In recent years, this situation has started to change. In July 2003, CMS announced a demonstration project to provide bonuses to hospitals in the Premier, Inc. system based on performance in five clinical areas (CMS, 2005b). Many private purchasers and health plans are also implementing pay for performance programs that generally link a modest amount of provider payments to performance across a number of measures (Rosenthal et al., 2004).

  • Piecemeal payment—Many insurance programs employ piecemeal provider payment systems that compensate individual physicians for face-to-face visits and procedures according to a fee schedule and hospitals for patient episodes by diagnosis-related group. This type of microlevel payment system offers little incentive for investment in information technology (e.g., chronic care registries and EHRs), organizational supports (e.g., quality measurement and improvement programs), population health (e.g., healthy lifestyle programs aimed at tobacco cessation and weight loss), or multidisciplinary team-based approaches to care delivery, all of which have been shown to improve health care quality and patient outcomes (Batalden et al., 2003; Coffield et al., 2001; Ellerbeck et al., 2000; Fitzmaurice et al., 2002; IOM, 2003a,e; Jencks et al., 2000; Robert Wood Johnson Foundation, 2001). These types of health system changes, which require collective decision making and investment on the part of many providers, are difficult to accomplish in a highly decentralized delivery system where revenues flow directly to the component parts. These types of investments also generally do not yield a positive financial return at the individual provider level under current payment systems (Leatherman et al., 2003), and may even reduce revenues for certain components of the system. Thus piecemeal payment does not support efficiency in the health care system and may promote overuse of unnecessary services and underuse of services that can improve health outcomes.

  • Accountability void—Individual providers, whether physicians or hospitals, frequently focus on providing quality care within their own setting. For most chronically ill patients, whose outcomes depend on the receipt of services from many different providers over an extended period of time, no health care professional or organization assumes responsibility for ensuring that all appropriate services (and only those services) are received. This accountability void is particularly evident at the community level, since no provider or group of providers accepts responsibility for ensuring that the entire population of the community has access to appropriate care.

These characteristics are not independent of each other, but rather tightly interwoven. For example, the lack of care coordination as a benefit can be attributed to the piecemeal payment system, which does not reward integrating a patient’s care across multiple providers. However, a system devoid of accountability for all the care delivered to a patient, as well as

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