Healthcare is moving away from a focus simply on outcomes and toward a focus on value, which can be broadly defined as the maximized combination of quality, efficiency, safety, and cost. Value-based purchasing (VBP) has been established by the Affordable Care Act (ACA) as a way for the Centers for Medicare and Medicaid Services (CMS) to gather information about quality measures in hospital care. Medicare payments are then tied to the outcomes of these care metrics, in a pay-for-performance approach to reimbursement that accounts for the largest share of Medicare spending — inpatient stays in approximately 3,000 hospitals across the United States.

Under the hospital VBP program, CMS adjusts a portion of payments to hospitals based on:

• How well they perform on each measure compared to all hospitals
• How much they improve their own performance on each measure compared to their performance during a prior baseline period.

The idea is that, by rewarding quality of care through payment incentives and transparency, the hospital VBP program will promote better clinical outcomes for hospitalized patients and improve their experience of care during hospital stays. But can quality and payments truly be linked? Here we’ll look at some ways VBP is changing the healthcare model.

Validity and reliability of metrics. Measuring and monitoring quality may be overwhelming for some providers, particularly where capturing data is a challenge due to the size of the organization, lack of infrastructure, or limited resources.

Potential for a poor return. Provider performance and cost of care aren’t necessarily related —for example, hospitals that treat higher volumes of more acute patients will inevitably have to utilize more resources to optimize outcomes for these patients. In addition, in scenarios such as these, quality targets may be unrealistic; CMS is looking for ways to weigh the measures in order to address this issue, but it needs to be done soon to ensure that the hospitals handling the most difficult cases aren’t unjustly penalized. Finally, consistent high performers may see their payments decrease over time, as quality targets are based on the previous year’s — thus, where there is more margin for improvement, there is greater reward, but the best performers may lose out because they’re so good.

Transparency that matters to patients. If data collection and reporting are done right, hospitals will be able to track the cost per patient in a particular group of patients suffering from the same disease or condition or with a similar medical profile. This will let hospitals understand which particular costs drive quality outcomes and which do not, which will in turn let patients understand where they might best be served in receiving their care.

Clinician engagement. Similarly, accurate and well-thought-out data reporting will let clinicians see where their efforts matter most. Clinicians are, by nature, focused on providing the best outcomes possible for their patients. Hospitals can engage clinician efforts by demonstrating how quality outcomes and cost-effective care are aligned, and solicit ideas for change and improvement. This will require breaking down the hierarchical communication barriers that can often impede innovation, particularly within larger organizations.

Sustainable competitive differentiation. Because VBP focuses on continuous improvement, hospitals can identify their areas of strength and leverage those that set themselves apart in the marketplace. This will in turn let hospitals “attract more patients, generate better economics, and develop a sustainable response” to healthcare trends.

According to Deloitte, VBP payment reform is expected to reduce Medicare spending by approximately $214 billion over the next 10 years. If the keys to a strong VBP program are implemented — useful quality measures, meaningful metrics, risk adjustment, incentives that encourage participation and improvement — healthcare stands to gain much. The goals of improving quality and patients’ experience of care while freeing up valuable resources for a strained healthcare system make VBP a program worth embracing and pursuing.