and diffuse innovations in systems of provider payment and nonfinancial incentives that will encourage and reward high-quality health care. The foundations are awarding grants to plan, implement, and evaluate demonstrations of such provider payment systems and nonfinancial incentives (Rewarding Results, 2002).
In December 2002, the American Hospital Association, Federation of American Hospitals, and Association of American Medical Colleges launched this initiative to collect and report hospital quality performance information (CMS, 2004a). The associations identified three conditions (acute myocardial infarction, heart failure, and pneumonia) for which they selected 10 measures. The Centers for Medicare and Medicaid Services (CMS) displays the data submitted by hospitals (www.cms.hhs.gov/quality/hospital). By February 2004, more than 1,400 hospitals were providing data on at least one of the measures (CMS, 2004a). Rural hospitals (excluding critical access hospitals) are participating in the study. To encourage participation, Section 501(b) of the Medicare Modernization Act of 2003 mandates that a hospital not submitting performance data for the 10 measures receive a 0.4 percent lower increase in prices for fiscal year 2005 than a hospital submitting such data.
Hospitals participating in the joint Premier, Inc.-CMS demonstration project will be eligible for increased Medicare payments if they are among the top performers in one of five clinical areas—heart attack, coronary artery bypass graft, heart failure, community-acquired pneumonia, and hip and knee replacement. The top 10 percent of hospitals in each clinical area will receive a 2 percent increase in Medicare payments; the next 10 percent will receive a 1 percent increase. Within the five areas, CMS will evaluate hospital performance on 34 measures, which include process steps, such as prompt administration of beta blockers, and outcomes, such as mortality rate. In the third year, participating hospitals that have failed to improve their performance in a specific clinical area beyond a minimum threshold established in the first year of the project will be subject to a payment reduction of 1 or 2 percent (CMS, 2004b). Premier, Inc., has announced that 278 hospitals have signed up for the project (Premier, Inc., 2003), 30 percent of