Do economic incentives improve quality of health care? Implications for pay-for-performance

Most physicians and hospitals are paid the same regardless of the quality of the health care they provide. This has led to a system that produces no financial incentives for quality and, in some cases, creates situations that actually serve as disincentives. Thus, there is increasing enthusiasm for the idea of linking payment to performance. For example, a 3-year program is evaluating the results from more than 260 hospitals that are participating in a quality-benchmarking database called the Centers for Medicare and Medicaid Services (CMS)/Premier Hospital Quality Incentive Demonstration Project or HQID (Slide 1). It is the first national pay-for-performance project of its kind, designed to determine if financial incentives are effective at improving the quality of inpatient hospital care. Hospitals volunteered for this Medicare demonstration program in which payments would be allocated partially on the basis of quality performance. Results from the second year of the HQID project were made available in May 2007. With more than 260 hospitals participating in the demonstration program, overall quality has increased by 11.8% in 2 years based on the delivery of 30 nationally standardized and widely accepted care measures (Slide 2). The CMS reported that improvements in quality of care saved 1,284 acute myocardial infarction patients, based on an analysis of mortality rates at hospitals participating in the HQID project. In addition, patients received approximately 150,000 additional recommended evidence-based clinical quality measures (Slide 3), such as smoking cessation, discharge instructions, and pneumococcal vaccination. CMS awarded incentive payments of $8.7 million to 115 top-performing hospitals, representing the top 20% of hospitals in each of the project's five clinical areas. Even hospitals on the lower end of the improvement scale improved their quality of care across the board with respect to reliable use of scientifically based practices. Moreover, variation between top and bottom performers continues to shrink as clinical quality improves at participating hospitals. It is important to note that financial incentives and tile health care payment system have an important, although not exclusive, influence on the provision of quality. In the report "Crossing the Quality Chasm," the Institute of Medicine called attention to the poor quality of health care in the United States. The Institute identified numerous factors contributing to poor quality: the growing complexity of science and technology, the increase in chronic conditions, a poorly organized delivery system, and constraints on exploiting the revolution in information technology. Each of these factors plays a role, and each exacerbates the effects of the others. While the problem clearly is not just the structure of the present health care payment system, it remains a key factor affecting quality of care. In this feature, based on a May 2007 presentation at the American Heart Association Quality of Care and Outcomes Research Conference, Henry H. Ting, MD, FACC, reviews important issues relating to economic incentives and their implications for pay-for-performance.