President's Message
The Best Health System
in the World

1. What's Wrong: A Snapshot
2. Lessons from the Scorecard
3. What's Right: A Blueprint for Change

Printable version of this article
(18 pages)

6. Reward Quality and Efficiency
Case in Point: New York State
PAligning financial incentives so that health systems, hospitals, and physicians benefit financially from doing the right thing is essential. Our fee-for-service payment system rewards doing more, and rewards providing highly specialized services far more than preventive care or preventing an acute episode for patients with chronic conditions. Payment should be restructured so that providers are reimbursed based on the quality and efficiency of the care they provide.
In New York State, for example, the Department of Health began incorporating quality incentives into the computations of Medicaid managed care capitation rates in 2002. These incentives are tied to performance on 10 quality of care measures and five consumer satisfaction measures. By April 2005, the maximum incentive was 3 percent of the monthly premium. Incentive payments for 2005 totaled $40 million.
The Commonwealth Fund is supporting a quali-tative and quantitative analysis of this incentive plan. Preliminary results indicate that rewarding performance does improve quality. For example, the percentage of women with Medicaid coverage who had appropriate postpartum care rose from 49 percent in 1996 through 1999—before the quality incentives were in place—to 68 percent in 2003 and 2004, after the incentives were implemented. When surveyed, 80 percent of senior Medicaid managed care plan executives, including CEOs, CMOs, CFOs, and quality improvement directors, said they believe the incentive program has a positive effect on health plan quality.
In September 2006, the Institute of Medicine issued a report evaluating the institution of a pay-for-performance program within Medicare. The report, Rewarding Provider Performance: Aligning Incentives in Medicine, recommends pay-for-performance incentives, which reward providers for delivering high-quality care efficiently, as a means of speeding the process of implementing best practices.
Purchasers, both public and private, can improve quality and efficiency by building performance standards into health plan contracts and developing "incentivized" payment systems that reward quality and efficiency in the provision of acute and chronic episodes of care. Fund-supported evaluations of such payment systems have documented at least modest gains in clinical quality when medical groups receive bonuses for higher quality.
The Fund has also assisted by convening partici-pants in Medicare's physician group practice demonstration to learn from each other about effective practices to both improve quality and control costs.
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