What is Value-based Purchasing in Healthcare?

Within value-based purchasing are key metrics that go beyond volume that finance executives need to track to obtain a full picture of a health system’s cost and to make sound decisions, including the following that help to properly answer the question: What is Value-based Purchasing in Healthcare?


The time it takes to complete a process now translates directly into money and greatly affects quality. What is the average wait time in the emergency department? What is the time between cases in the operating room? What is the turnaround time for labs? With value-based purchasing, improved throughput will benefit the organization by reducing cost and increasing patient satisfaction – two key metrics.


With value-based purchasing, hospitals are required to assess and report measures of quality relative to defined benchmarks. Did patients receive drugs within the appropriate time period? Were they given discharge instructions? Did the care manager schedule follow-up visits? How many falls occurred in the hospital? How many hospital-acquired infections? Hospitals not reporting quality metrics are subject to penalties. For CMS (Centers for Medicare & Medicaid Services) value-based purchasing, the penalty/incentive phase began in 2013. Hospital performance is being judged on both achievements relative to the national benchmark and improvement relative to internal prior score.


Quality will also be assessed based on the rates of readmissions for all causes within a certain time period for specific patient populations. For example, what are the rates of heart failure, pneumonia and AMI readmissions within a 30- and 90-day period? In 2013, Medicare began enforcing penalties for 30-day readmissions. Penalties will increase in future years.

Mortality rates:

What are the hospital’s mortality rates for pneumonia, heart failure and acute myocardial infarction (AMI)  among its patient populations? Beginning in 2014, Medicare will include this measure in its value-based purchasing formula. High mortality rates in pneumonia, health failure, and AMI will result in loss of incentives.

Patient satisfaction:

Patient satisfaction is more than just a concern and a goal, it’s now tied directly to payment models. How satisfied are patients with their care experience? Was the room satisfactory? Was the family comfortable? Would they recommend the hospital? Concern for patient satisfaction is a key metric in Medicare’s value-based payment system. In 2013 the patient satisfaction scores were weighted at 30%.

Cost per episode of care:

Containing costs is now more important than ever as value-based purchasing systems strive to keep treatment consistent and expenditures appropriate and predictable. Consider: what are the costs of the individual components of care? What are the costs of the episode across the continuum of care? Which clinical processes have the greatest cost variation? Reducing this variation will improve the cost structure. Plus, in 2015, CMS plans to adopt a new measure—Medicare spending per beneficiary.

However, there are some barriers. Data as the Solution

As clinical quality metrics have a greater impact on the bottom line, healthcare financial executives are faced with new challenges: how will these metrics be tracked, measured, analyzed, and translated into financial terms? The answer begins with the collection of data. Using data, however, is not as straightforward as it sounds. Significant barriers exist to leveraging data effectively to drive value-based decision making.

Barrier 1:

Financial and Clinical Data Silos

Traditionally, financial data and clinical data were housed in separate systems; financial data needed to be available to certain teams tasked with specific functions such as billing. Clinical data were housed in systems that would allow teams to focus specifically on treatment and care. Financial data are often so far removed from clinical data that it becomes difficult to understand the relationship between the two. This is compounded by the fact that most hospitals and health systems will have a variety of transactional system siloes throughout the care continuum. While numerous health systems have made headway in aggregating their clinical data to create longitudinal health records, their efforts are often hampered by the unstructured nature of clinical documentation (manually going through charts is rarely the most efficient way to track metrics). Plus clinical data aggregation alone does not incorporate the financial, operational, and patient-experience data needed to fully visualize the organization’s quality/cost equation.

Barrier 2:

Outdated Reporting Processes

Gathering and reporting processes in the healthcare environment may be outdated and insufficient for the complexities of the value-based environment. For examples, the quality team may provide metrics on readmissions, hospital-acquired conditions, and core measures for clinical processes, while finance is responsible for cost and payment data. Getting data from both parties may become a manual collection process.