Paying for Quality: Current Models and Potential Impact

Abstract

A decade of quality measurement and reporting suggests that poor quality is pervasive in the U.S. health care system. Neither the recognition of system wide quality problems nor public reporting of comparative quality across health plans, hospitals, and physicians has resulted in substantial changes in practice patterns. Some have argued that such change will not materialize as long as providers do not see a direct financial reward from achieving higher quality. Opponents of paying for quality argue that use of financial incentives will be demoralizing to providers or that financial incentives will be weak instruments for motivating providers to change long-standing practice patterns. Despite the lack of consensus about the potential impact of paying for quality, many U.S. health plans and employers have introduced payment incentives that target health care quality measures in the past several years. I review these efforts in the light of economic theory and evidence on both the intended and unintended consequences of using financial incentives to improve performance.