Annals of Health Law
VALUE BASED PURCHASING
III. PROGRAMS UNDER PPACA57
A. Medicare Hospital Value Based Purchasing Program
The Hospital Value-Based Purchasing Program (hereinafter referred to as
the “Program”) is a CMS initiative under PPACA that will reward acute-
care hospitals with financial incentives for improvements in the quality of
care they provide to Medicare beneficiaries. 58 The Program marks the first
time hospitals will be paid for inpatient acute care services directly based on
care quality, not only for the quantity of the services they provide, a stark
change from the fee-for-service reimbursement model that Medicare
currently utilizes. However, “it has sparked less discussion than has
another experiment to change Medicare’s payment system through
accountable care organizations, where a select group of doctors and
hospitals get bonuses if they find ways to save money.” 59 This is somewhat
surprising considering that the accountable care initiative will affect fewer
providers than will be impacted by the Program. 60
Under the final rule, Medicare will cut payments to the included
hospitals by 1 percent, setting that money aside for a “bonus pool.” 61 In the
2013 Fiscal Year, the Program will distribute the funds in the bonus pool,
an estimated $850 million, to hospitals based on their overall performance
on a set of quality measures that have been linked to improved clinical
processes of care and patient satisfaction. 62 These incentive payments will
be taken from what Medicare otherwise would have spent for hospital stays,
and the size of the fund will gradually increase over time, resulting in a shift
from payments based on volume to payments based on performance. 63 The
bonus pool will increase to two percent of Medicare payments in October
2016.64 This bonus pool can result in significant additional reimbursement
for high performing hospitals.
Proponents of the Program believe that this change in the reimbursement
scheme will lead to improvement in care quality, while simultaneously
57. This Section will focus on the structure of the Program and the Initiative. The next
Section will delve into an analysis and criticism of both.
58. Patient Protection and Affordable Care Act, Pub. L. No. 111-148, § 3001(o)( 2), 124
Stat. 119 (2010).
59. JORDAN RAU, KAISER HEALTH NEWS, MEDICARE ANNOUNCES RULES FOR QUALITY
BONUSES TO HOSPITALS, (2011), available at http://www.kaiserhealthnews.org/Stories/
2011/April/29/ medicare-rules-for-hospital-quality.aspx?p= 1.
60. Robert A. Berenson, Shared Savings Program for Accountable Care Organizations:
A Bridge to Nowhere? AM. J. OF MANAGED CARE 721, 723-25 (2010).
61. RAU, supra note 59.