VBP stands for value-based purchasing, a set of Medicare programs that tie a portion of healthcare providers’ payments to the quality of care they deliver rather than the volume of services they bill for. Instead of earning more by doing more tests, procedures, or visits, providers under VBP earn more by keeping patients healthier, avoiding complications, and delivering a better overall experience. The concept applies to hospitals, individual clinicians, and specialized facilities like skilled nursing homes.
How VBP Differs From Fee-for-Service
The traditional payment model in American healthcare is fee-for-service: a provider performs a service, submits a claim, and gets reimbursed at a rate set by the payer. Every office visit, lab draw, and imaging scan generates revenue. The financial incentive points toward doing more, regardless of whether the additional services improve a patient’s health.
VBP flips that incentive. Reimbursements are calculated based on care outcomes and the cost savings that result from improved outcomes. A hospital that reduces infection rates or avoids unnecessary readmissions can earn bonus payments, while one that performs poorly on quality measures sees its payments reduced. The shift encourages providers to coordinate care, invest in prevention, and develop a clearer understanding of what each patient actually needs rather than defaulting to more services.
The Hospital VBP Program
The most prominent VBP program is CMS’s Hospital Value-Based Purchasing Program, which covers acute care hospitals paid under Medicare’s Inpatient Prospective Payment System. CMS withholds a percentage of each hospital’s base operating payments, pools that money, and redistributes it as incentive payments based on performance scores. Hospitals that score well get back more than was withheld. Hospitals that score poorly get back less.
Performance is evaluated across several dimensions. Hospitals are measured on clinical outcomes like mortality and complication rates, patient safety indicators such as healthcare-acquired infections, the efficiency of care delivery relative to cost, and patient experience. The program has been active since 2012 and affects the vast majority of Medicare-participating hospitals in the country.
Patient Experience Scores
A significant piece of a hospital’s VBP performance comes from patient surveys. The HCAHPS survey, a standardized 32-question questionnaire given to discharged patients, asks about communication with nurses and doctors, responsiveness of staff, hospital cleanliness and quietness, how well medications were explained, the quality of discharge instructions, and care coordination. Patients also give an overall rating and indicate whether they would recommend the hospital. These scores directly influence a hospital’s VBP incentive payment, which means the subjective experience of being a patient carries real financial weight.
Health Equity Adjustments
Starting in fiscal year 2026, the Hospital VBP Program will incorporate a health equity adjustment designed to account for the added challenges hospitals face when they serve large numbers of low-income patients. The adjustment awards extra points to hospitals with higher proportions of patients dually eligible for both Medicare and Medicaid. It uses two values: an “underserved multiplier” based on the share of dual-eligible inpatient stays, and a performance scaler that assigns 0, 2, or 4 additional points depending on whether the hospital falls in the bottom, middle, or top third of quality performance. The change is expected to benefit safety-net hospitals that have historically been penalized under VBP despite caring for sicker, more complex populations.
VBP for Individual Clinicians
VBP isn’t limited to hospitals. Individual doctors, nurse practitioners, and other clinicians who bill Medicare are evaluated under the Merit-based Incentive Payment System, or MIPS. This program scores clinicians across four categories:
- Quality: measures of clinical performance, such as how well a provider manages chronic conditions or delivers preventive care.
- Cost: the total cost of care attributed to the clinician’s Medicare patients.
- Improvement Activities: participation in efforts that improve clinical practice and patient engagement, like care coordination programs or shared decision-making.
- Promoting Interoperability: meaningful use of electronic health records to share information and engage patients in their own care.
Each category carries a specific weight toward a final composite score. Based on that score, a clinician’s Medicare payments are adjusted upward or downward. The structure mirrors the hospital program’s logic: reward better outcomes and smarter spending, not higher volume.
VBP in Skilled Nursing Facilities
Skilled nursing facilities (SNFs) have their own version of value-based purchasing. CMS withholds 2% of each facility’s Medicare fee-for-service Part A payments and redistributes 60% of that pool as performance-based incentive payments. The remaining 40% is returned to the Medicare Trust Fund, meaning the program is designed to save Medicare money overall, not just redistribute it.
For the fiscal year 2026 cycle, SNF performance is judged on four quality measures: rates of all-cause hospital readmissions, healthcare-associated infections that lead to hospitalization, staffing hours, and staffing turnover. Facilities are scored on both their absolute achievement level and how much they’ve improved, and they receive credit for whichever score is higher. CMS sends quarterly confidential feedback reports so facilities can track how they’re doing before the final payment adjustment hits.
What VBP Means in Practice
For patients, VBP’s most visible effects show up in the details of a hospital stay or clinic visit. Hospitals working to improve VBP scores tend to invest more in discharge planning, follow-up calls after procedures, infection-prevention protocols, and staff communication training. You may notice more structured conversations about your medications before you leave the hospital, or receive a phone call within a few days of discharge checking on your recovery. These aren’t random kindnesses; they’re often driven by the financial pressure VBP creates.
For providers and administrators, VBP means tracking dozens of quality metrics, investing in data infrastructure, and redesigning workflows around outcomes rather than throughput. A hospital that once measured success by how many beds it filled now has to measure success by how many patients avoided a preventable readmission or left without a surgical complication. That shift has been gradual, and fee-for-service still dominates overall healthcare spending, but VBP programs have steadily expanded in scope and financial impact since their introduction.
The core idea behind every VBP program is the same: healthcare dollars should flow toward providers who deliver better results, not just more services. Whether that plays out at a large urban hospital, a rural skilled nursing facility, or an individual physician’s practice, the mechanism relies on measuring quality, tying payment to those measurements, and making the results transparent enough that both providers and patients can see where care is improving and where it still falls short.