But chances are your doctor has never encountered that equation. He or she probably gets paid for whatever tests, diagnoses, or treatments are delivered, regardless of whether they are the right ones.
That could soon change, if a growing number of policy makers get their way.
Increasingly, economists, researchers, and federal health officials are getting behind the idea of tying doctors' fees to how effectively and efficiently they do their jobs, and how well the care they deliver adheres to the best scientific data.
Some private health companies have already begun offering doctors incentives for closely following standards in treating ailments like heart disease or diabetes.
The Role of Medicare
Slowly but surely, Medicare -- the government-funded program responsible for the care of more than 40 million Americans -- is also getting into the act.
"The current Medicare payment system is broken," says Robert D. Reischauer, PhD, a former White House budget director who is now president of the Urban Institute, a Washington think tank.
Reischauer sits on an Institute of Medicine (IOM) committee that concluded Thursday that Medicare's current system -- which bases doctors' payments on the number of evaluations, tests, and treatments they provide -- does nothing to control waste or discourage ineffective care. The IOM, a private, nonprofit group, advises the government on medical and scientific issues.
Just Wednesday, a wide-ranging report released by the Commonwealth Fund detailed how rampant waste and ineffective care have become. That report found that the U.S. far outspends any other country on medical care, but lags behind -- sometimes far behind -- in nearly every relevant measure of health.
Medicare should use incentive payments, combined with the force of its $300 billion-per-year medical care budget, to improve the quality and efficiency of the U.S. health system, the IOM committee said Thursday.
'Long March' to Incentives
The committee said Congress and Medicare should move quickly to implement so-called "pay for performance" plans. But Reischauer acknowledged that getting incentives off the ground would be "a long march."
Researchers have only begun to settle on how to accurately measure the performance of doctors, who often work on highly complex and varied types of cases.
Experts also say they have not figured out how much more money -- 10%, 20%, or more -- would be necessary to shift the behavior of poorly performing physicians.
Not surprisingly, the idea of tying payments to job performance is eyed with suspicion by doctors, who worry that measures could wind up dictating to them how to practice their craft, or worse, fail to take into account sicker and harder-to-treat patients.
"This is a change in culture," says Robert Glavin, MD, a member of the IOM panel and director of global health for General Electric Co.
The American Medical Association (AMA), which looks after doctors' interests in Washington, has said any new payment incentive system should be voluntary for doctors. The organization is coming up with its own set of quality measures for Medicare to consider.
"In addition, pay-for-performance programs should ensure quality of care, foster the patient-physician relationship, and use accurate data and fair reporting," Cecil Wilson, MD, the AMA's board chairman, said in a statement Thursday.
Medicare has already launched demonstration projects designed to test whether pay-for-performance incentives can improve care. Outgoing Medicare chief Mark McClellan, MD, a physician and economist, has said the agency plans to expand those programs.
Donald McCleod, a Medicare spokesman, said hospitals participating in a voluntary demonstration received $8.85 million in bonuses for improvements o quality measures this year. He called the IOM's report "right on target."
SOURCES: Institute of Medicine: "Rewarding Provider Performance: Aligning Incentives in Medicare," Sept. 21, 2006. Robert Reischauer, president, Urban Institute. Robert Galvin, MD, director of global health, General Electric Co. Cecil Wilson, board chairman, American Medical Association.
By Todd Zwillich
Reviewed by Louise Chang