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The Business Case for Quality: Ending Business as Usual in American Health Care

Executive Summary

The absence of a "business case" for improving the quality of health care—that is, evidence that health systems, providers, and others who invest in quality improvement will see a return on investment within a reasonable time frame—is widely acknowledged to be one of the most important obstacles to improving health care in the United States. This paper uses work conducted as part of the Commonwealth Fund Colloquia on Quality Improvement to extend the investigation of the causes of and solutions to this problem. In so doing, the paper includes comments on quality provisions of the Medicare Prescription Drug, Improvement and Modernization Act of 2003.

Root Causes
Leatherman, Berwick, and colleagues have identified the following obstacles to creating a business case for quality in the U.S. health care system:

  • The current system fails to pay for quality, while paying for defective care.
  • Consumers are unable to perceive quality differences.
  • The benefits of quality improvement are often displaced in time and space.
  • Administrative pricing prevents consumers and organized purchasers who want to pay for higher quality from doing so.
  • Clinicians do not have access to information about best practices.

The Commonwealth Fund Colloquium process identified an additional five root causes:

  • Ways of changing provider behavior are not well understood.
  • The science of quality measurement is still primitive.
  • The health care system's infrastructure is inadequate.
  • There are major legal obstacles.
  • Governments at all levels are in difficult fiscal shape.

Potential Solutions
An effort to create a business case for quality has to be strategic, realistic, and organized for the long haul. The interventions described in this paper are neither exhaustive nor conclusive; they could, however, be the basis of a comprehensive strategy. Taken together, they illustrate the types of immediate, short-term, private, and public actions that may start us off in the right direction.

Readers should note that collective action, mediated through nonmarket mechanisms, will be required to overcome some obstacles to the business case for quality. Currently this is not a popular political message, but it seems almost inescapable. The question is whether that collective action can be accomplished voluntarily, in the private sector, or whether some governmental involvement will be required. For the writers, it is hard to imagine a scenario in which a business case for quality will evolve without some involvement of the public sector. Building coalitions to support collective action generally, and public action in particular, therefore becomes a priority in moving the quality debate forward.

In Colloquia discussions, and in reviewing provisions of the recent Medicare drug legislation, the following concrete actions emerged as potentially valuable approaches to augmenting the business case for quality.

Private Sector Actions

  • Employers, plans, and consumers must develop local and regional alliances to collectively encourage providers to produce and disclose data on quality performance.
  • Employers, plans, and consumers must begin experimenting once again with new methods of compensation. These should include risk-sharing arrangements, such as capitation, partial capitation, and other approaches, that are specifically designed to create a business case for quality. Also important are “gain-sharing” options. Gain sharing means that the financial benefits of improved quality are shared by the parties whose actions make them possible. Examples might be improving quality through avoiding overuse of care or through disease management initiatives that reduce hospitalizations and physician visits.
  • Employers must develop long-term partnerships with plans and providers. They must avoid the practice of putting contracts out to bid yearly.
  • Employers and plans must be willing to pay more for quality without passing on any added short-term costs to consumers and patients.
  • Employers and plans should recognize and reward investments in infrastructure that will enhance quality, including clinical information systems and measurable integration of clinical services within health care organizations.
  • Employers should experiment with regional self-insured cooperatives, so that the benefits of investments in quality accrue to all employers.
  • Employers, plans, and consumers should vigorously support statutory changes in Medicare and public investments that are necessary to create a business case for quality.

Public Sector Actions

  • The federal government should invest heavily in research and development to understand the processes of care that can improve outcomes and to improve quality measures, the ability to implement them and display them, and the understanding of how paying for performance affects quality of care under a variety of circumstances.
  • To realize the many positive initiatives in the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the Medicare program should: a) continue and expand its payment-for-quality demonstration programs; and b) reinvigorate its Medicare Advantage program by rapidly deploying effective risk adjustment and then assuring that plans are fairly compensated.
  • Congress should relax statutory provisions that prevent the Medicare program from paying for quality and should address legal restrictions that prevent plans from selectively contracting with networks of providers based on the quality of care supplied. The federal government should experiment with new forms of risk and gain sharing in traditional Medicare.
  • The federal government should take the lead in developing a national health information infrastructure by providing financial assistance to fiscally challenged organizations (especially those serving disadvantaged populations), relaxing fraud and abuse statutes that inhibit local alliances between community physicians and hospitals for information technology (IT) development (with appropriate protections against abuse), and providing adequate resources to the new commission developing standards of data definition that can support interoperability between IT systems.

Joint Actions

  • Public and private stakeholders should launch a communications effort to educate the public about the problems and opportunities associated with deficiencies in quality of care in the United States.
  • Public and private stakeholders should develop ongoing mechanisms for coordinating their activities in developing a business case for quality.

The creation of a business case for quality is central to improving the functioning of our health care system. It will require the simultaneous, persistent, and steady pursuit of many of the strategies listed above, and perhaps others as well. Paradoxically, the successful creation of an economic motivation to improve quality will most likely depend on the ability of public and private actors to come together in private and public collectives motivated not by short-term economics but by a long-term commitment to an improved health care system. Making health care function in a businesslike way, therefore, will likely require ending business as usual in American health care.

Publication Details



The Business Case for Quality: Ending Business as Usual in American Health Care, David Blumenthal, M.D., M.P.P., and Timothy Ferris, M.D., M.Phil., M.P.H., The Commonwealth Fund, July 2004