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What to know about value-based penalties in the new fiscal year

October 1, 2014

    Juliette Mullin, Senior Editor

    Fiscal year (FY) 2015 is the third year of the Hospital Value-Based Purchasing (VBP) program, which affects inpatient reimbursements based on hospitals' performance on quality and patient experience measures. The new year brings an increase in the maximum downside—and other changes that hospitals should be aware of. 

    A brief overview of the VBP program

    Through the VBP program, CMS calculate an incentive payment for each hospital relative to a "withhold," meaning a certain percentage of inpatient payments are withheld from each hospital to fund the program.

    Hospitals can then receive a penalty or a bonus under VBP. If a hospital does well on VBP, it can earn back more than the withhold, effectively earning a bonus overall. Perform poorly and the reverse is true. This makes VBP the only one of the three Affordable Care Act penalty programs to offer bonuses for strong performance.

    When VBP launched on Oct. 1, 2012, it the incentive payments were calculated relative to a 1% withhold. In FY 2015, the withhold will increase to 1.5% of Medicare inpatient payments. (The program maxes out in FY 2017, when it will withhold up to 2% of payments.)

    In FY 2015, overall performance in the VBP program will be determined by performance in four domains, as outlined in the following table:

    What hospitals should know going into FY 2015

    To get an idea of what to expect from the VBP program in FY 2015 and beyond, I spoke with Eric Fontana, practice manager of the Advisory Board's Data and Analytics Group.

    Question: How did hospitals fare in the first two years of the VBP program? Did CMS see any improvement in the quality of care provided by the participating hospitals?

    Eric Fontana: The VBP program by design will result in roughly half the hospitals receiving a "penalty" in a given year. That pattern will continue in FY 2015, even though we don't have the final adjustment factors just yet. 

    How did your hospital fare? Use our estimator to find out

    But you raise a bigger question: Is VBP working to improve quality? There is some skepticism out there about whether pay for performance is "working," and we've seen a few papers that have attempted to understand whether VBP is having the desired effect. 

    However, the papers that I've seen have focused on the first year of VBP, so the honest answer at this point is that it might be too early to tell. What I can say is that it's getting more difficult for hospitals to do well under the program.  There have been a lot of changes over the first few years: new measures being introduced, topped out measures being retired (which itself is a broad sign of consistency on those measures), and domain weighting changes—all present challenges to keeping heads above the breakeven mark.

    Q: What's new about the VBP program in FY 2015?

    Eric: There are lots of changes to VBP in FY 2015. The introduction of efficiency measures is a notable one. 

    A deeper look about what's new in FY 2015

    However, the ship has sailed on FY 2015.

    The main questions organizations should ask about FY 2015 VBP is "what aspects of the program carry over to FY 2016" and "what didn't we do well on?" This is because the performance periods for future years are already underway and you'll want to make sure you're not being dinged for the same measures, year after year.

    “What you are doing today can impact your reimbursement for years to come.”

     My biggest takeaway on the VBP methodology is that what you are doing today can impact your reimbursement for years to come. CMS finalized performance periods for quality measures several years ahead from now. So, right now performance periods are live for fiscal years as far ahead as FY 2019.  Hospital executives should be focusing on the performance periods that are live because you can try to inflect performance. 

    Q: So what should hospitals focus on if they're looking to improve their VBP performance down the road? 

    From a Medicare Margins standpoint, VBP is important because it represents the only program of the three pay-for-performance programs where you can actually get a bonus for your inpatient reimbursement if you do well. The bonuses that most hospitals will receive are modest, but if you're only in line for a small readmissions penalty, it can help offset it.

    CMS is already collecting data for FY 2016, but those performance periods don't have long to run as they close at the end of December.  Many of the FY 2017 performance periods then kick off on Jan. 1. 

    Find out how your hospital will fare in the P4P programs


    See where your organization stands in the VBP program using our Customized Medicare VBP Impact Assessment tool, which replicates CMS's scoring methodology and factors in the impact of new measures and modifications to scoring.

    Then, check out our customized assessment portal to access all your organization-specific analyses in one location.


    How to improve performance in the VBP program

    Advisory.com has myriad resources that can help your organization boost performance on VBP, including:

    • Are you leading an evidence-based organization? This infographic outlines four principles you can use to support evidence-based practices at your organization, along with action steps to implement each one and pitfalls to avoid along the way.

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