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In FY 2013, the HVBP Program will distribute 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. This 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. This redirection will encourage care quality improvement, which is intended to result in significant, additional savings to Medicare, taxpayers, and enrollees over time.

Hospitals will continue to receive payments for care provided to Medicare patients based on the Medicare Inpatient Prospective Payment System, but a hospital's base operating Medicare Severity Diagnosis Related Groups (MS-DRG) payments will be reduced across the board by one percent starting in fiscal year 2013 to create the funding for the new value-based payments. The source of ongoing incentive payments will be generated by reducing MS-DRGs by the applicable percentage that will be phased in on the following schedule:


Note that the reduction in payment applies to all MS-DRGs, not just for the clinical conditions that are being measured.

The program will be budget neutral—that is, all of the money withheld to fund each year's incentive payments will be returned to hospitals. A hospital's Total Performance Score will be calculated and used to determine whether the hospital meets the overall performance standard. Hospitals that meet or exceed the established standard for a performance period are eligible to earn back the money that was initially withheld and receive an increased base operating DRG payment for each discharge in the fiscal year (see Example 3 below). Hospitals with the highest scores will receive the largest VPB payments and the payment adjustment will apply only to the relevant fiscal year based on the prior year's performance.

Not all hospitals will earn the full VBP incentive payment. The pool of unearned incentive dollars will be the source of additional quality incentives distributed to hospitals and/or applied to Medicare savings. If approved, additional quality incentives would be distributed to hospitals in proportion to their VBP Total Performance Scores.

Additionally, the hospital VBP program calls for public reporting to include reporting of results for each individual performance measure as well as a hospital's total performance.

Example 3: Hospital A—Sample VBP Incentive Payment Calculation

Year Annual Medicare Revenue %DRG Payment Withheld $ Amount Withheld *% of VBP Incentive Payment Earned (From Example 2) Incentive Payment Net Loss/Gain
2013 $50,000,000 1.00% $500,000 80% $400,000 -$100,000
2014 $50,000,000 1.25% $625,000 80% $500,000 -$125,000
2015 $50,000,000 1.50% $750,000 80% $600,000 -$150,000
2016 $50,000,000 1.75% $875,000 80% $700,000 -$175,000
2017 $50,000,000 2.00% $1,000,000 80% $800,000 -$200,000

*% of VPB incentive payment earned will be adjusted annually based on the Total Performance Score for the previous year. The exchange function schedule will be adjusted annually according to statute.


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