The Impact of Financial Incentives on Quality of Health Care

Abstract

I n t h e l a s t t w o d e c a d e s t h e f i n a n c i a larrangements in health care have rapidly multiplied and become far more complex. The constant flux in the relations between payors and plans and between plans and providers adds to the difficulty of studying the effect of a specific financial arrangement on the quality of health care provided. Nonetheless, there are good theoretical reasons to believe that financial incentives do have an impact on quality. To address this issue, we briefly describe the difficulty of defining quality and, even with a definition, the problems encountered in measuring it. We then discuss the types of financial incentives that could stimulate quality (however it is measured) and to whom payments that reward quality should be made. Because most available evidence about the impact of financial arrangements on quality is derived from studies that compare health maintenance organizations (HMOs) with fee-for-service (FFS) health plans, we build upon our earlier work and review existing data, heavily flawed though they might be. Given the limitations of these data and the need for a better understanding of the relation be-

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