, claims-based measures, CMS is proposing to use an eighteen month performance period from July 1, 2011 to December 31, 2012. The baseline period would be July 1, 2008 to December 31, 2009.

Proposed Performance Standards

PPACA requires that the performance standards include levels of achievement and improvement and must be established and announced not later than sixty days prior to the beginning of the performance period. CMS is proposing to set the achievement performance standard for each proposed measure at the median (50thpercentile) of hospital performance during the relevant baseline period (either July 1, 2009 through March 31, 2010 or July 1, 2008 to December 31, 2009). Hospitals would receive achievement points only if they exceed the achievement performance standard and could increase their achievement score if they receive a higher level of performance. The improvement standard would be based on each specific hospital’s performance on the measure during the performance period as compared to the baseline period.

Expected Impact on Payments

CMS anticipates that the percent increase in payments to a hospital participating in the Hospital VBP Program will range from 0.0236% for the lowest scoring hospital to 1.817% for the highest scoring hospital. This means that when the one percent reduction in hospital DRG payments is taken into account, roughly one-half of the participating hospitals will receive a net increase of payments and one-half will receive a net decrease in payments. No participating hospital will receive more than a net one percent increase or decrease in payments.

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