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Winners and Losers Under VBP

Roxanna Guilford-Blake, for HealthLeaders Media, July 13, 2011
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In the pursuit of quality, it would be nice to think that everyone is a winner. But that’s not the case with CMS’ value-based purchasing program. It’s set up to separate the winners from the losers.

Perhaps most significantly, it marks a dramatic change, one that’s at the heart of the Patient Protection and Affordable Care Act: Eligible hospitals will be paid for inpatient acute care services based on the quality, not just the quantity, of services they provide. They will be paid not merely for measuring and reporting, but for achievement or improvement across clinical quality and patient-experience measures.

VBP represents an opportunity—one that should be seized quickly. “Hospitals and health systems have the opportunity to prepare to understand how they compare. They can start making changes now,” says Todd Nelson, technical director in charge of senior financial executives for HFMA (and a former hospital CFO).

This initiative could give hospitals and health systems an increasingly rare cash influx from Medicare. But it could also prove costly: CMS will withhold 1% of base operating DRG payment for qualifying hospitals in FY2013, gradually increasing to 2% in FY2017. The incentives will come from those withheld funds, so along with the opportunity for a windfall comes the risk of financial loss.

“The losers are going to pay the winners,” explains Ed Ladely, CPA, CMA, director in the financial services practice at IMA Consulting in Chadds Ford, PA (and, until recently, CFO of a 172-bed hospital). Funds carved out of the Medicare payment rates will be redistributed to hospitals based on their VBP total performance scores. All hospitals with a score above zero will receive some incentive payment from the VBP pool, but the payment will be less than the rate reduction for low-scoring hospitals.

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