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Fall 2006 Vol. 6 No. 3

Table of Contents

©ImageZoo/ Pay for Performance

A Strategy to Improve Health Care Quality

An overweight, 68-year-old man visits a clinic for a check-up. During the exam, his doctor gives him information about weight-loss plans and encourages him to ask questions about his medications. A similar patient visiting a different clinic receives a thorough exam, but no encouragement to ask questions or change his diet. Under Medicare's fee-for-service payment system, both physicians are reimbursed the same amount. A new report from the Institute of Medicine says paying for performance could change that situation.

"Medicare's payment system encourages volume and gives health care providers and institutions little incentive to strive for higher-quality, more patient-centered care," said Steven A. Schroeder, chair of the committee that wrote the report, the last in a three-part series on accelerating the pace of quality improvements in Americans' health care. The report series was sparked in part by concerns that Medicare is not getting the best value for the $300 billion it spends annually on services for roughly 42 million citizens.

Both the public and private sectors have shown enthusiasm for pay-for-performance systems, although it is a relatively new concept in the health care industry. But the concept raises questions about how quality is measured and how the rewards will be funded at a sufficient level to encourage improvements without ballooning Medicare's already substantial costs.

Medicare should adopt the new system given its early promise in the private sector, the report says. But the switch should be made gradually so that the involved parties can build on what works and adjust if negative consequences occur, such as providers avoiding certain kinds of patients or opting out of Medicare.

To encourage participation, Medicare at least initially should reward those who make significant quality improvements as well as those who achieve excellence. Some health care providers and organizations will have more difficulty participating because performance measures do not exist yet for all fields and specialties. Moreover, not all providers have the technology to collect such data. Large, institutional providers that already have the necessary infrastructure should be required to participate in Medicare's pay-for-performance system as soon at it is launched, but participation by smaller physician practices should be voluntary at first.

The committee recommended that Congress build the pool of reward money from an initial reduction in base Medicare payments for three to five years, but other strategies to sustain the pool long term should be pursued. Congress may need to appropriate additional dollars to ensure that the bonus payments are adequate.   -- Christine Stencel

Rewarding Provider Performance: Aligning Incentives in Medicare. Committee on Redesigning Health Insurance Performance Measures, Payment, and Performance Improvement Programs, Board on Health Care Services, Institute of Medicine (2006, approx. 280 pp.; ISBN 0-309-10216-2; available from the National Academies Press, tel. 1-800-624-6242; $39.95 plus $4.50 shipping for single copies).

The committee was chaired by Steven A. Schroeder, Distinguished Professor of Health and Health Care, University of California, San Francisco. The study was funded by the Centers for Medicare and Medicaid Services.

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Copyright 2006 by the National Academy of Sciences