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An Analysis of Leading Congressional Health Care Bills, 2005-2007: Part II, Quality and Efficiency

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The U.S. health care system requires strong national leadership to become a high performance health system. The federal government, in partnership with the private sector, should set national goals and priorities, develop policies and practices to shape the delivery of health care services, and implement measures to track and improve provider performance. By focusing on quality improvement and efficiency gains, the government would get better value from its substantial investment in the system.

A prior report analyzed the likely effect on health system performance of congressional legislative proposals to extend health insurance coverage. This report addresses the major bills introduced over 2005–2007 designed to advance the quality and efficiency of the health system. They include bills related to:

  1. Medicare prescription drug coverage, including proposals for pharmaceutical price negotiation, creation of a national Medicare plan with comprehensive prescription drug benefits as an alternative to private drug plans, and simplification and standardization of prescription drug benefit packages;
  2. Medicare payment reform, including proposals to dedicate part of Medicare provider payments for a pay-for-performance pool to be distributed to physicians (House bill) or to virtually all providers (Senate bill), with payments based on evidence of clinical quality, provision of patient-centered care, and benchmarks of efficiency—legislation enacted in the 109th Congress authorizes incentives to encourage physicians to report data on quality;
  3. Transparency, including proposals to require price and quality reporting for individual hospitals and physicians;
  4. Health information technology, including separate proposals passed by the House and Senate in the 109th Congress to establish a nationwide health information technology network and legislative authorization for the Office of the National Coordinator of Health Information Technology;
  5. Systems to ensure patient safety, including proposals for medical error disclosure and expansion of the National Practitioner Data Bank to include all licensed health care practitioners and skilled nursing facilities;
  6. Medical liability reform, a proposal to award grants to up to 10 state demonstration programs testing alternatives to current medical tort litigation; and
  7. Elimination of disparities, a proposal to promote reporting of data on health care quality by patients' race, ethnicity, education, and primary language and to provide financial incentives for hospitals and health centers that reduce disparities in care.

This report analyzes these proposals against the dimensions of performance included in The Commonwealth Fund Commission on a High Performance Health System's National Scorecard on U.S. Health System Performance: the health system's support of healthy lives; health care quality, including the provision of the "right" care as well as safe, coordinated, and patient-centered care; access to care; efficiency; equity; and the system's capacity to innovate and improve (Figure ES-1).

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Although they fall short of a comprehensive strategy for systemwide improvement, the legislative proposals present an interesting set of approaches to address these dimensions of health system performance. Taken together, the proposals could lay a foundation for more fundamental reforms.

Healthy Lives

It is difficult to assess the effects the congressional proposals might have on health outcomes, or the ability of the system to support healthy lives. Bills that would expand access to medications to control chronic conditions would likely make modest contributions toward extending patients' lives and improving their capacity to function. So, too, would proposals to offer financial incentives to providers that achieve better health outcomes for patients, investigate the causes of and seek to prevent medical errors, and eliminate disparities. To the extent that the proposals specifically make information on health outcomes transparent and assist providers in delivering care that yields better health outcomes, their impact could be more significant.


Important provisions for improving quality are those that would advance transparency in reporting quality and cost of care and provide financial incentives to hospitals, physicians, and other health care providers for delivering quality care. These build on the President's executive order promoting "four cornerstones" for health care improvement: 1) implementing standards for health information technology, so information can be securely shared with patients and providers; 2) reporting on quality-of-care measures; 3) providing information on prices and costs of health care services; and 4) promoting quality and efficiency through incentives. Legislation enacted in December 2006 would provide a 1.5 percent Medicare payment increase for physicians who report information on the quality of their care—adding public reports on physician quality to the current reports on hospital quality for Medicare beneficiaries.

The research literature suggests that most patients do not access quality and cost information when it is available, and even fewer alter their choice of provider based on the information. Making the information more consumer-friendly might increase its usefulness. Public release of quality information has been shown to spur providers to improve quality. Robust systems of reporting on quality along with modest financial incentives have been found to be effective in motivating hospitals and medical groups to improve care. Providers may respond to such information from a desire to see that patients obtain the best care, from professional pride in providing excellent care, or from the desire to avoid being publicly identified as outliers on poor quality or high cost. This research suggests that these legislative proposals may help improve U.S. health system performance and are important building blocks for other initiatives, such as payment reform or technical assistance to spread best practices among providers.

The House and Senate proposals to set aside payment pools in Medicare to offer pay-for-performance incentives are likely to have an effect on improving quality. Early evidence from Medicare pay-for-performance demonstrations indicates that even modest financial incentives for hospitals contribute to improved quality. Inclusion of measures on patient experiences with care, as specified in the House and Senate Medicare payment reform bills, should facilitate providers' efforts to improve patient-centered care.

Legislative proposals to increase use of information technology could improve the coordination and safety of care, two important aspects of health care quality. The health information technology proposals would put in place mechanisms for setting standards, fund a national office for coordinating health information technology, and provide modest grant funding. Their potential effect is uncertain, given that there has been little research into the effectiveness of such efforts. More important, the provisions may be insufficient to promote the adoption of information technology.

Similarly, the patient safety proposals, which institute confidential reporting and a voluntary compensation system for those taking part, may not be sufficient to overcome provider resistance to transparency on this sensitive dimension of care.


The legislative proposals discussed here are not primarily aimed at improving access to care. (For an analysis of congressional proposals to extend health insurance coverage, see the earlier report in this series.) However, the Medicare proposals that would improve the prescription drug benefit, including eliminating the "doughnut hole" in coverage, are likely to improve access to prescription drugs for chronically ill beneficiaries. Similarly, the legislative proposal targeting health disparities may lead to improved access for vulnerable populations by funding state coalitions that seek to improve minority health and by providing incentives to hospitals and health centers that reduce disparities in care among patients.


The legislative proposals with the greatest potential to achieve savings in the health system are those that would reform Medicare payment for prescription drugs and health care services. Several proposals call for the federal government to negotiate pharmaceutical prices for Medicare beneficiaries, and one proposal would offer a Medicare-administered alternative to private drug plans. The Congressional Budget Office has argued that private drug plans already have significant incentive to negotiate substantial discounts to attract beneficiaries, and therefore has not "scored" the bills as achieving additional Medicare savings. Yet, a recent study indicates that a Medicare program enrolling all Americans would yield savings through pharmaceutical price negotiations of an estimated $33.9 billion, or 15 percent of pharmaceutical spending. Negotiating for 43 million Medicare beneficiaries, however, might yield lower savings and might lead to higher prices for private payers. The potential for savings from bargaining with pharmaceutical companies would vary from drug to drug, depending on the availability of generic alternatives or other effective brand-name drugs for treating a specific condition. Lower prices, if achieved, could also affect future investment in research and development.

Proposals to reward hospitals, physicians, and other providers for providing high-quality and efficient care could add momentum to hospital and physician efforts to improve quality, reduce complications, and achieve greater efficiency. Would the pay-for-performance payments in the House and Senate bills be enough to affect provider behavior? Experience from the Medicare Hospital Quality Incentive Demonstration (sometimes referred to as the Medicare Premier Hospital Demonstration) suggests that bonuses of 1 percent to 2 percent of hospital diagnosis-related group (DRG) case payment can be a modest spur to improve quality and reduce costs. For hospitals with an average margin of 3 percent to 5 percent, bonuses of this magnitude might be attractive. Physicians might require a greater financial incentive, and the same might be true for nursing homes and home health agencies, which operate with margins of about 15 percent. The effects of the legislative proposals would need to be monitored and the rewards calibrated accordingly.


The Senate legislative proposal on “fair care” explicitly aims to improve equity in the health care system. It would require public reporting of quality data by patients' race, ethnicity, education, and primary language in federally supported health programs. It also would ensure that quality metrics targeted health problems that disproportionately affect vulnerable populations and produce high rates of mortality or morbidity.

System Capacity to Innovate and Improve

Although these congressional legislative proposals may not have sweeping effects on health system performance in the near term, many of them put in place building blocks to support future innovation and improvement. Most important in this regard are efforts to promote a national health information technology network. Expanded quality measurement and reporting, as well as modest performance incentives, could give providers the encouragement and wherewithal to implement quality improvement processes and systems, or to adopt health information technology such as decision-support systems, patient reminders, and electronic health records.

What's Missing in the Legislative Agenda?

Health legislative proposals introduced over 2005–2007 embrace a number of strategies to improve health system performance, but they fall short of an overarching and coordinated policy strategy. Most notably missing are national goals to guide improvement efforts, establish priorities, ensure implementation of effective strategies, and monitor impact. Creation of a National Quality Coordination Board, as recommended by the Institute of Medicine, would help ensure that public and private efforts reinforce each other, rather than work at cross-purposes.

Other steps that are necessary to achieve an effective and vigorous agenda for change include:

  • fundamental payment reform, moving away from fee-for-service payment to paying for care coordination and population- or episode-based care and reducing the differential between high payment for procedures and relatively low payment for primary care services;
  • creation of a Center on Comparative Effectiveness and Evidence-Based Decision-Making to promulgate information on comparative effectiveness of prescription drugs, devices, and procedures as well as adequate funding of health services research through the Agency for Healthcare Research and Quality;
  • engagement of patients in the provision of effective and efficient care by giving them access to their own medical records, tools for shared decision-making, and financial incentives, including value-based health benefit designs;
  • reorientation of the health care system to encourage prevention, early primary care, and chronic disease management, including a medical home chosen by each patient and restructured financial incentives and quality standards that reward practices and organized care systems for providing accessible, effective, safe, well-coordinated, and efficient care;
  • identification of superior models of quality and efficiency in federal health care delivery programs implementing known best practices and continuous quality improvement processes, building on the leadership of the Veterans Health Administration (VHA) and extending quality improvement techniques developed by the VHA to Defense Department health services, the Indian Health Service, and community health centers;
  • better targeting or augmented funding of Medicare quality improvement organizations to provide technical assistance to health care providers, especially safety net providers; and
  • refocusing of the grants programs of the Health Resources and Services Administration to ensure a high performance health workforce, trained to work in teams and use information technology and other tools to achieve high-quality care efficiently.

The federal government has a responsibility to ensure that the health system has the requisite research, knowledge, best practices, trained personnel, and capital infrastructure to ensure high-quality, efficient care. By doing so, the U.S. can attain what its public has a right to expect for the resources invested in health care—the best health system in the world. Further, the system should continuously improve and adapt to build on new knowledge and experience. Congressional legislative proposals introduced over 2005–2007 begin to address serious deficiencies in the U.S. health system, but the goal should be no less than the provision of accessible, high-quality, and efficient care to all.

Publication Details



K. Davis, S. R. Collins, and J. L. Kriss, An Analysis of Leading Congressional Health Care Bills, 2005-2007: Part II, Quality and Efficiency, The Commonwealth Fund, July 2007