New approach to physician incentives advocated. (Medicare Providers).

WASHINGTON -- There has got to be a better way for Medicare to reward physicians who provide quality care.

The Medicare Payment Advisory Commission (MedPAC) is advising the Department of Health and Human Services to test provider payment differentials, a method that has achieved a certain level of success in the private sector. The recommendation, made at an April MedPAC meeting, will be included in MedPAC's June report to Congress.

Provider payment differentials come in many shapes and forms, but they essentially offer monetary rewards--bonuses, for example--for meeting certain goals on health care quality.

"Current health system payment and other mechanisms are not designed to reward high quality" MedPAC analyst Sharon Cheng told commission members. Hospitals for example, are paid the same regardless of quality and sometimes more if quality is poor. This occurs when a hospital receives a higher diagnosis-related group if an avoidable complication takes place.

For that reason, private and public purchasers are looking into incentives to improve quality Ms. Cheng said.

MedPAC researchers interviewed 25-30 purchasers, employers, and health plans and found that payment differentials to providers are common in the private sector. And, "they appear to work," Ms. Cheng said. The indication is that Medicare could use a similar incentive to reward its providers.

"The hard part is finding the right measures and collecting and analyzing the data" to ...