IOM Panel Urges Medicare to Morph Into Pay-for-Performance System


The U.S. Department of Health and Human Services should gradually replace Medicare's current payment system with a pay-for-performance system that would reward physicians and other providers for efficiency along with patient-centered, quality care, according to a report from the Institute of Medicine.

Pay-for-performance plans do not yet have an established track record of improving care, so IOM's report, “Rewarding Provider Performance: Aligning Incentives in Medicare,” urges a phased-in program that will evaluate pay-for-performance initiatives as they are implemented.

Pay-for-performance will help transform the Medicare payment system into one that rewards both higher value and better outcomes, Robert Reischauer, Ph.D., president of the Washington-based Urban Institute, said at a press briefing sponsored by IOM. Dr. Reischauer served on the committee that wrote the report.

“The committee does not feel that pay-for-performance is the magic bullet,” he said. “Pay-for-performance should be considered one of several key elements needed to restructure the current payment system.”

Any changes in Medicare's payment system would need to be approved by Congress. The panel's report urged lawmakers to adopt an initial system that would reduce base Medicare payments across the board and use the money to fund rewards for strong performance. At the same time, Medicare officials would evaluate the program to make certain it is having the desired effects.

The proportion of Medicare payment withheld would be small at first, and providers would be compensated both for excellent work and for improving their performance in areas that encompass care quality, efficiency, and “patient centeredness.”

“We are recommending a performance-based system in which both excellence is rewarded and significant improvement is rewarded,” Dr. Reischauer said. “Everyone can play and everyone can get back the money that was withheld initially from them.”

Many large health care providers and organizations already have the capacity to begin participating in a Medicare pay-for-performance system and should be required to do so as soon as it is launched, the IOM report said.

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