Ratings-based financial incentives continue to gain momentum

Often, health care purchasing in America is not tied to quality. That's in large part due to the lack of widely accepted quality metrics. As a result, patients often select their care based on personal recommendations or other proxies for quality (e.g. perhaps they feel that academic medical centers are better quality). Hospitals themselves have a difficult time differentiating themselves on quality. Even if they wanted to publicly post their quality metrics, other hospitals in the area might not have an incentive to follow suit since they can easily dispute the usefulness of such metrics. As a result, hospitals will advertise on things like having the latest equipment which might be perceived as a proxy for quality, but is actually a poor substitute.

Over the last couple of decades, a variety of pay-for-performance schemes have been gaining momentum. Recently, Medicare has started to roll out financial incentives based on their quality metrics. Currently, however, the actual extent of the incentives seem pretty limited: only one hospital will lose more than 1 percent of its reimbursements. The stakes get bigger next year, and it will be interesting to see if the numbers get big enough for hospitals to change their behavior.