Each year, CMS evaluates approximately 3,000 acute care hospitals participating in HVBP on their performance in prior years on a series of quality and efficiency measures. Prior to the HVBP program, hospitals received slightly higher Medicare payments for submitting data on measures within CMS’s public Inpatient Quality Reporting (IQR). Beginning in fiscal year 2013, the HVBP program provided new bonuses and penalties that were based on each hospital’s performance on a subset of these measures. Each individual hospital’s performance is calculated for each measure within a domain using a baseline period and a performance period, both of which are in prior years. For each of the HVBP measures, CMS considers both the results of a hospital’s absolute performance— awarding achievement points if performance on a measure was at or above the median for all participating hospitals—and improvements in its performance over time—awarding improvement points if current performance had improved. CMS uses the higher of these points as the hospital’s score on each measure. Related measures are grouped into specific performance categories, called domains. The domain scores are weighted to develop a total performance score for each hospital. The measures that constitute each domain, the number of domains, and the weighting of the domain scores have changed over the years of the program (see table 1). In fiscal year 2013, HVBP had two quality domains—clinical processes and patient experience; by 2017, two additional quality domains—patient outcomes and safety—and one efficiency domain were added to the program. By law, the HVBP program is budget neutral, which means that the total amount of payment increases, or bonuses, awarded to hospitals deemed to provide higher quality of care must equal the total amount of payment reductions, or penalties, applied to hospitals deemed to provide lower quality of care. To fund the HVBP program, CMS first applies an initial fixed percentage reduction to the amount of each hospital’s Medicare reimbursements for its patients that fiscal year. The initial percentage reduction was 1 percent in fiscal year 2013 and has grown by 0.25 percent each year to the maximum of 2 percent for fiscal year 2017 and beyond, as specified in PPACA. CMS determines each hospital’s payment adjustment based on the hospital’s total performance score relative to all participating hospitals. Hospitals with payment adjustments that exceed the initial reduction receive a net increase, or bonus. Hospitals with a payment adjustment less than the initial reduction have a net decrease, or a penalty. (For two hypothetical examples using the initial percentage reduction for fiscal year 2017, see fig. 1.) These payment adjustments are applied to the inpatient Medicare payment for each discharged patient throughout the upcoming fiscal year. In October 2015, we reported on certain HVBP performance measures prior to and after the implementation of the HVBP program. We found that trends in performance for many of these measures were unchanged since the implementation of the HVBP program. This report included information from interviews with officials from selected hospitals who noted that the HVBP program reinforced ongoing quality improvement efforts but did not lead to major changes in focus. Hospital officials also indicated that there were patient population and community barriers to their quality improvement efforts. In a related report on the HVBP program, HHS noted challenges that rural hospitals face that affect their performance on quality measures and the reliability of their outcome measurements, including lower occupancy rates, higher percentages of uncompensated care, and lower operating margins than urban hospitals. Safety net hospitals generally had lower median quality domain scores in comparison to all hospitals, while small rural and small urban hospitals generally scored higher on quality and efficiency domains during fiscal years 2013 through 2017. Median scores for each of the separate quality domains—clinical processes, patient experience, patient outcomes, and safety—were consistently lower for safety net hospitals and were generally higher for small rural and small urban hospitals than for hospitals overall during fiscal years 2013 through 2017. Specifically, for the four quality domains, we found the following: Clinical processes: The clinical processes median domain scores— which summarize measures for preventive or routine care—were lower for safety net hospitals and generally higher for small urban hospitals than for all hospitals during fiscal years 2013 through 2017. Median clinical processes scores for small rural hospitals were generally lower—between 4 and 9 percent—than for hospitals overall in fiscal years 2013 through 2015 (see fig. 2). Patient experience: Small hospitals consistently had higher patient experience scores—which consist of measures for communication and responsiveness—than hospitals overall, while safety net hospitals had the lowest scores of any of the hospital types (see fig. 3). Patient outcomes: Median scores for the patient outcomes domain— which comprises measures for mortality rates and other results and was added in fiscal year 2014—were generally lowest for small rural hospitals in each year of our analysis, except for fiscal year 2016, when compared to hospitals overall (see fig. 4). Safety net hospitals and small urban hospitals—with the exception of fiscal year 2016— also did not perform as well as all hospitals in the years of our analysis. Safety: Safety scores—which were added in fiscal year 2017 and include measures for infection rates and other complications—were lowest for safety net hospitals and higher for small rural and small urban hospitals than the median scores for hospitals overall. The median score for the safety net hospitals was about 11 percent lower than the median score for all hospitals. Small rural hospitals had the highest median score and small urban hospitals also had a higher median score than hospitals overall. However, 21 percent of all hospitals were missing scores for this new domain in fiscal year 2017. Trends for the efficiency domain, which contains the single cost measure—Medicare spending per beneficiary—were similar to the quality domains in that small hospitals tended to perform better than safety net hospitals and better than hospitals overall from fiscal year 2015, when the domain was added, through fiscal year 2017 (see fig. 5). Safety net hospitals have had the same median efficiency scores as for hospitals overall during the 3 years it has been included in the program. However, over 40 percent of all hospitals had an efficiency score of 0 during these years due to CMS’s methodology for calculating scores. This methodology resulted in a low median score of 10 for all hospitals, though many hospitals had considerably higher efficiency scores. Hospitals’ total performance scores were consistent with the trends in the quality and efficiency domain scores. Specifically, when compared to all hospitals, total performance scores were lowest for safety net hospitals and generally highest for small urban hospitals during fiscal years 2013 through 2017 (see fig. 6). Median payment adjustments generally have varied for all hospitals, and small rural and small urban hospitals, since the program began; however, in most years, the median payment adjustment for safety net hospitals has been a penalty—that is, a negative payment adjustment. In contrast, the small hospitals, as well as hospitals overall, generally had positive payment adjustments, indicating a bonus, with the exception of fiscal year 2014. Small urban hospitals consistently received higher payment adjustments than all hospitals—between 0.03 and 0.36 percentage points higher—every fiscal year. (See table 2.) The majority of all hospitals received a bonus or a penalty of less than 0.5 percent each year of the program (see fig. 7). However, over time, an increasing percentage of hospitals received bonuses of more than 0.5 percent, and by fiscal year 2016, more than one-quarter of all participating hospitals received a bonus of more than 0.5 percent. Compared to all hospitals, a higher percentage of small rural and small urban hospitals received bonuses of more than 0.5 percent, and this disparity has grown as the program continues. An increasing percentage of hospitals have also received penalties of greater than 0.5 percent over time, and safety net hospitals consistently had the highest percentage of penalties of 0.5 percent or more when compared to all hospitals, small rural hospitals, and small urban hospitals. In part, the size of the bonuses and penalties, in dollar terms, has been increasing due to the increase in the initial reduction from 1 percent in fiscal year 2013 to 2 percent in fiscal year 2017 (see table 3). In addition, as more hospitals receive bonuses in excess of 0.5 percent, the difference between the bonuses and penalties has been increasing. For example, in fiscal year 2013, the median bonus and penalty for all hospitals was nearly identical. Over the years, the median bonus has more than doubled, but the median penalty has nearly tripled. For most hospitals, the annual bonus or penalty is less than $100,000, and by the end of the fiscal year 2017, over $690 million will have been redistributed from hospitals that received penalties to hospitals that received bonuses. Safety net hospitals received a smaller percentage of the bonuses and paid a greater share of the penalties than small rural and small urban hospitals. For example, safety net hospitals have received about 5 percent of the bonus dollars and paid approximately 10 percent of the penalty dollars each year. In contrast, small rural and urban hospitals have received an average of about 9 and 12 percent of the bonus dollars, respectively, and both groups of these small hospitals paid about 5 percent or less of the penalties dollars during fiscal years 2013 through 2017. Since the efficiency score was added to the HVBP program in fiscal year 2015, about 20 percent of the hospitals that received bonuses each year had weighted composite quality scores below the median for all hospitals in fiscal years 2015 through 2017 (see table 4). For each fiscal year, a higher percentage of safety net and small rural hospitals received bonuses (between 26 and 36 percent) when compared to all hospitals, despite having quality scores below the median score for all hospitals. The median payment adjustments for the hospitals that received a bonus with lower quality scores were less than median bonuses overall. For example, in fiscal year 2015, the median bonus for all hospitals was 0.32 percent, and the median bonus for the hospitals that received a bonus with composite quality scores below the median was 0.17 percent.