An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. The Cost and Quality Problems


Substantial, well-documented deficiencies exist in the quality of care that is provided to patients in the United States (Institute of Medicine [IOM], 2001; Schuster, McGlynn, and Brook, 1998; Wenger et al., 2003). In a landmark study published in 2003, McGlynn et al. (2003) found that adult patients received only about 55 percent of recommended care and that adherence to clinically recommended care varied widely by medical condition. The follow-on analysis, conducted by Asch et al. (2006), found that the quality deficit was persistent across all sociodemographic subgroups and that although quality of care varied moderately across the sociodemographic subgroups, there was substantial underuse of recommended care regardless of income, race, or age. Other studies, such as those by Fisher et al. (2003a and b), have shown that among Medicare beneficiaries, there is substantial regional variation in the use of services and health spending. Also, regions where more services were provided did not show additional benefit to patients either through improved outcomes or improved satisfaction with care. These studies highlight that problems occur in both the underuse of recommended care services and the overuse of services.

Health care costs continue to rise at a steady pace and are anticipated to account for 18.7 percent of gross domestic product by 2014 (Heffler et al., 2005). In 2006, the federal government spent $600 billion for Medicare and Medicaid for care delivered to its approximately 87 million beneficiaries; and it is anticipated that by 2030, expenditures for these two programs will consume 50 percent of the federal budget, a financial burden that will place funding for other discretionary programs at risk (McClellan, 2006). To improve quality and hold down growth in the costs of the Medicare and Medicaid programs, the Centers for Medicare & Medicaid Services (CMS) will need to explore alternatives to existing policies and practices.

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