Value-Based Purchasing to Address Failing Markets

University of South Florida

The healthcare industry, specifically the patients receiving care, have been subjected to a service based industry where they must pay increasing costs for services and customer service has essentially taken a back seat. The implementation of Value-Based Purchasing (VBP), as outlined in the Patient Protection and Affordable Care Act (PPACA), has now addressed this concern. The move from a prospective payment industry to a value based industry is to benefit the patient while holding providers accountable for usage of procedures and tests, and providing increasingly higher quality of care to their patients. Due to the high volume and high expenditures specifically in hospitals, there is a new type of approach being taken when it comes to patient care in acute care settings.
The prospective payment system (PPS) was established in the 1980’s in conjunction with Medicare’s Diagnostic Related Groups (DRG) system. This was established due to the rising costs of to the social security administration (Mayes, 2006). During this time hospitals were placed under pressure to accept the new payment system and structure due to an exponential rise in Medicare expenditures. To give perspective on the growth of expenditures to Medicare enrollees, in 1972 Medicare had approximately 21 million enrollees and expenditures approximated $7 billion dollars. In 1982, Medicare enrollees amounted to 30 million and expenditures skyrocketed to $50 billion dollars per year (Mayes, 2006). The DRG system was specifically designed and implemented to establish a flat rate price for specific diagnoses and regulate the increasing costs. This current system was working well despite its increasing costs of care. The downfall of this system is it is a payment system that is indiscriminant in its payment method. An