The Centers for Medicare & Medicaid Services (CMS) has issued a proposed rule that would establish a new hospital value-based purchasing program rewarding hospitals that perform well on quality measures relating both to clinical process of care and to patient experience of care, or those making improvements in their performance on those measures.

These hospitals that meet performance criteria would receive higher payments.

The hospital value-based purchasing program, which would apply beginning in the fiscal year (FY) 2013 to payments for discharges occurring on or after Oct. 1, 2012, would make value-based incentive payments to acute care hospitals, based either on how well the hospitals perform on certain quality measures or how much the hospitals’ performance improves on certain quality measures from their performance during a baseline period.  The higher a hospital’s performance or improvement during the performance period for a fiscal year, the higher the hospital’s value-based incentive payment for the fiscal year would be, according to the agency.

The program, which was implemented by the Patient Protection and Affordable Care Act, would apply to Medicare payments under the Inpatient Prospective Payment System (IPPS) for inpatient stays in more than 3,000 acute care hospitals. The financial incentives would be funded by a reduction in the base operating DRG payments for each discharge, which under the statute will be 1 percent in FY 2013, rising to 2 percent by FY 2017.

If the proposal becomes a rule, it would be a permanent part of the IPPS and would make it possible for all hospitals paid under the IPPS to receive value-based incentive payments.

CMS has been collecting quality and patient experience information from acute care hospitals on a voluntary basis since 2004, the initial year of the Hospital Inpatient Quality Reporting Program. The IQR program was authorized by section 501(b) of the Medicare Prescription Drug, Improvement and Modernization Act, and amended by section 5001(b) of the Deficit Reduction Act. In recent years, a majority of hospitals chose to participate in the program to be eligible for the full annual percentage increase each year, as a result of legislation requiring Medicare to reduce the annual percentage increase for hospitals that did not participate in the reporting program.

More than 95 percent of eligible hospitals have participated successfully in this Hospital Inpatient Quality Reporting program, formerly called Reporting Hospital Quality Data for Annual Payment Update, receiving their full annual percentage increase each year since the program went into effect, the agency reported.

“The hospital value-based purchasing program proposal expands upon CMS’ long-standing pay-for-reporting program to reward hospitals not just for reporting data, but for the results of that data,” said CMS Administrator Donald Berwick, MD.

CMS will accept comments on the hospital value-based purchasing program proposed rule until March 8, and will respond to them in a final rule to be issued next year.

The proposed rule was placed on display at the Federal Register Jan. 7.