Value based purchasing
Written by Patricia King, JD   

Title III, Subtitle A, Part I of PPACA is entitled “Linking Payment to Quality Outcomes under the Medicare Program”.  These provisions require the Department of Health and Human Services (HHS) to establish a value-based purchasing program for hospitals; develop a plan for value-based purchasing programs for skilled nursing facilities and home health agencies; and adopt a value-based payment modifier under the physician fee schedule.

With respect to physicians, starting in 2015 the fee schedule payment will be reduced for physicians who do not satisfactorily submit data on quality measures.  The reduction will be 1.5% in 2015, and 2% in 2016 and subsequent years.  HHS is to develop a plan no later than January 1, 2012 to integrate reporting on quality measures with reporting requirements relating to “meaningful use” of electronic health records.[i] 

HHS is also required to “develop an episode grouper that combines separate but clinically related items and services into an episode of care for an individual”.  Starting in 2012, HHS will provide reports to physicians comparing the physician’s pattern of resource use with typical patterns, making adjustments for differences in socioeconomic and demographic characteristics, ethnicity and health status of individuals.  The methodology and aggregate reports will be made available to the public. 

During the rule-making process for the physician fee schedule in 2013, HHS will begin implementing a value-based payment modifier.  This modifier will be based on the quality of care furnished compared to cost.  HHS is required to develop risk-adjusted measures of the quality of care, such as measures reflecting health outcomes.  Cost measures will eliminate the effect of geographic adjustments to payment rates and take into account factors such as socioeconomic and demographic characteristics, ethnicity, and health status of individuals.  The measures are to be published no later than January 1, 2012.  HHS will also designate an initial performance period, during which physicians will receive information about the quality of care provided by them, as reflected in the measures.  The payment modifiers will actually be applied for some physicians, if determined appropriate by HHS on January 1, 2015, and by January 1, 2017 for all physicians.

The next few years look to be an anxious period for physician practices.

[i] These requirements were introduced in the HITECH Act provisions of the American Recovery and Reinvestment Act of 2009.  HHS has published proposed rules defining the “meaningful use” criteria,  which have drawn criticism from the health care provider community as being unduly burdensome, especially to physicians in sole practice or small groups.


About the Author

Patricia King is a health care attorney in Illinois, and principal of the web-based business Digital Age Healthcare LLC ( 

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