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Linking quality to payment

Medicare is changing the way it pays hospitals for services provided to people with Medicare. Instead of only paying for the number of services a hospital provides, Medicare is also paying hospitals for providing high quality services.


The Centers for Medicare & Medicaid Services (CMS), the federal agency that runs Medicare, is changing the way Medicare pays for hospital care by rewarding hospitals for delivering services of higher quality and higher value.

Get more information about hospitals’ performance in Medicare’s Value-Based Purchasing programs:

NOTE: To make decisions about where to get care based on measures of quality and efficiency, go to the Hospital Compare home page and start a search. This section provides information about how hospitals perform in certain Medicare Value-Based Purchasing Programs.


  • Hospital Readmissions Reduction Program - The Affordable Care Act authorizes Medicare to reduce payments to acute care hospitals with excess readmissions that are paid under CMS's inpatient prospective payment system, beginning October 1, 2012. The program initially focuses on patients who were readmitted for selected high-cost or high-volume conditions, namely, heart attack, heart failure, and pneumonia.

    High rates of readmission within 30-days of discharge from the hospitals may result from such factors as:
    • Complications from treatments received during a hospital stay
    • Inadequate treatment
    • Inadequate care coordination and follow up care in the community
    • Unexpected worsening of disease after discharge from the hospital
    Hospital readmissions may cause undue suffering to patients and their families and may lead to significant increase in health care spending. Get more information about Medicare’s Hospital Readmissions Reduction Program.

  • Hospital Value-Based Purchasing (VBP) Program – Medicare now has information about how the quality of a hospital's care affects the payments it gets from Medicare. The Hospital VBP Program, established by the Affordable Care Act, implements a pay-for- performance approach to the payment system that accounts for the largest share of Medicare spending – affecting payment for inpatient stays in approximately 3,000 hospitals across the country.

    Under Hospital VBP, Medicare is adjusting a portion of payments to hospitals beginning in Fiscal Year (FY) 2013 based on either:
    • How well they perform on each measure compared to all hospitals, or
    • How much they improve their own performance on each measure compared to their performance during a prior baseline period.
    The Hospital VBP Program is designed to promote better clinical outcomes for hospitalized patients and improve their experience of care during hospital stays. Get more information about the new Hospital Value-Based Purchasing Program.

  • Hospital-Acquired Condition (HAC) Reduction Program – The Affordable Care Act authorized Medicare to reduce payments to subsection (d) hospitals that rank in the worst performing quartile of subsection (d) hospitals with respect to hospital-acquired conditions (HACs). The worst performing quartile is identified by calculating a Total HAC score which is based on the hospital’s performance on risk adjusted quality measures. Hospitals with a Total HAC score above the 75th percentile of the Total HAC Score distribution may be subject to payment reduction beginning October 1, 2014.

    The HAC Reduction Program is designed to encourage hospitals to reduce the incidence of HACs. Get more information about the new Hospital-Acquired Condition Reduction Program. Exit Disclaimer - Opens in a new window