Aligning Financial Incentives with Quality of Care in the Hospital Setting


  • John T. Berthiaume,

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    • John T. Berthiaume is medical director, Health Plan Hawaii and Pharmacy Management unit, Hawaii Medical Service Association, Honolulu, HI. He was formerly the chief medical officer of Straub Clinic and Hospital, Inc., in Honolulu.

  • Richard S. Cluing,

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    • Richard S. Chung is vice president and medical director, care management department, Hawaii Medical Service Association, Honolulu, HI, and adjunct assistant professor of psychiatry at the John A. Burns School of Medicine, University of Hazuaii.

  • Kirn L. Ryskina,

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    • Kira L. Ryskina is consultant at Health Benchmarks, Inc., a healthcare research firm in Los Angeles, CA. She works with health plans in areas including performance-based incentive programs, quality indicator development, and hospital profiling.

  • Jim Walsh,

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    • Jim Walsh is vice president for provider services, Hawaii Medical Service Association, Honolulu, HI. He joined HMSA executive staff in 1997 with over 21 years of experience in the administration of healthcare services.

  • Antonio P. Legorreta

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    • Antonio P. Legorreta is president and CEO of Health Benchmarks, Inc., and adjunct professor at the School of Public Health, University of California–Los Angeles. He has developed and implemented health services research applications to measure medical care and resource consumption disparities and has implemented QI projects for leading health plans and employers throughout the country.


Abstract: This article describes the structure, implementation, and early results of a performance-based hospital incentive program designed by a large nonprofit health plan. The Hospital Quality Service and Recognition program, developed by the Hawaii Medical Service Association, was launched in 2001 to reward high-quality medical care at the hospital level. This pay-for-performance program used administrative claims data, survey data, and hospital-reported information to assess hospital performance in risk-adjusted complications and risk-adjusted length of stay (LOS), patient satisfaction, and hospital processes of care measures. Financial incentives were provided to participating hospitals based on their performance on these measures. Preliminary outcomes of the program evaluated over a 4-year period after implementation revealed improvements in aggregated rates of risk-adjusted surgical complications and efficiency of care as evidenced by a substantial decrease in risk-adjusted average LOS for several surgical procedures. Quality improvement was demonstrated in several other program components including emergency department satisfaction. This quality incentive program offers an innovative approach for encouraging delivery of high-quality and service-oriented care in a statewide network of participating hospitals.