value. Although the magnitude of incentives necessary to achieve significant and sustainable change while avoiding adverse consequences is uncertain, steps can be taken now to begin to address the deficiencies of current payment systems and encourage progress toward significant quality improvement.


This study is the third in the IOM’s Pathways to Quality Health Care series, which offers tools for implementing the vision of improved health care delineated in the Quality Chasm report. The first report in the Pathways series, Performance Measurement: Accelerating Improvement, recommended a strategy for developing and implementing a comprehensive performance measurement system, including creation of a national board to coordinate that effort. The second report, Medicare’s Quality Improvement Organization Program: Maximizing Potential, recommended an emphasis on technical assistance to providers for quality improvement. The present report builds on those studies and offers an operational plan for introducing into Medicare payment incentives that would encourage and reward high-quality care. While alignment can occur in many areas, this report is limited to examining the link between payment incentives and provider performance.

In the context of current efforts to test pay for performance in both the public and private sectors, the U.S. Congress, as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Public Law 108-173, Section 238), directed the IOM to identify and prioritize options for aligning performance with payment in the Medicare program under Title XVIII of the Social Security Act (42 U.S.C. 1395 et seq.). The congressional mandate identified three topics for the study to address:

  • The performance measure set to be used and how that set should be updated.

  • The payment policy that should be used to reward performance.

  • The key implementation issues involved, such as data and information technology requirements.

In response to this mandate, the IOM Committee on Redesigning Health Insurance Performance Measures, Payment, and Performance Improvement Programs explored the design and implementation of payment rewards for performance in Medicare. It considered both specific topics involved in introducing pay for performance within Medicare and the implications of using this payment approach as part of a long-term multipayer effort to better align the health care system with a vision of quality.

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