August 2011 Volume 7 Number 12

Hospital Value-Based Purchasing Is Here – Performance Periods Commenced July 1, 2011

By Patricia H. Wirth, Hooper, Lundy & Bookman, P.C., Washington, DC

AuthorFor approximately eight years, the Secretary of the Department of Health and Human Services (the “Secretary”) and the Centers for Medicare & Medicaid Services (“CMS”) have been working to lay the foundation for a program that would reward health care providers and suppliers for providing quality care. These efforts have included a number of initiatives and demonstration projects designed to promote high-quality care and develop a means of measuring the care provided. The Deficit Reduction Act of 2005 required the Secretary to develop a plan to implement a value-based purchasing program for hospitals.1 That plan became reality when the Patient Protection and Affordable Care Act directed the Secretary to establish a hospital value-based purchasing program (the “Hospital VBP Program”) that makes a portion of a hospital’s Medicare payment contingent on meeting certain performance and quality measures.2

The Hospital VBP Program is funded through reductions to all hospitals’ base operating DRG payments, with a 1 percent reduction for federal fiscal year (“FFY”) 2013, 1.25 percent for 2014, 1.5 percent for 2015, 1.75 percent in 2016 and 2 percent thereafter.3 Hospitals earn payments from this pool of funds by satisfying quality-based incentive measures. The total amount of value-based incentive payments made is to equal the amount by which the base operating DRG payments have been decreased.4

The Hospital VBP Program is effective with Medicare inpatient discharges occurring on or after October 1, 2012.5 The care provided by hospitals will be measured during a performance period and then compared against a baseline period that occurred two years prior to the performance period. The Secretary is to establish the performance period for a given fiscal year so that it begins and ends prior to the beginning of the applicable fiscal year.6 In the final rules issued by CMS on May 6, 2011 implementing the Hospital VBP Program (the “Final Rules”), CMS set July 1, 2011 as the start of the performance period for the FFY 2013 measures and certain of the measures for FFY 2014.7 Thus, hospitals’ payments are already dependent on their success in meeting these performance measures.


The Hospital VBP Program applies to all subsection (d) hospitals (as defined under subsection 1886(d)(1)(B) of the Social Security Act),8 that is, the approximately 3,500 inpatient acute care hospitals that receive payments on the basis of the prospective payment system. Certain hospitals are specifically excluded from the Hospital VBP Program. They are:

  • hospitals subject to payment reductions for failing to properly report quality measures;
  • hospitals that have been cited during the performance period for deficiencies that pose immediate jeopardy to the health or safety of patients; and
  • hospitals for which there are not a minimum number of cases or measures that apply for the performance period.9

The Secretary may exempt hospitals that are paid in accordance with a state hospital reimbursement control system if the State submits an annual report describing how a similar program it has for a participating hospital or hospitals achieves or surpasses the measured results established under the Hospital VBP Program.10


Measures for FFY 2013

Performance measures are to be selected from the measures specified for the Hospital Inpatient Quality Reporting (“Hospital IQR”) program that was created in 2003.11 For FFY 2011 the Hospital IQR program adopted forty-five quality measures.12 Thus, hospitals are already familiar with and reporting data relating to the FFY 2013 performance measures selected by the Secretary. Now, however, a hospital’s Medicare payment will be linked to the hospital’s success in meeting some of these measures. The measures also must be related to the Hospital Consumer Assessment of Healthcare Providers and Systems (“HCAHPS”) survey.13 The measures may not consider readmission rates, which are subject to a different program.14

The Final Rules set forth the following thirteen measures for the FFY 2013 Hospital VBP Program that are divided into two domains – clinical process of care and patient experience of care. Again, the performance period for these measures began on July 1, 2011 and ends on March 31, 2012. Hospitals’ performance will be compared to a baseline period of July 1, 2009 through March 31, 2010.15

Final Measures For FFY 201316

Clinical Process of Care Measures

  • Acute Myocardial Infarction

◦ Fibrinolytic Therapy Received Within 30 Minutes of Hospital Arrival

◦ Primary Percutaneous Coronary Intervention Received Within 90 Minutes of Hospital Arrival

  • Heart Failure

◦ Discharge Instructions

  • Pneumonia

◦ Blood Cultures Performed in the Emergency Department Prior to Initial Antibiotic Received in Hospital

◦ Initial Antibiotic Section for Community-Acquired Pneumonia 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 6 AM Postoperative Serum Glucose

  • Surgeries

◦ 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

  • HCAHPS Survey

◦ Dimensions to be measured: Communication with Nurses, Communication with Doctors, Responsiveness of Hospital Staff, Pain Management, Communication about Medicines, Cleanliness and Quietness of Hospital Environment, Discharge Information and Overall Rating of Hospital17

The Final Rules set forth the performance standards (or achievement thresholds) for the initial measures and the methodology for calculating a hospital’s total performance score, as well as several examples of how scores will be calculated.18

Measures for FFY 2014

Since the performance period for a fiscal year must begin and end prior to the beginning of the applicable fiscal year, CMS will usually establish the quality measures about two years in advance of the fiscal year to which they apply. In doing so, CMS may repeat measures from prior years or add new measures. With respect to FFY 2014, the Final Rules adopted three new 30-day mortality claims-based measures with a performance period that began on July 1, 2011 and is to end on June 30, 2012. The baseline period for these measures is from July 1, 2009 to June 30, 2010.19 The Final Rules also adopted a policy to begin the performance period for any proposed Agency for Healthcare Research and Quality (“AHRQ”) Patient Safety Indicators and Inpatient Quality Indicator outcome measures and any proposed hospital acquired condition (“HAC”) measures one year after those measures were included on the Hospital Compare Web site.20 The Final Rules adopted two AHRQ measures and eight HAC measures. These measures were included on Hospital Compare on March 3, 2011 so the performance period is to begin on March 3, 201221 and is proposed to end on September 30, 2012, with a baseline period of March 3, 2010 to September 30, 2010.22 These mortality, AHRQ and HAC measures collectively comprise a new outcome domain.

Finalized Outcome Measures For FFY 201423

Mortality Measures (Medicare Patients Only)

  • Acute Myocardial Infarction 30-Day Mortality Rate
  • Heart Failure 30-Day Mortality Rate
  • Pneumonia 30-Day Mortality Rate

AHRQ Patient Safety Indicators and Inpatient Quality Indicators Composite measures

  • Complication/Patient Safety for Selected Indicators (Composite)
  • Mortality for Selected Medical Conditions (Composite)

HAC Measures

  • Foreign Object Retained After Surgery
  • Air Embolism
  • Blood Incompatibility
  • Pressure Ulcer Stage III & IV
  • Falls and Trauma (Includes: Fracture, Dislocation, Intracranial Injury, Crushing Injury,
    Burn, Electric Shock)
  • Vascular Catheter-Associated Infection
  • Catheter-Associated Urinary Tract Infection
  • Manifestations of Poor Glycemic Control

Finalized Medicare Spending Per Beneficiary Measure for FFY 2014

In the FFY 2012 Inpatient Prospective Payment System final rule released by CMS on August 1, 2011, CMS adopted a new efficiency outcome domain comprised of a Medicare spending per beneficiary measure that would assess all Medicare part A and B spending per beneficiary (including beneficiary payments) from three days before admission until thirty days after discharge from the hospital.24 The performance period for this measure will be from May 15, 2012 through February 14, 2013, with a baseline period of May 15, 2010 through February 14, 2011.

Additional Proposed FFY 2014 Measures

In a Federal Register notice published on July 18, 2011, CMS proposes for FFY 2014 to retain all thirteen of the FFY 2013 clinical process of care and patient experience of care measures, and to add one additional measure to the clinical process of care domain – Postoperative Urinary Catheter Removal on Postoperative Day 1 or 2.25 The proposed performance period for these measures is April 1, 2012 to December 31, 2012 and the baseline period proposed is April 1, 2010 to December 31, 2010.26 It is important to note that the performance periods for the FFY 2014 measures will include at least four different time periods (remember the performance period for the mortality measures has already begun) so hospitals will need to carefully track when the performance periods begin for the various measures.

CMS is also proposing minimum numbers of cases and measures for the outcome domain. A hospital would need to report a minimum of ten cases to receive a score on a mortality measure and three cases to receive a score on an AHRQ composite measure. Just one Medicare claim would be sufficient to compute a score on each HAC measure. The proposed minimum number of measures to receive a score on the outcome domain is ten, comprised of seven of the eight HAC measures (all except the Foreign Object Retained After Surgery measure), along with any three of the other measures.27

CMS believes that every domain is an important part of the Total Performance Score; therefore, CMS is proposing that a hospital must have enough cases and measures to report on all finalized domains in order to receive a Total Performance Score and be included in the FFY 2014 Hospital VBP Program.28 The notice also contains the performance standards (achievement thresholds), benchmarks and scoring methodology for the FFY 2014 proposed measures.29


For hospitals that meet or exceed the performance standards, their value-based incentive amount will be the product of the base operating DRG amount for each discharge occurring in the hospital in the applicable fiscal year and the value-based incentive payment percentage for the hospital. The incentive payment percentage for a hospital will be set by the Secretary each fiscal year and is to be based on the hospital’s performance score relative to scores of other hospitals.30 As indicated above, the funds contributed through payment reductions imposed on all hospitals must be fully expended for hospitals qualifying for incentive payments in each year.


Hospitals will no longer be paid passively based on the number and type of procedures they perform. The Hospital VBP Program is viewed “as the next step in promoting higher quality care for Medicare beneficiaries and transforming Medicare into an active purchaser of quality health care for its beneficiaries.”31 Moreover, CMS will be able to promote higher quality patient care by adding new measures that focus on areas where CMS believes there is room for hospitals to improve.

Value-based purchasing will be gradually expanded to other health care providers. By October 1, 2011, the Secretary must submit a plan to Congress to create a value-based purchasing plan for skilled nursing facilities and home health agencies.32 By March 23, 2013, the Secretary must establish value-based purchasing demonstration programs for critical access hospitals and for hospitals that are currently excluded from the Hospital VBP Program due to an insufficient number of cases or measures that apply to the hospitals.33



Deficit Reduction Act of 2005, § 5001(b), Pub. L. No. 109-171 (2005). The Report to Congress: Plan to Implement a Medicare Hospital Value-Based Purchasing Program (November 21, 2007) is available on the CMS Web site.

2 Patient Protection and Affordable Care Act § 3001, as amended by § 10335, Pub. L. No. 111-148 (March 23, 2010), as amended by the Health Care and Education Reconciliation Act of 2010 (March 23, 2010), Pub. L. No. 111-152 (added section 1886(o) to the Social Security Act, codified at 42 U.S.C. § 1395ww(o)).

42 U.S.C. § 1395ww(o)(7)(B) and (C).


Id. at § 1395ww(o)(6)(C)(ii)(II) and (7)(A).


Id. at § 1395ww(o)(1)(B).


Id. at § 1395ww(o)(4).


76 Fed. Reg. 26490, 26495 (May 6, 2011), as corrected (Table of Contents only) at 76 Fed. Reg. 39006 (July 5, 2011).


42 U.S.C. § 1395ww(o)(1)(C)(i).


Id. at § 1395ww(o)(1)(C)(ii).


Id. at § 1395ww(o)(1)(C)(iv).


42 U.S.C. § 1395ww(o)(2)(A). The Hospital IQR program was established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, § 501(b), Pub. L. No. 108-173 (2003) (added section 1886(b)(3)(B)(vii) to the Social Security Act, codified at 42 U.S.C. § 1395ww(b)(3)(B)(vii)). The technical specifications for the Hospital IQR program are contained in the CMS/the Joint Commission Specifications Manual for National Hospital Inpatient Quality Measures (Specifications Manual) which is available at CMS posts most Hospital IQR program data, such as scores hospitals receive on the quality measures, on the Hospital Compare Web site at The Hospital Compare Web site is designed to provide information about the quality of care provided by hospitals to beneficiaries who need to select a hospital. 76 Fed. Reg. at 26492.


76 Fed. Reg. at 26492.


42 U.S.C. § 1395ww(o)(2)(B)(i). The HCAHPS survey can be found in the HCAHPS Quality Assurance Guidelines, Version 6.0, available by clicking on “Quality Assurance” at The HCAHPS survey asks recently discharged patients (not just Medicare patients) twenty-seven questions about their hospital stay.


42 U.S.C. § 1395ww(o)(2)(A). The Hospital Readmissions Reduction Program is set forth at 42 U.S.C. § 1395ww(q).


76 Fed. Reg. at 26493.


Id. at 26510 (Table 2).


Id. at 26410, n. 5.


Id. at 26511-26526.


Id. at 26495.


Id. at 26495; see also 42 U.S.C. § 1395ww(o)(2)(C)(i). The new measures are listed on “Medicare’s Hospital Value Based Purchasing Program” page that can be reached by clicking under “Hospital Spotlight” on the Hospital Compare Web site at AHRQ is the lead federal agency that specializes in health care research relating to quality improvement and patient safety, outcomes and effectiveness of care, clinical practice and technology assessment, and health care organization and delivery systems.


76 Fed. Reg. at 26495.


76 Fed. Reg. 42170, 42358 (July 18, 2011).


76 Fed. Reg. 26490, 26511 (Table 3) (May 6, 2011).


See pages 682-700. The FYY 2012 Inpatient Prospective Payment System final rule is available on the FY 2012 IPPS Final Rule Home Page on the CMS Web site by clicking on CMS-1518-F.


76 Fed. Reg. at 42355 (July 18, 2011). The comment period for these proposed measures ends on August 30, 2011 at 5:00 p.m. EST. See 76 Fed. Reg. at 42170 for instructions on how to submit comments.

26 Id. at 42357-42358. See page 42358 for tables summarizing the actual and proposed baseline and performance periods for most of the domains.

Id. at 42357.



Id. at 42357.



Id. at 42358-42362.



42 U.S.C. § 1395ww(o)(6)(B).



76 Fed. Reg. at 26490-26491.


Patient Protection and Affordable Care Act §§ 3006(a) and (b), Pub. L. No. 111-148 (2010).


Id. at § 3001(b).

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