Fact sheet





OVERVIEW:  Starting in October 2012, Medicare will reward hospitals that provide high quality care for their patients through the new Hospital Value-Based Purchasing (Hospital VPB) program.  This program marks the beginning of a historic change in how Medicare pays health care providers and facilities—for the first time, hospitals across the country will be paid for inpatient acute care services based on care quality, not just the quantity of the services they provide.


Additionally, this initiative helps support the goals of the Partnership for Patients, a new public-private partnership that will help improve the quality, safety and affordability of health care for all Americans.  The Partnership for Patients has the potential to save up to $35 billion in U.S. health care costs, including up to $10 billion for Medicare.  Over the next ten years, the Partnership for Patients could reduce costs to Medicare by about $50 billion and result in billions more in Medicaid savings.


On April, 29, 2011, the Centers for Medicare & Medicaid Services (CMS) issued the final rule establishing the Hospital VBP under the Medicare Inpatient Prospective Payment System (IPPS).  This program, which was established by the Affordable Care Act, will implement pay-for-performance in the payment system that accounts for the largest share of Medicare spending, affecting payment for inpatient stays in over 3,500 hospitals across-the country.  The final rule adopts performance measures, drawn from the measure set that hospitals have been reporting under the Hospital Inpatient Quality Reporting program (Hospital IQR).  Under the program, Medicare will make incentive payments to hospitals beginning in FY 2013 based on how well they perform on each measure or how much they improve their performance on each measure compared to their performance on the measure during a baseline performance period.  The Hospital VBP program is designed to promote better clinical outcomes for hospital patients as well as improve their experience of care during hospital stays.


BACKGROUND:  Hospital payments account for the largest share of Medicare spending, and Medicare is the largest single payer for hospital services.  In 2009, more than 7 million Medicare beneficiaries experienced more than 12.4 million inpatient hospitalizations.  One in seven Medicare patients will experience some “adverse” event such as a preventable illness or injury while in the hospital.  One in three Medicare beneficiaries who leave the hospital today will be back in the hospital within a month.  Every year, as many as 98,000 Americans die from errors in hospital care. 


In addition to adding to the suffering of patients and their caregivers, these errors lead to significant unnecessary health care spending. Medicare spent an estimated $4.4 billion in 2009 to care for patients who had been harmed in the hospital, and readmissions cost Medicare another $26 billion.


The Hospital VBP program is a major step forward in a longstanding effort by CMS to forge a closer link between Medicare’s payment systems and improvements in the quality and delivery of health care in all settings, including inpatient hospital stays.  It is one of many reforms included in the Affordable Care Act that are changing how Medicare pays hospitals for their services.


CMS has previously undertaken a number of initiatives to transform Medicare from a passive payer of claims to a prudent purchaser of health care services.  This includes implementing the Hospital Inpatient Quality Reporting (Hospital IQR) program (previously known as the “Reporting Hospital Quality Data for Annual Payment Update” or RHQDAPU program) which reduces by 2.0 percentage points the applicable percentage increase for hospitals that do not participate or do not successfully report data on measures at a time and in a manner specified by the Secretary.  Since 2005, CMS has published each participating hospital’s measure rates on the Hospital Compare website at  However, unlike the Hospital VBP program, the Hospital IQR program is a pay-for-reporting program, and does not tie payment directly to a hospital’s reported measure rate.


In future years, CMS will be implementing other provisions of the Affordable Care Act that are designed to improve care while reducing costs.  For example, beginning in 2013, hospitals will receive a payment reduction if they have excess 30-day readmissions for patients with heart attacks, heart failure, and pneumonia. By 2015, a portion of Medicare payments to most hospitals will also be linked to whether they meaningfully use information technology to communicate within the hospital to deliver better, safer, more coordinated care. Also beginning in 2015, hospitals with certain hospital acquired conditions will receive additional payment reductions from Medicare.


THE HOSPITAL VBP PROGRAM UNDER THE AFFORDABLE CARE ACT:  Section 3001(a)(1) of the Affordable Care Act requires CMS to implement a Hospital VBP program that rewards hospitals for the quality of care they provide.  Under the Hospital VBP program, CMS will evaluate hospitals’ performance during a performance period based on both achievement and improvement on selected measures.  Hospitals will receive points on each measure based on the higher of their level of achievement relative to an established standard or their improvement in performance from their performance during a prior baseline period.  Their combined scores on all the measures will be translated into value-based incentive payments for discharges occurring on or after October 1, 2012. 


The final rule includes a number of provisions related to the FY 2013 Hospital VBP program, including the measures, the performance standards, the scoring methodology, and, finally, the methodology for translating hospitals’ Total Performance Scores into value-based incentive payments.


The Affordable Care Act requires CMS to fund the aggregate Hospital VBP incentive payments by reducing the base operating diagnosis-related group (DRG) payment amounts that determine the Medicare payment for each hospital inpatient discharge.  The law sets the reduction at 1 percent in FY 2013, rising to 2 percent by FY 2017.  Therefore, the Hospital VBP Program will not increase overall Medicare spending for inpatient stays in acute care hospitals.



HOSPITAL VBP MEASURES:  For the FY 2013 Hospital VBP program, CMS will measure hospital performance using two domains: the clinical process of care domain, which is comprised of 12 clinical process of care measures, and the patient experience of care domain, which is comprised of Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey measure.   Hospitals should be familiar with these measures because they were selected from the measures that have been specified for use in the Hospital IQR program.  The FY 2013 measures are attached to this Fact Sheet in Appendix A.  CMS will utilize the following measures in the Hospital VBP program for the FY 2014 payment determination: three mortality outcome measures, eight Hospital Acquired Condition (HAC) measures, and two Agency for Healthcare Research and Quality (AHRQ) composite measures.  These measures are specified in Appendix B.





Performance Period:  CMS has established a performance period that runs from July 1, 2011 through March 31, 2012, for the FY 2013 Hospital VBP payment determination.  CMS anticipates that in future program years, if it becomes feasible, it may propose to use a full year as the performance period. 


Scoring Methods:  CMS will score each hospital based on achievement and improvement ranges for each applicable measure.  A hospital’s score on each measure will be the higher of an achievement score in the performance period or an improvement score, which is determined by comparing the hospital’s score in the performance period with its score during a baseline period. 


For scoring on achievement, hospitals will be measured based on how much their current performance differs from all other hospitals’ baseline period performance.  Points will then be awarded based on the hospital’s performance compared to the threshold and benchmark scores for all hospitals.  Points will only be awarded for achievement if the hospital’s performance during the performance period exceeds a minimum rate called the “threshold,” which is defined by CMS as the 50th percentile of hospital scores during the baseline period. 


For scoring on improvement, hospitals will be assessed based on how much their current performance changes from their own baseline period performance.  Points will then be awarded based on how much distance they cover between that baseline and the benchmark score.  Points will only be awarded for improvement if the hospital’s performance improved from their performance during the baseline period.


Finally, CMS will calculate a Total Performance Score (TPS) for each hospital by combining the greater of its achievement or improvement points on each measure to determine a score for each domain, multiplying each domain score by the proposed domain weight and adding the weighted scores together.   In FY 2013, the clinical process of care domain will be weighted at 70 percent and the patient experience of care domain will be weighted at 30 percent.


Incentive Payment Calculations:  CMS will utilize a linear exchange function to calculate the percentage of value-based incentive payment earned by each hospital.  Those hospitals that receive higher Total Performance Scores will receive higher incentive payments than those that receive lower Total Performance Scores.   CMS will notify each hospital of the estimated amount of its value-based incentive payment for FY 2013 through its QualityNet account at least 60 days prior to Oct. 1, 2012.   CMS will notify each hospital of the exact amount of its value-based incentive payment on Nov. 1, 2012.


To view the Hospital VBP final rule, and to learn more about the Hospital VBP program, please visit



Appendix A







Clinical Process of Care Measures

Measure ID

Measure Description

Acute Myocardial Infarction


Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival


Primary PCI Received Within 90 Minutes of Hospital Arrival

Heart Failure


Discharge Instructions



Blood Cultures Performed in the ED Prior to Initial Antibiotic Received in Hospital


Initial Antibiotic Selection for CAP in Immunocompetent Patient

Healthcare-associated Infections


Prophylactic Antibiotic Received Within One Hour Prior to Surgical Incision


Prophylactic Antibiotic Selection for Surgical Patients


Prophylactic Antibiotics Discontinued Within 24 Hours After Surgery End Time


Cardiac Surgery Patients with Controlled 6AM Postoperative Serum Glucose

Surgical Care Improvement


Surgery Patients on a Beta Blocker Prior to Arrival That Received a Beta Blocker During the Perioperative Period


Surgery Patients with Recommended Venous Thromboembolism Prophylaxis Ordered


Surgery Patients Who Received Appropriate Venous Thromboembolism Prophylaxis Within 24 Hours Prior to Surgery to 24 Hours After Surgery



Patient Experience of Care Measures


Hospital Consumer Assessment of Healthcare Providers &Systems Survey (HCAHPS)

·        Communication with Nurses

·        Communication with Doctors

·        Responsiveness of Hospital Staff

·        Pain Management

·        Communication About Medicines

·        Cleanliness and Quietness of Hospital Environment

·        Discharge Information

·        Overall Rating of Hospital


Appendix B




Mortality Measures:


·        Mortality-30-AMI: Acute Myocardial Infarction (AMI) 30-day Mortality Rate

·        Mortality-30-HF: Heart Failure (HF) 30-day Mortality Rate

·        Mortality-30-PN: Pneumonia (PN) 30-Day Mortality Rate


Hospital Acquired Condition Measures:


·        Foreign Object Retained After Surgery

·        Air Embolism

·        Blood Incompatibility

·        Pressure Ulcer Stages III & IV

·        Falls and Trauma:  (Includes:  Fracture, Dislocation, Intracranial Injury, Crushing Injury, Burn, Electric Shock)

·        Vascular Catheter-Associated Infections

·        Catheter-Associated Urinary Tract Infection (UTI)

·        Manifestations of Poor Glycemic Control



AHRQ Patient Safety Indicators (PSIs), Inpatient Quality Indicators (IQIs), and Composite Measures:


·        Complication/patient safety for selected indicators (composite)

·        Mortality for selected medical conditions (composite)




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