An official website of the United States Government —

Here’s how you know

Official websites use .gov

A .gov website belongs to an official government organization in the United States.

Secure .gov websites use HTTPS

A lock ( ) or https:// means you've safely connected to the .gov website. Share sensitive information only on official, secure websites.

Advising the Congress on Medicare issues
MedPAC > News > Hospitals > The Hospital Value Incentive Program: Measuring and rewarding meaningful hospital quality

The Hospital Value Incentive Program: Measuring and rewarding meaningful hospital quality

In January 2019, the Commission recommended the Congress replace the four current hospital quality payment programs with a single alternative program—the Hospital Value Incentive Program (HVIP). The HVIP encourages the delivery of better-quality hospital care for beneficiaries, catalyzes change in the delivery system, considers differences in providers’ patient populations, and reduces provider burden.

For several years, Medicare has encouraged higher quality hospital care by adjusting hospitals’ payments based on their participation and performance in a set of four quality programs: The Hospital Inpatient Quality Reporting Program (IQRP), the Hospital Readmissions Reduction Program (HRRP), the Hospital-Acquired Condition Reduction Program (HACRP), and the Hospital Value-Based Purchasing (VBP) Program. The quality of hospital care provided to beneficiaries has improved over the last decade, in part, because of these programs.

However, despite their successes, the designs of the current hospital quality payment programs are complex, in instances duplicative, and send different performance signals to hospitals. In its June 2018 Report to the Congress, the Commission developed an alternative program—the Hospital Value Incentive Program, or HVIP—for rewarding quality hospital care, based on a set of cross-setting principles for measuring quality in the Medicare program. In January 2019, the Commission recommended that the Congress replace the four current programs for measuring and rewarding hospital quality with the HVIP.

The Commission’s principles for measuring quality

The Commission holds that quality measurement should be patient oriented, encourage coordination across providers and time, and promote relevant delivery system change. Quality measurement should not be unduly burdensome for providers. While providers may choose to use more granular measures to manage their own quality improvement, Medicare quality programs should include meaningful population-based outcome, patient experience, and value measures.

Medicare quality programs should reward providers based on absolute and prospectively set performance targets, and the Medicare program should account for differences in providers’ patient populations using peer grouping. (For a full description of the Commission’s principles for measuring quality in the Medicare program, see page 180 of MedPAC’s June 2018 report).

The current hospital quality programs do not align with the Commission’s principles

The current hospital quality programs should be redesigned to better encourage hospitals to improve their performance. The Commission has four main concerns with the existing programs:

1. The same quality measures are used in multiple programs (e.g., hospital-acquired infection measures are used in both the HACRP and VBP Program) (CMS 2018). Overlapping hospital quality payment and reporting programs create unneeded complexity for hospitals and the Medicare program, and may unduly double-count hospitals’ performance on certain measures when determining penalties or rewards (MedPAC 2016a, MedPAC 2016b).

2. The IQRP, HRRP, and VBP Program score only certain condition-specific (e.g., acute myocardial infarction readmissions) measures, while ignoring performance for patients with other conditions. The Commission believes that all-condition mortality and readmissions measures are more appropriate to measure and pay for hospital performance. Using all-condition outcome measures encourages hospitals to focus on the outcomes of all their patients and offers hospitals flexibility to improve care relevant to their patient populations. Moreover, all-condition outcome measures increase the number of observations measured and reduces the random variation that single-condition readmission rates face under current policy (MedPAC 2013).

3. The IQRP includes process measures that are not tied to outcomes and are burdensome to report. For fiscal years 2020 and 2021, CMS removed some process measures from the IQRP because the data collection and reporting costs outweigh the clinical benefit of their continued use (CMS 2018). We have supported CMS’ efforts, and the Commission’s redesigned program would go further in focusing on outcome measures.

4. The HRRP, VBP Program, and HACRP score hospitals using “tournament models” (i.e., providers are scored relative to one another)—not on clear, absolute, and prospectively set performance targets. For example, the HACRP’s statutory design penalizes 25 percent of hospitals every year, even if all hospitals significantly reduce their rates of hospital-acquired conditions.

Redesigning Medicare’s hospital quality payment programs

By replacing the existing four programs with a single quality payment program for hospitals, Medicare could encourage the delivery of better-quality hospital care for beneficiaries, catalyze meaningful reform across the delivery system, equitably account for differences in providers’ patient populations, and relieve provider burden.

Eliminate the IQRP

The Congress could immediately eliminate the IQRP. Virtually all hospitals currently meet the IQRP reporting requirements. Eliminating the IQRP would relieve hospitals of the burden of tracking and reporting these measures.

Merging the HRRP, HACRP, and VBP Program

For simplicity, hospitals should have their payment adjusted based on their performance on quality and cost measures in a single program. Elements of the HRRP, HACRP, and VBP Program could be simplified and combined into one HVIP.

Measuring and paying for quality under the HVIP

Consistent with the Commission’s quality principles, our initial HVIP construct includes five CMS-administered measure domains: mortality, readmissions, Medicare spending per beneficiary (MSPB), patient experience, and hospital-acquired infections. These measures are included in the existing hospital quality programs and are both meaningful to Medicare beneficiaries and familiar to providers.

The HVIP is designed to reward or penalize a hospital based on its individual performance relative to a prospectively set system of targets. The HVIP informs hospitals in advance how different levels of performance achievement will translate into payment adjustments. Rewards are distributed based on a continuous scale of points, ensuring hospitals with similar performance receive similar financial rewards (i.e., minimizing payment “cliffs”). The continuous scale stretches over the entire distribution of performance, giving even top-performing hospitals an incentive to continue to improve.

The Commission holds that the Medicare program should account for disparities in hospitals’ patient populations when measuring quality performance. Medicare can account for disparities in hospitals’ patient populations by adjusting providers’ performance or adjusting the financial rewards providers receive. However, adjusting performance for social risk factors prevents beneficiaries from seeing the true, unadjusted clinical performance of a hospital and implicitly accepts a lower standard of care for poor patients. Medicare should instead report unadjusted performance to provide beneficiaries with accurate information to use when making care decisions, and then account for social risk factors by adjusting hospital rewards. Adjusting rewards directs resources to providers treating large shares of poor patients to help support their quality improvement efforts. The HVIP adjusts hospital rewards by peer grouping. With peer grouping, each provider is compared with its “peers”—defined as providers with a similar patient mix.

Treating different patient populations equitably

The Commission modeled a prototype HVIP that makes quality-based payments to hospitals within different peer groups. Hospitals were assigned to peer groups based on their share of Medicare patients who were fully dual-eligible beneficiaries—that is, who also fully qualify for Medicaid, which can be a proxy for low income. The Commission modeled a two percent withhold from the payments of each hospital in the peer group. Those dollars were then awarded within each peer group, based on hospitals’ performance on the quality measures included in the HVIP. A two percent withhold is the same withhold amount that exists under the current VBP Program. The Commission also discussed increasing hospitals’ financial incentives to perform well on quality and value by using a five percent withhold or raising the withhold amount from two to five percent over a transition period.

Since one goal of the HVIP is to adjust payments to account for differences in social risk factors, we examined how hospitals serving large shares of low-income patients perform under the HVIP relative to current law. Compared with the existing quality payment programs, the HVIP treats hospitals more equitably by accounting for the patient populations they serve. Under current law, hospitals that serve the highest shares of fully dual-eligible patients incur greater penalties on average relative to hospitals that serve the lowest shares of fully-dual eligible patients, and hospitals serving low shares of fully dual-eligible patients incur greater rewards on average. By using peer grouping, the HVIP reduces disparities in quality-based payments. Under this approach, hospitals serving the greatest shares of fully dual-eligible patients incur the same level of payment adjustment on average as those serving the lowest shares.

The HVIP: Rewarding hospitals for meaningful quality performance

A single hospital quality performance program is simpler to administer and produces more equitable results compared with the existing quality payment programs. The HVIP, as a single program, eliminates the complexity of duplicative program requirements and promotes the coordination of care by paying for performance based on meaningful outcome measures. The HVIP also treats hospitals that serve different populations more equitably.

The HVIP is intended to replace the quality programs that affect FFS hospital payment. However, in line with the Commission’s principles, the HVIP’s design elements, including: outcome measures, prospective targets, scoring methodology, and peer grouping adjustment could be applied across Medicare accountable entities and providers—and doing so would foster broader delivery system change.

The Commission’s recommendation to replace Medicare’s current hospital quality programs with the HVIP will appear in the Commission’s March 2019 Report to Congress.

Commission recommendation

The Congress should replace Medicare’s current hospital quality programs with a new hospital value incentive program (HVIP) that:

  • Includes a small set of population-based outcome, patient experience and value measures;
  • Scores all hospitals based on the same absolute and prospectively set performance targets; and
  • Accounts for differences in patient’s social risk factors by distributing payment adjustments through peer grouping.


Centers for Medicare & Medicaid Services, Department of Health and Human Services. 2018. Fiscal year (FY) 2019 Medicare hospital inpatient prospective payment system (IPPS) and long term acute care hospital (LTCH) prospective payment system proposed rule, and request for information.

Medicare Payment Advisory Commission. 2016a. Letter to the Acting Administrator of the Centers for Medicare and Medicaid Services regarding the hospital star rating system. September 22.

Medicare Payment Advisory Commission. 2016b. Report to the congress: Medicare payment policy. Washington, DC: MedPAC.

Medicare Payment Advisory Commission. 2013. Report to the Congress: Medicare payment policy. Washington, DC: MedPAC.