An Environmental Scan of Pay for Performance in the Hospital Setting: Final Report. Summary

11/01/2007

Mounting cost pressures and substantial deficits in the quality of care within the U.S. health care system have led policy makers to consider various reform options.  Pay for performance (P4P) has emerged as a leading reform strategy, in an effort to stimulate improvements in the quality, safety, and efficiency of delivered health care (IOM, 2006).  In 2005, Congress passed the Deficit Reduction Act (DRA, Public Law 109-171, Section 5001(b)), which mandated that the Secretary of the Department of Health and Human Services (DHHS) develop a plan for value-based purchasing (VBP) for Medicare hospital services that would commence in Fiscal Year (FY) 2009.  VBP, which is being applied by payers in both the public and private sectors, includes the use of both financial (e.g., P4P) and non-financial (e.g., transparency of performance scores) incentives to change the behavior of providers and the systems within which they work.

The use of incentives—by paying differentially for performance—and measuring and making quality information transparent are key components of building a value-driven health care system, as called for by the DHHS Secretary Leavitt’s Four Cornerstones Initiative.  In support of this initiative, CMS has taken a number of steps toward using incentives and making quality information transparent, by funding pay-for-performance demonstrations in the hospital, physician, and home health settings, and by implementing pay for reporting (P4R) for hospitals, through the Reporting Hospital Quality Data for Annual Payment Update (RHQDAPU) program, and for physicians through the Physician Quality Reporting Initiative (PQRI). 

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