Skip to Main Content

Hospital Value-Based Purchasing

The Hospital Value-Based Purchasing (VBP) Program is part of our ongoing work to structure Medicare’s payment system to reward providers for the quality of care they provide. This program adjusts payments to hospitals under the Inpatient Prospective Payment System (IPPS), based on the quality of care they deliver.

How does Hospital VBP work?

Hospital performance on quality and cost measures is linked to the IPPS. The IPPS makes up the largest share of Medicare spending, affecting payment for inpatient stays in approximately 3,000 hospitals across the country.

Hospital VBP rewards acute care hospitals with incentive payments based on the quality of care they provide, rather than simply the quantity of services they provide. Congress authorized the Inpatient Hospital VBP in Section 3001(a) of the Affordable Care Act. The program uses selected measures from the Hospital Inpatient Quality Reporting (IQR) Program, which was originally authorized by Section 501(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

The latest Hospital VBP update

We recently posted Percentage Payment Summary Reports for the Fiscal Year (FY) 2019 Hospital VBP Program. The FY 2019 Hospital VBP Percentage Payment Summary Report gives hospitals their Total Performance Score and value-based incentive payment percentage that will be applied to each Medicare fee-for-service patient discharge in FY 2019.

The Hospital VBP Program is funded by reducing participating hospitals’ FY 2019 base operating Medicare severity diagnosis-related group (MS-DRG) payments by an estimated 2%. The sum total amount of those reductions is then redistributed to hospitals based on their Total Performance Scores (TPS) that they earn for the year based on their performance on quality and resource use measures. What hospitals earn depends on the range and distribution of all eligible/participating hospitals’ TPS scores for a FY. It’s possible for a hospital to earn back a value-based incentive payment percentage that is less than, equal to, or more than the applicable reduction for that FY.

We’ve updated the value-based incentive payment adjustment factors for FY 2019 in Table 16B that applies to that year and which is available on CMS.gov. We plan to publically post the FY 2019 Hospital VBP Program results during the February 2019 update to the Hospital Compare website.

Measure & domain updates

We added this measure for FY 2019:

  • COMP-HIP-KNEE, Hospital level risk-standardized complication rate following elective primary total hip arthroplasty and total knee arthroplasty, rate of complications for hip and knee replacement patients (Clinical Care domain)

In the FY 2015 IPPS/LTCH PPS final rule (79 FR 50063), we finalized our proposal to adopt the COMP-HIP-KNEE measure for the FY 2019 program year and subsequent years after the 60-day comment period. We believe that measuring and reporting risk-standardized complication rates will inform health care providers about opportunities to improve care, strengthen incentives for quality improvement, and promote improvements in the quality of care received by patients and in the outcomes they experience. Measuring and incentivizing improvement in outcomes and preventable healthcare harms, such as complications for hip and knee replacement patients, is a part of our agency-wide efforts under the Meaningful Measures Initiative to use a parsimonious set of the most meaningful measures for patients, clinicians, and providers in our quality programs and the Patients Over Paperwork Initiative to reduce costs, burden, and program complexity.

We removed this measure for FY 2019:

  • PSI 90, Patient Safety for Selected Indicators Composite (Safety domain)

The PSI 90 measure adopted for the Hospital VBP Program underwent National Quality Forum (NQF) maintenance review and re-endorsement in 2015, leading to several substantive measure changes. Due to statutory requirements in the Hospital VBP Program, we were unable to adopt the newly re-endorsed version of the PSI 90 measure into the Safety domain for FY 2019-FY 2022. As a result, we finalized our removal of the current PSI 90 measure, Patient Safety for Selected Indicators, in the FY 2018 IPPS/LTCH PPS final rule (82 FR 38244) after the 60-day comment period.

We applied these quality domains and weights for FY 2019:

  • Clinical Care (25 percent)
  • Person and Community Engagement (25 percent)
  • Safety (25 percent)
  • Efficiency and Cost Reduction (25 percent) 

Find more information about the Hospital VBP Program on QualityNet.

2019 payment adjustments

FY 2019 Hospital VBP-based incentive payment adjustment factors

In the FY 2019 IPPS final rule, we're continuing with the Hospital VBP Program's finalized methodology to determine the:

  • Value-based incentive payment adjustment factor, which we first defined in the FY 2013 IPPS/LTCH PPS final rule.
  • Part of Medicare’s IPPS payments that will be adjusted.

To meet the requirements of the Hospital VBP statute, we set the applicable percent withhold for FY 2019 to 2%.

You can find more details on the FY 2019 IPPS/LTCH PPS final rule or see the FY 2019 Hospital VBP payment adjustments. You can also find past Hospital VBP Program value-based incentive payment adjustment factors:

The payment adjustment factors are listed by CMS Certification Number (CCN). If you don’t know your hospital's CCN, you can look it up.

2019 Hospital VBP regulations & notices

Final FY 2019 Hospital VBP Program plans & future Hospital VBP Program plans

On August 2, 2018, we issued the FY 2019 IPPS/LTCH final rule, which included a number of Hospital VBP Program policies:

  • Final FY 2019 payment and operational details for FY 2019 and future years
  • Final FY 2021 policies for:
    • Measures
    • Performance periods
    • Performance standards
    • Domain weighting