Because Medicare’s current fee-for-service payment system apparently does little to promote improvements in the quality of health care, the Department of Health and Human Services should gradually replace it with a new pay-for-performance system for reimbursing participating healthcare providers, says a new report from the Institute of Medicine. The report, Rewarding Provider Performance: Aligning Incentives in Medicare, is the third in a series of studies requested by Congress and sponsored by the Centers for Medicare and Medicaid Services on accelerating the pace of quality improvement. The report recommends that, for an initial period of three to five years, Congress should reduce base Medicare payments across the board and use the money to fund rewards for strong performance. At the same time, efforts should be made to evaluate other ways to fund bonus payments that could be used longer term. Healthcare providers and organizations that already have the capacity to begin participating in the pay-for-performance system should be required to do so as soon as it is launched. But participation by small physician practices should be voluntary for the first three years, at which time the HHS secretary should decide whether to implement broader mandatory participation.
The committee deferred to Congress to determine how much to decrease Medicare base payments to create a pool of funds for bonus payments, but it suggested that Congress may have to appropriate new funds to ensure that the rewards pool is sufficient. Using savings generated by improved efficiency and cost-reducing reforms has great potential to sustain the rewards pool, said the committee, and it urged CMS to test ways to make this funding source work. To increase the likelihood of participation by healthcare providers, the program should reward those who improve their performance significantly as well as those who meet or exceed designated thresholds of excellence.
