Evolution of a quality-based compensation model: the third generation.

U.S. Healthcare (USHC) contracts for care with primary care physicians who are compensated through capitation (i.e., a fixed payment at specific intervals per member for all care provided, irrespective of the number of services). The amount of capitation is dependent upon their quality assessment rating and their ability to manage the cost of care effectively. In January of 1992 USHC implemented its current, third-generation incentive model and significantly altered its Quality Care Compensation System. The evolution of this model is presented to demonstrate that this third-generation Quality Care Compensation Model is a fair and effective means of measuring and valuing the delivery of health care to a population. It rewards physicians who expend the extra effort to manage both quality and cost. The experience of USHC continues to demonstrate that it is possible to develop and monitor incentive mechanisms in a systematic fashion with quality improvement as the outcome.