Blog » Medicare’s Shift to Value-Based Purchasing

Medicare’s Shift to Value-Based Purchasing

Created Feb 02 2015, 07:00 PM by Lippincott Solutions
  • hospital-acquired conditions
  • Readmissions
  • patient outcomes
  • VBP
  • Wolters Kluwer
  • ANCC Magnet
  • American Nursing Credentialing Center
  • Lippincott Advisor
  • ANCC
  • Total Performance Score
  • value-based purchasing
  • RWJF
  • Robert Wood Johnson Foundation
  • Medicare
  • Affordable Care Act
  • Clinical Process of Care
  • Patient Experience of Care
  • Lippincott Procedures

Tuesday, February 3, 2015

Value-based purchasing got its official launch as part of the Patient Protection and Affordable Care Act (ACA) of 2010.  The program is one of three methods that the Centers for Medicare & Medicaid Services (CMS) has instituted within the last three years that factor quality into the reimbursement formula for inpatient care (Hospital Readmissions Reduction Program and Hospital Acquired Condition Reduction Program are the others).

However, a report by the Robert Wood Johnson Foundation (RWJF) traces back the roots of value-based purchasing to nearly a decade earlier.

In 2002, Medicare began collecting data on quality of patient care on a volunteer basis from hospitals, the foundation reports.  The payer gathered information on whether hospitals were providing recommended treatments to patients with conditions such as heart attack, pneumonia, and heart failure.

Two years later, Medicare made the reporting of such data mandatory,and imposed financial penalties to hospitals that failed to fess up about their performance on certain measures. In 2005, it began posting hospitals’ data for the public on its Hospital Compare website.

Then, authorized by the ACA, in 2012 the government went a step further and started factoring a hospital’s performance on quality measures into its Medicare reimbursement rates. This marked the authoritative start of value-based purchasing, and hospitals’ earning financial rewards, or penalties, based on their quality of patient care.

How Hospital Scores are Calculated

Part of the Hospital Inpatient Quality Reporting Program, but known as the Hospital Value-Based Purchasing Program, the initiative is one of a handful established by Medicare in recent years to boost the quality of care provided by hospitals.

Phased in gradually since 2012, value-based purchasing scores hospitals based on performance in four specific measures as of fiscal year 2015:

  • clinical process of care, which accounts for 20% of a hospital’s score
  • patient experience of care, 30%
  • outcomes, 30%
  • efficiency (a new metric as of 2015), 20%

“Hospitals could lose up to 1.5% of total Medicare payments if they consistently performed poorly across all domains, but will be eligible for bonus payments if they performed well,” the healthcare intelligence company Leavitt Partners reported.

The largest bonus any hospital could receive is 2.03% of its total Medicare payments, according to the report. The largest penalty it could receive, 1.24% of its total Medicare payments.

Is Value-Based Purchasing Working? Depends on Whom You Ask

According to Medicare, the value-based purchasing program is bringing about desired results.

“Data from the third year of the program indicates that hospitals are improving care and outcomes for Medicare beneficiaries,” stated a December 2014 post on the CMS Blog. “More hospitals this year will experience a positive change in their payments (1,714) compared to the number of hospitals that will experience a negative change (1,375) — a reversal of last year.”

“This change indicates that many hospitals are improving the quality of care delivered to patients.”

Others, however, aren’t so quick to declare value-based purchasing a success.

Noting that individual hospitals have varied significantly in their scores over the last couple of years, analysts from Leavitt Partners concluded in their December 2014 brief that there is room for improvement.

“The goal of achieving consistently positive results is laudable,” they wrote, “but to accomplish it, the healthcare system still has much work to do.”

What Hospitals Are Doing to Improve Their Scores

Working to improve clinical process, patient experience, outcomes, and efficiency is nothing new to health systems.  Hospitals spend lots of dollars, resources, and time implementing overall cultural change programs, like the Baldrige Program, built on the Baldrige Excellence Framework (Health Care), and the ANCC Magnet Designation Program, tracking and analyzing quality indicators, and responding to specific clinical issues from adverse events, quality tracking, and patient surveys.

Each hospital has its own focus on how to improve.  For example, St. Luke’s Hospital in Coaldale, PA initiated an entire Operational Excellence program that included the development of a hospitalist model, Core Measure education and compliance, development and implementation of the Clinical Documentation Specialist, re-structuring of the Case Management Department, development of a Medical Staff Quality Improvement Committee, development of a Patient Satisfaction Committee, and more.

The Rockburn Institute recently completed an independent research study showing correlation between specific evidence-based clinical decision support systems and higher value-based purchasing scores.   The study also correlated a relationship between improved clinical process of care and improved outcomes. 

Regardless of how hospitals approach VBP, the dollars associated with these government programs are meaningful enough for the industry to take notice.

To download a free copy of the Rockburn Institute study, visit

Is your facility doing anything to increase their Value-Based Purchasing domain ranking scores?  What effect is this having on patient care?  Tell us in the comments below!