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Recent Developments in Value-Based Purchasing

Bar chart, showing readmission penalty rates for ID, WA, and nation

Amount of IPPS hospital penalties for FY 2014:

  • 0.01% - 0.19% in Idaho
  • 0.05% - 0.75% in Washington

To reduce readmissions, Medicare is expanding incentives and penalties.

Published in the Communities for Safer Transitions of Care Monthly Briefing, May 2014

Unnecessary rehospitalizations are not only bad for patients’ health—they are increasingly hard on providers’ pocketbooks.

Medicare began penalizing inpatient prospective payment system (IPPS) hospitals for certain readmissions in fiscal year 2013 and, as part of a law enacted this March, skilled nursing facilities will also be incentized to reduce potentially avoidable rehospitalizations for their residents.

Skilled Nursing Facilities

The Protecting Access to Medicare Act of 2014, widely known for its postponements of the “doc fix” and conversion to ICD-10, also included a SNF value-based purchasing program (Section 215 of the Act).

Most details will be revealed and finalized in rule making, but pertinent facts include:

  • The VBP program for SNFs will have only one measure, an all-condition, risk-adjusted, potentially avoidable hospital readmission rate, to be developed by 10/1/2015
  • Payment differentials will begin with FY 2019 (payments on or after 10/1/2018)
  • Calculation of VBP amount will use the “achievement/improvement” methodology used for hospital VBP, in which rates will be compared to thresholds and benchmarks, and SNFs will be awarded points for either achievement or improvement, whichever is higher.
  • The reduction amount will be 2%, meaning that lowest performers may lose 2% of Medicare funding. The program is designed to save money for CMS: incentive payments (those for top performers) will be between 50 -70% of the reduction amount (so between 1.0 and 1.4%)
  • SNFs will be ranked such that the bottom 40% will be in the penalty-eligible range
  • CMS will provide reports on the measure beginning 10/1/2016 so that SNFs can review and plan for action

Previous VBP Models

To help hospitals anticipate and understand their VBP scores during the first two years of the program, Qualis Health developed Model VBP Worksheets.


The penalty program is updated yearly through the IPPS rule-making process. Both the amount of the penalty and the conditions included may change year-to-year. For FY 2015 and 2016, penalties will be assessed for 30-day, all-cause readmissions of Medicare fee-for-service patients with acute myocardial infarction, heart failure, pneumonia, chronic obstructive pulmonary disorder, total hip and total knee arthroplasties.

On April 30 of this year, CMS published a proposed rule to add coronary artery bypass graft surgeries to the list of conditions. The measure is awaiting NQF approval.