CMS Outlines Value-Based Program

Quality Improvement Report , November 28, 2007

CMS this week outlined its long-awaited value-based purchasing program (VBP) proposal that would reduce diagnostic-related group (DRG) payments for Medicare patients, but give hospitals a chance to earn the money back through stellar performance or dramatic improvement. "One way to think of it is that the base DRG rate [would be] reduced and the hospitals would buy back that incentive payment," CMS Acting Administrator Kerry Weems said in a conference call Monday. "And the incentive payment would be restructured so that we're not just rewarding high performing hospitals, but it could also be adjusted so that if a hospital is improving significantly, even if [it is] a lower performer, if [it is] improving significantly, it could also get an incentive payment.

"The plan proposes a 2 percent to 5 percent risk, or reduction in payment, according to Thomas Valuck, MD, director of the CMS special program office of VBP.

"Let's just say for example, Congress were to pick 5 percent to put at risk, that would be 5 percent of each hospital's DRG payment that could be earned back based on their performance," Valuck said. "Depending on how much they approve, what level they attain, those will translate to the percent of the amount of risk that's earned back and they will be applied to DRG payments moving forward."

The 104-page plan unveiled Monday and presented to Congress last week is similar to the options paper on VBP released by CMS earlier this year--with one significant difference. The final proposed model would incorporate scores on the Hospital-Consumer Assessment of Healthcare Providers and Systems (HCAHPS) into the performance assessments, according to Valuck.

That came as welcome news to at least one HCAHPS vendor.

"This allows the hospital to ensure that initiatives, incentives, education, and quality improvement programs are focused around a common measurement system," said Thomas Hutchinson, senior vice president of HealthStream Research. "As value-based purchasing becomes a reality in healthcare, these thought leaders will be well ahead of other hospitals who have not fully implemented a comprehensive HCAHPS strategy."

The VBP program would be phased in over a three-year period, Weems said. The first year would be based entirely on reporting. The second year would be based 50 percent on reporting and 50 percent on performance. The third and all subsequent years would be based entirely on performance.

The proposed program contains the following key components, according to a press release by the Department of Health and Human Services.

  • A measure development and selection process, including selection criteria for choosing performance measures for the VBP financial incentive and candidate measures to support ongoing expansion of the measure set.
  • A Performance Assessment Model that incorporates quality measures, including clinical process of care, patient perspectives of care, and clinical outcomes, to calculate a hospital's Total Performance Score. The proposed model scores a hospital's performance on each measure during a 12-month measurement period based on the higher level of "attainment" compared with national thresholds and benchmarks or "improvement" compared with the hospital's own performance in the preceding 12-month baseline period
  • The incentive is created by making a specified percentage of the base operating payment amount for all discharges contingent on performance. The percentage of incentive earned would be determined by the hospital's Total Performance Score.
  • Enhancements to the Hospital Compare Web site to support expanded and more user-friendly public reporting.
  • Ongoing evaluation and monitoring efforts to assess experiences early in VBP implementation, allowing for timely corrective action and building the evidence base for future VBP programs in other settings.

"If the Congress were to enact the proposed plan, CMS would monitor the system carefully to make sure it promotes best practices and efficiency," Weems said. "We want to make sure that the design of the value-based purchasing system would not result in unintended consequences."

Those unintended consequences could include hospitals teaching to the test, or refusing to treat certain patients who might bring a hospital's scores down, Weems said.

The performance measures in the VBP proposal are a subset of the measures hospitals are already required to report publicly. They include:

Acute Myocardial Infarction (AMI)

  • AMI-1: Aspirin on arrival
  • AMI-2: Aspirin prescribed at discharge
  • AMI-3: ACE inhibitor (ACE-1) or angiotensin receptor (ARB) blocker for left ventricular systolic dysfunction
  • AMI-4: Adult smoking cessation advice/counseling
  • AMI-5: Beta Blocker prescribed at discharge
  • AMI-7a: Fibrinolytic (thrombolytic) agent received within 30 minutes of hospital arrival
  • AMI-8a: Primary percutaneous coronary intervention received within 120 minutes of hospital arrival
Heart Failure (HF)

  • HF-1: Discharge instructions
  • HF-3: ACE inhibitor (ACE-1) or ARB for left ventricular systolic dysfunction
  • HF-4: Adult smoking cessation advice/counseling

  • PN-2: Pneumococcal vaccination status
  • PN-3b: Blood culture performed before first antibiotic received in the hospital
  • PN-4: Adult smoking/cessation advice counseling
  • PN-6: Appropriate antibiotic selection
  • PN-7: Influenza vaccination status
Surgical Care Improvement Project (SCIP)

  • SCIP-Inf-1: Prophylactic antibiotic received within one hour prior to surgical incision
  • SCIP-Inf-3: Prophylactic antibiotics discontinued within 24 hours after surgery end time
Clinical Quality - outcome measures

  • 30-day AMI mortality
  • 30-day HF mortality
Patient-centered care measures


As CMS gains experience with the payment incentive program, Weems said, the agency will add more measures on clinical outcomes, care coordination and efficiency.

Premier Inc., which partnered with CMS on a pay-for-performance pilot lauded the VBP plan.

"Premier believes that CMS' plan provides an excellent starting point for Congress," said Blair Childs, senior vice president of public affairs for Premier, said in a statement. "We urge Congress to move forward on the quality agenda, and we look forward to working with lawmakers to enact a well-designed value based purchasing [also know as pay for performance] program this year."

Childs added that the CMS/Premier demonstration project proved that pay-for-performance can improve the quality of care.

"We have learned from the CMS/Premier Hospital Quality Incentive Demonstration project that financial incentives, coupled with public reporting of performance on nationally recognized evidence-based quality and outcomes measures, substantially improve the reliability and quality of patient care," Childs said. "This was confirmed by a study published in the New England Journal of Medicine."

The Leapfrog Group echoed that view. The Leapfrog Group is excited to learn that the Centers for Medicare & Medicaid Services report to Congress has been finalized and relayed to Congress, Karen Linscott, acting CEO of The Leapfrog Group, said in a statement. "Now that CMS' plan for value-based purchasing has been made public, the public and private sector can leverage their combined purchasing power to cure the toxic payment system by implementing payment policies that are based on higher quality rather than volume."

One reporter on the conference call Monday questioned whether the plan would cause financial hardship for some hospitals.

"We're hopeful they can earn it back through performance," Valuck said. "That's the heart of pay-for-performance. If you're not performing, you don't get paid as much."For more information, go to

Lisa Buckley is the editor of Quality Improvement Report. She may be reached at This story first appeared as a breaking news item from the editors of Quality Improvement Report, a monthly newsletter by HCPro Inc. For information on all of HCPro's products, visit

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