News Release

HHS Reports to Congress on Value-Based Purchasing of Hospital Services by Medicare

The Secretary of Health and Human Services has delivered to Congress a Report on the Medicare Hospital Value-Based Purchasing Program (VBP), suggesting ways to continue transforming Medicare into a prudent purchaser of higher quality health care for Medicare beneficiaries.

“For Medicare beneficiaries to get higher quality health care, our payment system needs to encourage better care,” said HHS Secretary Mike Leavitt. “Paying hospitals for the quality of care they provide takes us closer to that goal.”

“Value-based purchasing would benefit Medicare beneficiaries and other health care consumers by encouraging higher quality hospital care,” said Kerry Weems, acting administrator of the Centers for Medicare & Medicaid Services (CMS). “Under the plan, additional information would be collected and publicly disseminated to patients and health care providers so that they can make better health care decisions.”

The Report to Congress contains a plan for all facets of the proposed Medicare Hospital VBP program and provides associated supporting materials.

This plan provides that quality of care information will be available to patients on the CMS Hospital Compare site at www.medicare.gov.  Examples of hospital quality of care measures that are currently reported by some hospitals include how soon heart attack patients are given aspirin after arriving at a hospital and how soon pneumonia patients are given an antibiotic.  Inclusion of a broad range of such measures in value-based purchasing will enable Medicare beneficiaries and other consumers to compare hospitals and make informed decisions about where to seek care.

In addition the plan to implement the Medicare Hospital VBP program builds on the foundation of the current pay-for-reporting program, Reporting Hospital Quality Data for Annual Payment Update, which ties a portion of the Annual Payment Update under the Medicare Inpatient Prospective Payment System (IPPS) to a hospital’s reporting on a defined set of inpatient quality measures.

Under VBP, a percentage of the hospital’s base operating payment for each discharge (the diagnosis related group or DRG payment) would be contingent on the hospital’s actual performance on a specific set of measures. The transition from pay-for-reporting to an incentive based completely on performance would occur over a three-year period.   Public reporting of quality measures on Medicare’s Hospital Compare site, a key component of the Reporting Hospital Quality program, would remain an essential component of VBP.

“Getting hospitals to report their quality measures was an important first step,” Weems said. “Now, building on that experience, we are taking the next step of actually rewarding hospitals for the quality of care they provide Medicare beneficiaries.”

The proposed VBP program strengthens CMS’ recently announced policy on hospital-acquired conditions, including infections like methicillin-resistant Staphylococcus aureus (MRSA).  By tying a portion of hospital payments to actual performance on quality measures, VBP would provide additional incentives for hospitals to prevent infections.

The proposed VBP program also ties directly to two of the four cornerstones of the Secretary’s initiative to build a value-driven health care system: measuring and publishing quality information, and promoting the quality and efficiency of care.

The proposed VBP program contains the following key components:

• A measure development and selection process, including selection criteria for choosing performance measures for the VBP financial incentive and candidate measures to support ongoing expansion of the measure set.
• A Performance Assessment Model that incorporates quality measures, including clinical process of care, patient perspectives of care, and clinical outcomes, to calculate a hospital’s Total Performance Score. The proposed model scores a hospital’s performance on each measure during a 12-month measurement period based on the higher of “attainment” compared with national thresholds and benchmarks or “improvement” compared with the hospital’s own performance in the preceding 12-month baseline period
• The incentive is created by making a specified percentage of the base operating payment amount for all discharges contingent on performance.  The percentage of incentive earned would be determined by the hospital’s Total Performance Score. 
• Enhancements to the Hospital Compare site to support expanded and more user-friendly public reporting.
• Ongoing evaluation and monitoring efforts to assess experiences early in VBP implementation, allowing for timely corrective action and building the evidence base for future VBP programs in other settings.        

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Note: All HHS press releases, fact sheets and other press materials are available at http://www.hhs.gov/news.

Last revised: August 29, 2008