lower-cost systems and that systems with higher satisfaction scores have also had higher enrollment gains.

Two notable elements of this approach are its focus on the care system and consumer involvement. The focus on the care system places responsibility at the level at which processes of care can be modified to improve quality. Providing comparative information to consumers at this level of the care system gives them information about care delivery and not just health coverage. This information is perceived as being more valuable for patients.

Adapting Shared-Risk (Budget) Arrangements

Dr. Brent James of Intermountain Health Care described the organization’s recent experience in moving toward shared-risk arrangements in which partnerships are established with purchasers, and risk is shared around a budget based on the expectations of caring for a population. Costs are typically projected on the basis of a particular set of disease entities in clinical programs that represent the work of smaller groups. These are referred to as care processes. These groups do not manage just one activity (e.g., mammography), but rather a number of processes for a single condition (e.g., breast cancer). The price is negotiated among the partners. If Intermountain is able to produce care for the population below budget, all the partners share in the savings.

Intermountain perceives several advantages to this approach. First, it permits the organization to share in the benefits of quality improvement. Second, care can be organized around processes that are meaningful to health professionals, patients, and purchasers, which helps align incentives and work priorities. Third, the approach uses a budgeted target to impose financial discipline, but does not rely on capitation, which means it can be applied to smaller groups of practitioners and patients that would not assume actuarial risk. The challenge is the need for good data to set budgets fairly and monitor clinical processes of care.


Although incentives to improve quality could be strengthened through incremental improvements in existing payment methods, more significant reform of the payment system will be needed over the long term. All health care organizations face serious barriers in pursuing broad-based efforts at quality improvement, and providers face a mix of incentives from different payment methods. Conceptually, a provider group could manage effectively in an environment that was entirely fee for service or entirely capitation, but the present environment is a mix of both. An organization that manages to succeed predominantly under fee-for-service payment will fail under the incentives of capitation. On the other hand, an organization that manages to succeed under capitation will fail on the portion of care that is paid through fee for service. Thus, health care organiza-

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