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Hospital Value-Based Purchasing Program for DRG Hospitals

Wednesday, March 3, 2021

Effective for discharges on or after Jan. 1, 2020, and implemented on March 3, 2021, TRICARE is adopting the Centers for Medicare and Medicaid Services’ (CMS) Hospital Value-Based Purchasing (HVBP) Program for hospitals under the Inpatient Prospective Payment System (IPPS). The HVBP Program rewards acute care hospitals with incentive payments based on the quality of care they deliver. Hospitals subject to HVBP are reimbursed using adjustment factors found in the current CMS IPPS Final Rule Table, available at www.cms.gov/medicare/acute-inpatient-pps

What is HVBP? 
The program:

  • Withholds participating hospitals’ payments by a percentage specified by law.
  • Uses the payment reductions to fund value-based incentive payments.
  • Applies a claim-by-claim adjustment factor to the base Diagnosis Related Group (DRG) payment for claims in the fiscal year (FY) associated with the performance period.

Hospitals, skilled nursing facilities and other institutional providers under the IPPS are subject to HVBP under TRICARE. 

How is the adjustment factor applied?
The hospital’s HVBP adjustment factor is applied to the base DRG payment amount for each claim, prior to any other adjustments. The HVBP adjustment is added (if positive value) or subtracted (if negative value) from the TRICARE allowed amount in order to determine the final claims payment amount. 

Adjustment rates are based on the date of admission. For example, for an admission date of Dec. 20, 2020 and a discharge date of Jan. 5, 2021, the CMS adjustment calculated for FY 2020 would be used. If a hospital does not have an adjustment factor listed on the CMS IPPS Final Rule Table, it is assumed the hospital does not participate in HVBP and no change to the base DRG payment will be made. 

Hospitals excluded from IPPS are not subject to HVBP. These include psychiatric hospitals; rehabilitation hospitals; long-term care (LTC) hospitals; children’s hospitals; critical access hospitals (CAHs); PPS-exempt TRICARE cancer hospitals, and hospitals in the state of Maryland.

Find additional details in the TRICARE Reimbursement Manual, Chapter 1, Section 41.