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IOM Report Urges National 'Pay for Performance' System

DECEMBER 1, 2005 -- Advocates of linking health care providers' payments to the quality of care they give their patients received a boost Thursday when a new Institute of Medicine report called for a comprehensive, universally accepted system to measure and report on the performance of health care providers and organizations.

The IOM study, which was mandated as part of the Medicare prescription drug law (PL 108-173) and sponsored by the Department of Health and Human Services, urged Congress to establish a new board within HHS to coordinate the development of standardized performance measures and monitor the nation's progress toward improving the health care system.

"Performance measures are a fundamental building block for all quality improvement initiatives," said Steven Schroeder, professor of health and health care at the University of California, San Francisco, and chair of the IOM committee that wrote the report.

"One of the biggest obstacles to overcoming shortfalls in the quality of health care is the absence of a coherent, national system of assessing and reporting on the performance of providers and organizations," Schroeder said in a news release. "Leadership at the federal level is necessary to ensure that the effort to develop performance measures achieves overarching national goals for health care improvement."

Federal officials and health care analysts tout pay-for-performance as a way to improve medical care while reducing health care costs. Performance measures are benchmarks against which providers and organizations can determine their success in delivering care, such as patients' perceptions of care measured through quality surveys.

Benefits of pay-for-performance programs include everything from increased doctor visits for preventative services to helping physicians embrace information technology and electronic medical records, according to employers and insurers who have implemented such programs.

Pay-for-performance programs have also caught the attention of lawmakers on Capitol Hill. The Senate budget reconciliation package (S 1932) would require the secretary of HHS to develop and implement pay-for-performance programs for physicians and other Medicare providers. In the House, Rep. Nancy L. Johnson, R-Conn., has introduced legislation (HR 3617) that would replace the current Medicare physician payment formula with a pay-for-performance system.

Jack Ebeler, president and chief executive officer of the Alliance of Community Health Plans, said the IOM report was "well-timed to help inform the implementation of pay for performance in Medicare."

While the IOM report noted that many individual and private organizations, including health plans and consumer advocates, have instituted pay-for-performance programs, "they frequently overlook areas of national interest that are difficult to quantify, such as whether care is equitable, efficient, and well-coordinated."

The IOM panel urged Congress to authorize $100 million to $200 million in annual funding from the Medicare Trust Fund—less than one-tenth of 1 percent of annual Medicare expenditures—to pay for a National Quality Coordination Board, which would work with organizations already involved in developing measurement and reporting tools, and provide an annual report to Congress.

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