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Hospital payments account for the greatest share of Medicare spending, and Medicare is the largest payer for hospital services. According to the Centers for Medicare & Medicaid Services (CMS), in 2009, more than seven million Medicare beneficiaries experienced over 12.4 million inpatient hospitalizations. One in seven Medicare patients will experience some adverse event such as a preventable illness or injury while in the hospital. One in three Medicare beneficiaries who leave the hospital today will be readmitted within a month.
In addition to the added pain and suffering of patients and negative ramifications for their caregivers, these errors result in needless healthcare spending. In 2009, Medicare spent approximately $4.4 billion for patients victimized by hospital-acquired conditions, and hospital readmissions cost Medicare an additional $26 billion.
To foster higher-quality care for hospital patients, Medicare is changing how it will pay for inpatient acute care services, by implementing the Hospital Value-Based Purchasing (VBP) Program. The VBP program was introduced in section 3001 of the Patient Protection and Affordable Care Act (ACA), which was signed into law on March 23, 2010. Section 3001 left unaddressed many details of the program, leaving it to the Secretary of Health and Human Services (HHS) to make decisions to expand and refine the program within the context of a notice of proposed rulemaking (NPRM) procedure. CMS announced on Jan. 7, 2011 and published in the Federal Register on Jan. 13, 2011 a proposed rule for the VBP program. After a public comment period, CMS announced on April 29, 2011 and published in the Federal Register on May 6, 2011 the final rule.
Describing the rationale for the VBP program, HHS Secretary Kathleen Sebelius commented, "Changing the way we pay hospitals will improve the quality of care for seniors and save money for all of us. Under this initiative, Medicare will reward hospitals that provide high-quality care and keep their patients healthy. It's an important part of our work to improve the health of our nation and drive down costs. As hospitals work to improve their performance on these measures, all patients-not just Medicare patients-will benefit."
Featured Value-Based Purchasing Resources
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Value-Based Purchasing Issue Sheet
FY2013 and 2014 Value-Based Purchasing Measures 
Value-Based Purchasing White Paper
