VPQHC was incorporated as a Vermont non-profit corporation in 1988.  Its purpose was to “design, promote, and implement a system of quality assurance in health care delivery within the State of Vermont.”  Founders included the Vermont Department of Health, the Vermont State Medical Society, the Vermont Employers Health Alliance, MCHV (one of the hospitals that merged to form Fletcher Allen Health Care), the Hospital Data Council, and Vermont Blue Cross Blue Shield.  Dr. Mildred Reardon was the first board president.
In October of 1989, VPQHC hired its first employees.  Beginning in 1990, VPQHC’s primary activities were to provide training and expertise to hospitals in the use of continuous quality improvement (CQI) and to develop medical quality improvement projects in specific clinical areas.  The first areas were Obstetrics & Gynecology, Cardiology, Orthopedics, and Mental Health.
For its first several years, the program received much of its funding from the Robert Wood Johnson Foundation under a grant program called “Improving the Quality of Hospital Care.”  This grant tapered off gradually, and the final payment was made to VPQHC in September 1996.  As the grant funds diminished, they were gradually replaced with funds from other sources.  These included revenue from continuous quality improvement training workshops and voluntary contributions from the Vermont Hospital Association, Blue Cross Blue Shield and Community Health Plan which became Kaiser Permanente.  In addition, VPQHC entered into a number of contracts with the state’s Medicaid program to perform studies and undertake quality improvement initiatives in specific clinical areas. 
In 1996, the Vermont Legislature passed a law that required the state’s Department of Banking, Insurance, Securities and Health Care Administration (BISHCA) to annually contract with VPQHC to:
“Implement and maintain a statewide quality assurance system to evaluate and improve the quality of health care services rendered by health care providers or health care facilities, including managed care organizations, to determine that health care services rendered were professionally indicated or were performed in compliance with applicable standards of care, and that the cost of health care rendered was considered reasonable by the providers of professional health services in that area.”  (18 VSA § 9416)
The expenses associated with this contract are billed by the Department of Financial Regulation (formally BISHCA) to insurers, HMOs, and hospitals under a formula established in the law.  Revenue from the contract cannot exceed 75 percent of VPQHC’s budget, meaning that at least 25 percent of operating funds must be raised from other sources.