Value-based purchasing connects payment with specified measures of healthcare quality or performance. The phrase describes a family of approaches, so always identify the particular program being discussed.
Medicare's Hospital Value-Based Purchasing Program, or Hospital VBP, is a specific program affecting participating hospitals paid under the Inpatient Prospective Payment System. It uses selected quality measures to adjust payment.
Separate the program from nearby concepts
CMS administers several value-based programs. The Hospital Readmissions Reduction Program and Hospital-Acquired Condition Reduction Program have their own rules; they are not interchangeable names for Hospital VBP.
Likewise, submitting quality data and receiving a performance-based payment adjustment are different activities. Hospital VBP draws on selected measures from hospital quality reporting, but its payment calculations are a distinct step.
When a presentation mentions a “quality penalty,” ask which program, measure and year it means. Do not assume that a public star rating is the payment calculation being described.
Understand the payment mechanism
CMS's fiscal year 2027 final-rule summary describes Hospital VBP as budget neutral. Participating hospitals contribute through a 2% reduction in base operating diagnosis-related group payments, and CMS redistributes the pool as incentive payments.
A hospital can receive less than, the same as or more than its contribution, depending on the program's calculations. CMS reports measure and domain results, a total performance score and a payment adjustment factor.
This describes an organization-level payment system. It should not be converted into an unsupported claim that an individual nurse “cost the hospital” a particular amount.
Keep the different dates visible
In a local report, label the baseline period, performance period, report date and payment year separately. CMS's program reports distinguish these periods; the year printed on a payment report does not by itself identify when the underlying care occurred.
Ask which version of the measure specification applies. Before comparing two reports, check whether the measures, scoring method or population changed.
A useful discussion begins with the actual report and its definitions, not a recollection of a previous year's program.
Translate a measure into an improvement question
For a nursing team, start with the care process related to the result. What information was available? Where did communication fail? What resources or handoffs need investigation?
Make the proposed change concrete enough to evaluate. For example, a fictional team reviewing transition communication could specify who confirms that the receiving team obtained the agreed information. That is a testable workflow question; “improve our value score” is not a complete plan.
Review results with the quality team, and consider unintended effects. Do not encourage staff to alter documentation to make a score look better or to substitute a financial target for clinical judgment.
When a facility presents a performance improvement, examine the measure definition and population.
Related pages explain hospital quality reporting, readmission measures and nursing-sensitive quality indicators.
Sources
- Hospital Value-Based Purchasing Program (accessed 2026-09-17) — CMS.
- Value-Based Programs (accessed 2026-09-17) — CMS.
- FY 2027 IPPS/LTCH PPS Final Rule Fact Sheet (accessed 2026-09-17) — CMS, July 31, 2026.