OHD Learn · Hospital Payment Programs

Hospital Value-Based Purchasing

A budget-neutral incentive program that takes 2% of Medicare inpatient payments, redistributes them based on quality performance, and rewards the hospitals that deliver better care.

💰 Payment adjustment program 4 quality domains 📅 Updated annually
How the Program Works

A 2% withhold, redistributed based on performance.

The Hospital Value-Based Purchasing program was established in 2012 as part of the Affordable Care Act. It operates on a straightforward principle: CMS withholds 2% of every participating hospital's Medicare inpatient base payments, pools that money, and redistributes the entire pool back to hospitals based on their quality performance scores. No money leaves the system — it simply flows toward better-performing hospitals and away from lower-performing ones.

A hospital that performs well receives more than its 2% back — effectively earning a bonus. A hospital that performs poorly receives less — effectively facing a reduction. The precise multiplier applied to each hospital's payments is called the Value-Based Incentive Payment factor, published each fiscal year.

HVBP covers over 3,000 hospitals paid under the Inpatient Prospective Payment System. Critical access hospitals, psychiatric hospitals, children's hospitals, and other excluded facility types do not participate.

How the money flows
2% WithholdAll participating hospitals lose 2% of their base inpatient payments upfront.
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Performance ScoringEach hospital receives a Total Performance Score (0–100) across four quality domains.
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Incentive PaymentThe pooled withhold is redistributed. High scorers get more than 2% back. Low scorers get less.
The Four Domains

Each domain is weighted equally — 25% of the Total Performance Score.

Clinical Care
25% of TPS
Measures clinical outcomes for specific conditions — mortality and complication rates that reflect the quality of medical care delivered. Collection period: 33 months.
  • 30-day mortality — AMI, HF, PN, COPD, CABG (as survival rates)
  • 30-day mortality — stroke
  • Hospital-wide mortality
  • THA/TKA complication rate
Patient & Caregiver Experience
25% of TPS
Derived from HCAHPS survey results. This domain uses linear mean scores rather than top-box percentages to capture more variation. Collection period: 12 months.
  • Nurse communication linear mean score
  • Doctor communication linear mean score
  • Staff responsiveness linear mean score
  • Communication about medicines linear mean score
  • Discharge information linear mean score
  • Care transition linear mean score
  • Overall hospital rating linear mean score
  • Willingness to recommend linear mean score
Safety
25% of TPS
Infection and complication safety measures drawn from the HAI and Complications programs. Collection period: 12–15 months depending on measure.
  • CLABSI — central line bloodstream infections
  • CAUTI — catheter-associated urinary tract infections
  • SSI — surgical site infections (colon and hysterectomy)
  • MRSA bloodstream infections
  • C. difficile infections
  • PSI-90 composite safety score
Efficiency & Cost Reduction
25% of TPS
Measures Medicare spending efficiency over the full episode of care. A single measure, compared to the national median. Collection period: 12 months.
  • Medicare Spending per Beneficiary (MSPB) ratio
  • Price-standardized and risk-adjusted
  • Lower spending ratio = better domain score
Scoring Methodology

Achievement and improvement — both paths to a higher score.

For most HVBP measures, each hospital receives two scores: an achievement score based on how it performs relative to all hospitals nationally, and an improvement score based on how much it improved compared to its own baseline period. CMS uses the higher of the two scores for each measure. This design rewards both high performance and meaningful improvement.

How the Total Performance Score is assembled
Each domain generates its own score, then the four domain scores are weighted equally to produce the TPS.
Measure Score
For each measure, CMS calculates an achievement score (performance vs. national thresholds) and an improvement score (performance vs. the hospital's own baseline). The higher of the two is used.
Domain Score
Measure scores within each domain are weighted and combined to produce a domain score on a 0–100 scale. Each domain contributes equally to the TPS.
Total Performance Score
The four domain scores are averaged to produce a TPS between 0 and 100. Higher TPS = more of the 2% withhold returned. Lower TPS = less returned. CMS publishes the exact incentive payment multiplier for each hospital annually.
Sources
  1. CMS Hospital Downloadable Database Data Dictionary, January 2026 — CMS Provider Data Catalog
  2. Hospital Value-Based Purchasing Program — CMS.gov
  3. HVBP Overview and Scoring — QualityNet.cms.gov