Value-Based Purchasing: Can Your Hospital Afford it?

If you aren’t aware of it on October 1, 2012 the new Value-Based Purchasing (VBP) Medicare inpatient prospective payment system will take effect for your hospital.  This isn’t a pilot program but a full-fledged change in how your hospital is paid by Medicare.

Down the road a bit, it is predicted, that this is also how all of your third-party payers will pay you too. In short, VBP is a convoluted way (62 quality measures leading to one single score, plus 13 more quality indicators to be added by 2014) for Medicare to measure your hospital’s quality of care and then determine if it qualifies for an incentive payment of less than one percent on an annual basis. Is this giving you a headache yet?

The big if here is that no one knows how this new VBP payment system is actually going to work in practice, but one thing is for certain all hospitals will lose money in the first few years since they are required to fund these incentives with a 1.0 percent DRG payment reduction in 2013, 1.25% in 2014, 1.5% in 2015, 1.75% for 2016, and 2.0% for 2017.  It should be noted that all of these progressive reductions over five years in DRG payments, after the first year, are greater than the incentive a hospital would be awarded for complying with this federal mandate. Does this make any sense to you?

In addition, Medicare will reduce its DRG payments starting in 2013 if your hospital readmission rate is beyond 30-days with your patients with heart attacks, heart failure, and pneumonia if they exceed a preset threshold. And by 2015, hospitals that don’t meet the government’s IT “meaningfully use” criteria in delivering their patient care will face further reductions in their reimbursement. Top this off with a new mandate in 2015 that says that hospitals with high rates on selected hospital-acquired conditions will receive further payment reductions.  If this wasn’t an actual fact, I would think is was fiction!

As I mentioned in my “Quality is Almost Free” blog last week, hospitals can actually save money in a free market system when they improve their quality.  However, in the new government-based VBP payment system that I just described can a hospital really afford to lose money through reimbursement reductions while at the same time spend money to improve their quality?  I don’t think so…


We would all like to see our hospital’s quality get better, since we in healthcare are dealing with life and death issues every day — not automobiles. Yet, not even General Motors would think up an intricate scheme like this to improve their quality where they would lose money for five years or more in doing so.  And what makes this new VBP system even worse, is that nobody knows if it will actually improve the quality of healthcare which is supposedly the reason Medicare is implementing this new prospective payment system. Or, could it be that Medicare doesn’t really want to pay for the costs of quality after all!   You decide, I’m just reporting the facts!

Robert T. Yokl

Chief Value Strategist

Strategic Value Analysis® in Healthcare

Be the first to comment on "Value-Based Purchasing: Can Your Hospital Afford it?"

Leave a comment

Your email address will not be published.