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Hospital Value-Based Purchasing Overview


Congress authorized inpatient Hospital Value-Based Purchasing (VBP) in Section 3001(a) of the Affordable Care Act. The program uses the hospital quality data reporting infrastructure developed for the Hospital Inpatient Quality Reporting (IQR) Program, which was authorized by Section 501(b) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.

Hospital VBP is part of the Centers for Medicare & Medicaid Services’ (CMS’) long-standing effort to link Medicare’s payment system to improve healthcare quality, including the quality of care provided in the inpatient hospital setting.

The program will implement value-based purchasing to the payment system that accounts for the largest share of Medicare spending, affecting payment for inpatient stays in approximately 3,500 hospitals across the country.

Hospitals will be paid for inpatient acute care services based on the quality of care, not just quantity of the services they provide.


The VBP program is designed to promote better clinical outcomes for hospital patients, as well as improve their experience of care during hospital stays. Specifically, Hospital VBP seeks to encourage hospitals to improve the quality and safety of care that Medicare beneficiaries and all patients receive during acute-care inpatient stays by:

  • Eliminating or reducing the occurrence of adverse events (healthcare errors resulting in patient harm).
  • Adopting evidence-based care standards and protocols that result in the best outcomes for the most patients.
  • Re-engineering hospital processes that improve patients’ experience of care.
  • Increasing the transparency of care for consumers.
  • Recognizing hospitals that are involved in the provision of high-quality care at a lower cost to Medicare.


As defined in Social Security Act Section 1886(d)(1)(B), the program applies to subsection (d) hospitals located in the 50 states and the District of Columbia, excluding acute care hospitals in Maryland.

The following categories of hospitals are excluded from the program:

  • Hospitals subject to payment reductions under the Hospital Inpatient Quality Reporting (IQR) Program.
  • Hospitals excluded from the Inpatient Prospective Payment System (IPPS), such as psychiatric, rehabilitation, long-term care, children’s, and 11 Prospective Payment System (PPS)-exempt cancer hospitals.
  • Hospitals that are paid under Section 1814(b)(3) and have received an exemption from the HVBP Program from the Secretary of the Department of Health and Human Services (HHS).
  • Hospitals cited by the HHS Secretary for deficiencies during the applicable fiscal year performance period(s) that pose an immediate jeopardy (IJ) to patients’ health or safety.
  • Hospitals with an approved extraordinary circumstance exemption specific to the Hospital VBP Program. For more information about the extraordinary circumstances exemption, refer to the Extraordinary Circumstances Exemption Request page.
  • Hospitals that do not meet the minimum number of cases, measures, or surveys, as determined by the HHS Secretary. For information about minimum number of cases and measures, refer to the Eligibility page.

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