In sum, efforts to improve quality by correcting overuse, underuse, or misuse all have an impact on provider revenues; no payment method is neutral. Under the most common payment methods, correcting problems of underuse and those of overuse would have opposite effects: providers would gain financially by correcting the former problems, but they would lose by correcting the latter. Correcting problems of misuse would produce mixed effects for both physicians and hospitals, especially since physicians get most of their revenues from fee-for-service payment, and hospitals get a substantial portion of their revenues from per case payment. Thus the most common payment methods have insufficient incentives to fix problems of overuse and present great difficulties in fixing problems of misuse (because of the mixed effects, which can also make it difficult for hospitals and physicians to work together). There is a greater likelihood of financial gain from fixing problems of underuse. This reinforces the perception that improving quality costs money.

Even when care delivery groups want to improve the quality of the clinical processes and outcomes they routinely deliver to their patients, they can be severely limited in their ability to pursue such strategies if providers lose revenues from many quality improvement activities because of the expenses of implementing the improvements and the revenues lost as a result of reduced care delivery. Many health care professionals and organizations conduct activities that are harmful to their bottom line (e.g., provision of uncompensated care). However, it is not possible to sustain broad-based efforts to achieve a substantial improvement in quality if such efforts are financially harmful to those undertaking them. Furthermore, as earlier improvement efforts worsen their financial position, provider groups will not have the resources necessary to pursue additional clinical improvement projects. Therefore, although a payer may reap the initial benefits from quality improvement through reduced intensity or volume of care, the inability of providers to sustain such strategies on a long-term basis will hinder the ability to achieve continuous and lasting improvement.

Two broad options are possible to address problems associated with perverse payment mechanisms. One possible approach is to provide mechanisms to facilitate more shared-risk arrangements that include not only hospitals and physicians aligning purpose, but also payer involvement. Shared-risk arrangements could include capitation, but could also include negotiated arrangements around an agreed-upon budget amount, which might or might not result in per capita payment. Payers gain from reduced care delivery, but hospitals and physicians are responsible for changing the way care is delivered. Shared-risk arrangements could provide mechanisms for all parties involved to gain from changes in care. Alternatively, since fee-for-service payments (or billed charges for hospitals) remain in common use, mechanisms could be developed to compensate providers for the expenses associated with developing and implementing quality improvement programs. This compensation could take the form of making a direct

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