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Paying hospitals for quality: can we buy better care?

The idea of paying more for better quality care and paying less (or not at all) for poor quality care appears inherently sensible, and has motivated several attempts to introduce financial incentives for improving the quality of health care. These range from bonus payments to hospitals that meet specified clinical indicators for particular conditions (Queensland and Western Australia are currently implementing such schemes) or paying for structures that encourage quality (including higher payments for achieving accreditation), to penalties for poor quality, such as withholding payment for “never ever events” or shocking medical errors, such as wrong site surgery (as applied in the United Kingdom and by the United States Centers for Medicaid and Medicare Services).1,2 Activity-based funding for hospital care is widely used across the world, and quality payments are generally applied as adjustments to the case payments. Financial incentives that reward quality are also applied in primary care, but this article will focus on hospitals.

Two key questions must be considered when thinking about paying for quality. The first is whether the standard case payment is inadequate for providing quality care; that is, whether appropriate quality care, even when supplied efficiently, simply costs more than the case payment. The second is whether the use of rewards…