The Impact of Financial Incentives on Quality of Health Care

Purchasers of health care could offer financial incentives to plans or providers in order to increase quality. Unfortunately, the current health care market, in which quality is rarely measured and there is no risk adjustment, actively discourages both plans and providers from maximizing quality, resulting in a poor overall level of quality, both in fee-for-service arrangements and health maintenance organizations. Health plans and providers will not focus on quality until mechanisms to correct for risk differences among enrollees can be developed. Although such risk adjustment will be the most important stimulus for quality, it should also be linked to improvements in information systems and agreement on a minimum benefits package, quality reporting standards, and financial solvency requirements.