The transition to a value-based purchasing model for the delivery of healthcare services has been in the works since Congress passed the Medicare Modernization Act (MMA) of 2003. The legislation commissioned the Institute of Medicine (IOM) to develop strategies which link performance to payment in the Medicare program—to support a “pay for performance” approach to the U.S. healthcare system. The system encourages risk sharing and pay for performance, rather than pay for the number of procedures performed.
The value-based purchasing (VBP) program, more formally known as the hospital value-based purchasing (HVP) program, provides a direct response to rising healthcare costs and quality of care issues by using a performance-based payment strategy that offers financial incentives to providers based on their performance. The 2010 Patient Protection and Affordable Care Act officially authorized the Centers for Medicare & Medicaid Services (CMS) to create rules to make value-based purchasing of healthcare services a legal framework within the Medicare program.
Value-based purchasing basics
VSP moves the CMS from a passive, automatic pilot role to an active purchaser of higher quality healthcare services. Hospitals must measure up to their peers on critical health care quality measures—based on a prior performance period - to qualify for higher levels of reimbursement.
CMS measures participant performance against predetermined quality measures. The standards are designed to obtain better value through quality improvements and to slow rising healthcare costs. In FY 2014, Forty-five percent of the hospital score is predicated on process measures, 30 percent for patient satisfaction and 25 percent of mortality rates.
The program reduces Medicare’s diagnosis-related group payments for all hospitals and redistributes the savings based on each hospital’s performance. It gives each healthcare facility an opportunity to compete with other institutions to demonstrate it’s value.
How VSP Scoring Works
The VBP payment system completes a transformation that began more than ten years ago—from a pay-for-reporting model to valued purchasing--formerly called “pay-for-performance.” Under this methodology, each hospital may earn two scores—achievement and improvement-- on each of the core measures. The hospital gets awarded a final score for each measure based on the higher of the two scores.
For the 2014 federal fiscal year, value-based purchasing payments will hinge on how hospitals score on three sets of measures.
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The hospital’s timeliness and effectiveness in addressing 13 different “process" measures, including “Taking Blood Cultures," "Controlling Blood Sugar" and “Discharge Instructions.”
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Response of recently released patients to surveys.
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The mortality rate for patients admitted for heart attack, heart failure or pneumonia who died in the hospital or within 30 days after leaving the facility.
For FY 2014, the CMS authorized 1.25 percent of all hospital’s Medicare base-operating DRG payments to go into a value-based purchasing pool. Based on their score, hospitals will:
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Break even – average performance
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Receive a bonus – exceed benchmarks
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Receive less than their contribution to the FY pool - lower than average performance
hospitals will be challenged to achieve performance targets to earn incentives. Failure to reach performance objectives can put organizations at risk.
Conclusion
The VPS creates a competitive environment in which each hospital must compete against the entire market—where there are clear winners and losers. The worst performers will lose money to reward the best performers.
Cost containment coupled with improved quality of care and enhanced patient experience will be the key factors in this competitive arena. Hospital decision-makers will need to know in what areas they can make improvements to reduce costs while improving patient outcomes and promoting patient satisfaction with the care provided.
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