On January 13, 2011, the Centers for Medicare & Medicaid Services (CMS) is publishing a proposed rule that would implement the Hospital Value-Based Purchasing (VBP) program, as mandated by the Affordable Care Act (ACA). The VBP program will build on the current pay-for-reporting program by tying Medicare payments to the quality of hospital services. Specifically, under the rule, starting in fiscal year (FY) 2013 (which begins October 1, 2012), CMS would make value-based incentive payments to acute care hospitals based either on: (1) how well the hospital performs on certain quality measures, or (2) how much the hospital’s performance improves compared to its performance during a baseline period. The rule addresses the proposed quality measures, performance standards, scoring scheme, and framework for translating scores into value-based incentive payments. In general, the higher a hospital’s performance or improvement during the performance period for a fiscal year, the higher the hospital’s incentive payment would be. The initial measures CMS is proposing to adopt are a subset of the measures being used for the existing Medicare Hospital Inpatient Quality Reporting Program (formerly known as the Reporting Hospital Quality Data for the Annual Payment Update Program, or RHQDAPU). As mandated by the ACA, aggregate hospital VBP payments must be funded through a reduction in base diagnosis related group (DRG) payments for each discharge, which will be 1% in FY 2013, rising to 2% by FY 2017. CMS anticipates that out of 3,092 participating hospitals in FY 2013, payment increases will range from 0.0236% to 1.817%. When the base DRG payment reduction is factored in, about half of participating hospitals will receive a net increase in payments and half will receive a net decrease in payments, with no hospital experiencing a net change of more than 1%. CMS will accept comments on the proposed rule until March 8, 2011.