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July 18, 2017

Hospitals with low quality scores received value-based purchasing bonuses, GAO finds

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CMS should revise its methodology used to calculate total performance scores—particularly when a hospital is missing some quality data—under Medicare's Value-Based Purchasing (VBP) program, according to a Government Accountability Office (GAO) report published last month.

Access our C-Suite cheat sheet on Value-Based Purchasing

VBP program details

The VBP program adjusts Medicare inpatient reimbursements for about 3,000 participating hospitals based on performance on quality and efficiency measures.

Each year, a percentage of inpatient payments are withheld from each hospital to fund the program. For fiscal year (FY) 2017, the withholding percentage was 2 percent. If a hospital does well by VBP metrics, it can earn back more than the withheld amount, effectively earning a bonus payment. Hospitals that perform poorly could see payment reductions.

Report details

For the report, GAO examined:

  • How hospitals performed in quality and efficiency categories;
  • How payment adjustments for hospitals have changed over time; and
  • What effect, if any, hospital efficiency scores have on payment adjustments.

GAO investigators analyzed CMS data and documentation on hospital performance scores and payment adjustments for all hospitals participating in the VBP program from FY 2013 through FY 2017. In addition, investigators interviewed CMS officials and reviewed the results for safety net, small rural, and small urban hospitals.


GAO found about 20 percent of hospitals that have received value-based bonuses since FY 2015 had quality scores below the median for all hospitals. According to the report, "Some hospitals with high efficiency scores received bonuses, despite having relatively low quality scores, which contradicts CMS' stated intention to reward hospitals providing high-quality care at a lower cost."

According to the report, performance on efficiency and quality measures varied by hospital type from FY 2013 through FY 2017. Safety net hospitals, which provide services to a high proportion of low-income individuals, in general scored lower on quality measures than all participating hospitals, while small rural and small urban hospitals scored higher on efficiency measures compared with all participating hospitals.

GAO found hospitals missing one or more quality scores were more likely to receive bonuses than hospitals with complete scores because CMS compensated for the missing scores by increasing the weight of all the other scores, which meant a hospital's efficiency scores had a greater effect on their overall performance scores.

Get ahead of the curve on CMS's quality programs: Readmissions, HAC, and VBP

As a result of CMS' methodology for calculating payments, GAO found small rural and small urban hospitals were more likely to receive a value-based bonus compared with all participating hospitals in four out of the five years covered in the report, while safety net hospitals were more likely to receive a penalty.

Overall, GAO found a majority of all participating hospitals received a bonus or penalty of less than 0.5 percent annually. However, the share of hospitals receiving bonuses greater than 0.5 percent rose from 4 to 29 percent from FY 2013 to FY 2016. Most hospitals in FY 2017 received a bonus or penalty of less than $100,000, according to the report.


GAO recommended CMS revise its methodology for calculating total performance scores and its practice of using proportional redistribution to correct for missing scores. GAO said the recommendations are intended to "ensure that the … VBP program accomplishes its goal to balance quality and efficiency, and … minimizes the payment of bonuses to hospitals with lower quality scores."

CMS agreed to examine its methodology for calculating hospitals' total performance scores and explore alternatives to the agency's practice of using proportional redistribution. However, CMS said any changes to the weights and distributions of domains would be subject to an assessment of the potential negative effects, as well as notice and comment rulemaking (MacDonald, FierceHealthcare, 7/6; Kacik, Modern Healthcare, 7/11; GAO report, 6/30). 

The CFO's guide to value-based purchasing

CMS's Hospital Inpatient Value-Based Purchasing (VBP) Program differs from other other pay-for-performance programs: it's budget-neutral and provides an opportunity for financial gain. Hospitals that earn an incentive payment exceeding the withhold effectively earn a bonus payment, while hospitals earning an incentive less than the withhold are effectively penalized.

This research note details why you should act on VBP measures now to minimize year-over-year reimbursement reductions.

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