The Obama administration finalized plans Friday to reward hospitals that provide high-quality care, the first in a series of steps that are designed to fundamentally transform the way the federal government pays for health care.
Under the initiative -- one of several authorized in the new health care law the president signed last year -- Medicare will pay more to institutions scoring well on a series of measures that gauge patient care and pay less to those that don't hit the quality benchmarks.
Though commonplace in many industries, setting quality benchmarks and tying them to compensation will be new for many of the nation's hospitals. It is a strategy Medicare has never used before on a systematic basis.
But many experts and consumer advocates see these kinds of quality initiatives as critical to not only improving medical care but also controlling costs.
"Today's payment system is riddled with perverse incentives that reward volume and high profit margin services, regardless of value, outcomes or appropriateness," said Christine Bechtel, head of the Campaign for Better Care. "This rule is a much needed effort to begin attacking this problem at its root."
Hospitals that fall short of the new benchmarks could lose as much as 1 percent of what Medicare would pay them in 2013. While a relatively modest penalty for an industry that receives more than $150 billion a year from the government for treating Medicare patients, the stakes could become significant as the full series of quality initiatives is implemented.