Foreign Policy Blogs

Rewarding quality through Medicare reform

In my last post, I was discouraged by the lack of incentives for innovation in the public health system.  I bemoaned in particular the payment systems that reward bad care in equal measure to good care, a surefire recipe (to my mind) for a stagnant system.

Lo and behold, the Obama administration is leading the quality and innovation bandwagon, with the first in a series of initiatives to reward (and punish) Medicare and Medicaid providers who meet quality benchmarks (or fail to).  At the end of last month, the administration issued a final regulation which initiates the hospital quality payment system – an initiative which punishes poor performing hospitals by withholding as much as 1% of payments.  (A pittance at first glance, but not so when you consider that Medicare and Medicaid payments in 2010 were projected at $793 billion.)

The Los Angeles times reports that the “Obama administration sees improving quality as the best strategy for saving cash-strapped public healthcare programs like Medicare and Medicaid rather than requiring beneficiaries to pay more for their care, as House Republicans proposed in the budget they passed this month.”

How exactly does that work, sceptics are probably asking?  The argument goes that currently, many patients are returning to hospitals and service providers because the initial care they receive is simply bad, or worse, dangerous.  (A study published last month in Health Affairs estimated that 33% of patients experience “adverse events” during a hospital stay – the figure is 25% for Medicare patients.)  These patients are often re-hospitalized or require even more substantive (read: expensive) care following the initial treatment.  Encouraging quality care, the argument continues, will decrease overall expenditure by ensuring that initial hospital visits do the job the first time around.

Rewind a second and make sure to understand the myriad implications of poor care.  Not only do taxpayers pay for more services when quality is compromised, but providers are paid more when they do a shoddy job.  Imagine a product or service for which you have to return and buy more if the first purchase doesn’t work out.  Unlike most industries, consumers get very little chance to vote with their feet – they choose their care through what’s available for their situation, in many cases, a decision with very few options.  Nor do hospitals currently have to report their quality metrics – under previous legislation, this was optional.  The recent reform changes this dynamic for the better.

Quality measures will include a report card for hospitals that measures 12 process metrics as well as patient satisfaction scores, an inclusion that was contested heavily by the American Hospital Association.  Outcome measures (such as mortality rates) and readmission rates are on the list for future quality checks.  Critics argue that quality measures will punish hospitals with patient populations exhibiting higher rates of difficult cases – for example, urban hospitals with higher numbers of drug or alcohol abuse cases.  Point well taken, but to my mind, a factor that could be accounted for.

This is just the first step in the rollout of a series of quality measures that have the potential to transform healthcare provision in America.  Am I expecting too much?  At the very least, introducing performance incentives in healthcare sends a signal to providers and insurers that investment in quality will have pay-off.  I also anticipate that significant investment in systems to conduct the quality measures – which will be required to process claims – could have ripple effects for privately insured patients as these systems provide increased transparency and choice.

A focus on quality highlights the “reform” in healthcare reform.  By focusing on the creation of value in the chain of health provision, rather than simply moving costs from government to patients, the system is correctly encouraged to innovate – reversing the perverse incentives that currently encourage poor care at the expense of taxpayers.



Cynthia Schweer Rayner
Cynthia Schweer Rayner

Cynthia Schweer Rayner is an independent consultant and philanthropy advisor specializing in public health, social entrepreneurship and scalable business models for positive social change. As a recovering management consultant, she spent several months living in South Africa, and later co-founded the US branch of an organization providing support to orphaned and vulnerable children. In 2009, she was an LGT Venture Philanthropy Fellow, working with mothers2mothers (m2m), a multinational non-profit organization employing mothers living with HIV as peer educators to positive pregnant women. She currently works with individuals, companies and nonprofits to finance and develop models for positive change. Cynthia has an MBA from INSEAD and a BA in English Literature from Georgetown University. She currently lives in Cape Town and visits New York frequently, where she co-owns a Manhattan-based yoga studio, mang'Oh yoga (