A hospital payment system with incentives for improvement in quality of care: first lessons

A demonstration program of five member hospitals of the Rochester Area Hospitals Corporation in Rochester, New York, is introducing two major changes into traditional quality assurance programs in hospitals: (1) a shift of focus from structure and process to outcomes and (2) replacement of punitive approaches with a positive, reward-oriented approach. Relying on the MedisGroups information system to measure outcomes and on statistical techniques to identify variations in hospitals' performance, the demonstration offers financial awards in the form of a payment adjustment incorporated into the hospital reimbursement system, based on each hospital's outcomes compared to both an external and a local standard. The authors report the first experiences with the demonstration and the prospects for continuous improvement of quality of care.