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Hospital Quality Initiative - Hospital Value-Based Purchasing

Guidance for explaining the particulars of the Hospital Value-Based Purchasing Program.


Issued by: Centers for Medicare & Medicaid Services (CMS)

Issue Date: September 19, 2017

The Hospital Value-Based Purchasing (VBP) Program is part of our ongoing work to structure Medicare’s payment system to reward providers for the quality of care they provide. This program adjusts payments to hospitals under the Inpatient Prospective Payment System (IPPS), based on the quality of care they deliver.

How does the Hospital VBP Program work?

Hospital performance on quality and cost measures is linked to the IPPS. The IPPS makes up the largest share of Medicare spending, affecting payment for inpatient stays in approximately 3,000 hospitals across the country.

The hospital VBP Program rewards acute care hospitals with incentive payments based on the quality of care they provide, rather than just the quantity of services they provide. The statutory requirements of the Hospital VBP Program are set forth in Section 1886(o) of the Social Security Act. The program uses selected measures that were first specified under the Hospital Inpatient Quality Reporting (IQR) Program.

The latest Hospital VBP Program update

We presented Percentage Payment Summary Reports for the Fiscal Year (FY) 2021 Hospital VBP Program to each participating hospital, followed by a 30 day review and corrections period. The FY 2021 Hospital VBP Program Percentage Payment Summary Report gives hospitals their Total Performance Score and value-based incentive payment percentage that will be applied to each Medicare fee-for-service patient discharge in FY 2021.

The Hospital VBP Program is funded by reducing participating hospitals’ FY 2021 base operating Medicare severity diagnosis-related group (MS-DRG) payments by 2%. The total estimated amount of those reductions is then redistributed to hospitals based on their Total Performance Scores (TPS) that they earn for the year based on their performance on quality and resource use measures. What hospitals earn depends on the range and distribution of all eligible/participating hospitals’ TPS scores for a FY. It’s possible for a hospital to earn back a value-based incentive payment percentage that is less than, equal to, or more than the applicable reduction for that FY.

We applied these quality domains and weights for FY 2021:

  • Clinical Outcomes (25 percent)
  • Person and Community Engagement (25 percent)
  • Safety (25 percent)
  • Efficiency and Cost Reduction (25 percent) 

Find more information about the Hospital VBP Program on QualityNet.

FY 2021 Hospital VBP Program value-based incentive payment adjustment factors

We’ve updated the value-based incentive payment adjustment factors for FY 2021 in Table 16B that applies to that year and which is available on We plan to publicly post the FY 2021 Hospital VBP Program results during the January 2021 update to Care Compare and the Provider Data Catalog.

You can find past Hospital VBP Program value-based incentive payment adjustment factors as posted in Table 16B:

The payment adjustment factors are listed by CMS Certification Number (CCN). If you don’t know your hospital's CCN, you can look it up.

Recent Hospital VBP Program regulations & notices

FY 2021 IPPS/LTCH Final Rule

On September 2, 2020, we issued the FY 2020 IPPS/LTCH final rule, which included a number of Hospital VBP Program policies:

  • Final FY 2021 payment and operational details for FY 2021 and future years
  • Final FY 2023 policies for:
    • Measures
    • Performance periods
    • Performance standards
    • Domain weighting

Additional Policy and Regulation Revisions in Response to the COVID-19 Public Health Emergency Interim Final Rule with Comment Period (COVID-19 IFC)

On August 26, 2020, we issued the COVID-19 IFC, which amended the Extraordinary Circumstance Exception (ECE) announced for the Hospital VBP Program in a press release dated March 22, 2020, and a guidance memo (PDF) issued March 27, 2020.

CMS has granted exceptions and extensions for certain deadlines under its ECE policy to assist health care providers who are directing their resources toward caring for patients and ensuring the health and safety of staff. In some instances, CMS granted the exceptions and extensions because the provider’s response to COVID-19 may greatly impact collected data and that data should not be considered in a CMS quality reporting or pay-for-performance program. In other instances, the deadlines for data from clinical months and discharges prior to the COVID-19 public health emergency declaration fall during March, April, and May 2020.


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DISCLAIMER: The contents of this database lack the force and effect of law, except as authorized by law (including Medicare Advantage Rate Announcements and Advance Notices) or as specifically incorporated into a contract. The Department may not cite, use, or rely on any guidance that is not posted on the guidance repository, except to establish historical facts.