formance. The federal government (acting on behalf of program beneficiaries) might engage in selective contracting with the highest-quality providers. Providers (e.g., hospitals, physicians, and plans) that achieved exemplary performance might receive higher fees, diagnosis related group (DRG) payments, capitation rates, or bonuses. Proper risk adjustment (see Chapter 2) is critical to payment strategies that reward quality, as public recognition also attracts patients with more complex care needs.

In its provider role, the federal government assumes all the responsibilities of ownership of health care institutions, employer of the health care workforce, and manager and operator of comprehensive delivery systems. In this capacity, it has an opportunity to serve as a laboratory in which to test new financing, delivery, and information dissemination models, while experimenting with various quality measurement and improvement strategies. Just as performance measurement activities have proliferated within the regulatory requirements for Medicare, Medicaid, and SCHIP, performance measurement and improvement have become an integral component of the clinical management processes of the Veterans Health Administration (VHA), Department of Defense (DOD) TRICARE, and Indian Health Service (IHS) programs. As discussed in Chapter 5, VHA and DOD have also led the way in building clinical information systems to support care delivery, quality improvement, patient safety, surveillance and monitoring, and many other applications.

As a major sponsor of applied health services research, the federal government provides support for the development of the knowledge and creation of the tools needed to carry out more effectively the regulator, purchaser, and health care delivery roles. In recent years, the focus of state of the art quality enhancement has shifted toward the measurement of clinical quality (i.e., medical care processes and outcomes) and consumer perceptions. Through the Agency for Healthcare Research and Quality (AHRQ) and other applied research programs sponsored by the National Institutes of Health (NIH), VHA, the Food and Drug Administration, and the Centers for Disease Control and Prevention, the federal government can assist in the development of quality measures, survey instruments, and public reporting tools to enhance federal and state regulatory functions and public and private purchasing activities. The federal government also supports applied health services research that addresses many of the broader health care financing and delivery issues important to creating an environment that supports quality. For example, AHRQ conducts applied research and demonstrations on payment approaches and quality incentives, health care delivery models, and clinical decision-support systems.

The committee recognizes that the federal government influences the health care sector in numerous other ways that are outside the immediate



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