ments to innovation. Careful monitoring of implementation should minimize any such adverse consequences. The committee thus reached two key conclusions regarding pay for performance as a new payment strategy for Medicare:
The systematic and deliberate use of payment incentives that recognize and reward high levels of quality and quality improvement can serve as a powerful stimulus to drive institutional and provider behavior toward better quality.
The incentives introduced by pay for performance, by themselves, will not be sufficient to achieve the broad institutional and behavioral changes needed unless certain operating conditions are met, such as the use of electronic health records, public reporting, beneficiary incentives, and education of boards of directors, which could lead to significant and synergistic gains in quality improvement.
While an evidence base is not yet available for determining with certainty what type of payment incentive strategy would best advance the quality improvement agenda, experiences with pay for performance to date have been promising. Consequently, the committee favors an approach that would capture key lessons from these early experiences and maintain the flexibility to make subsequent changes where necessary. Specifically, the committee concludes pay for performance should be introduced through a phased approach: rewarding performance in selected settings, with a small level of funding, on specific measures, and moving eventually to include all provider settings, with a larger level of funding, on more measures. Such a phased approach requires attention to the timing and pace of implementation for specific settings, reward amounts, and measures. A phased approach also provides an opportunity to examine other long-term approaches.
Pay for performance in Medicare can help address current problems and stimulate complementary quality improvement strategies. Indeed, the long-term potential of pay for performance may lie in its ability to encourage the use of mutually reinforcing quality improvement strategies, such as technical assistance, use of information technology, professional certification, public reporting, and provider and consumer education. Pay for performance cannot significantly improve quality and reduce costs in isolation from other changes in the Medicare system, and could in fact pose a barrier to achieving the transformational changes required to improve care if implemented in ways that would reinforce the current fragmented delivery system. The hope is that payment incentives can offer a stimulus to move health care practices overall from the status quo toward new organizational and individual behaviors that will result in better quality of care.