The statement is based on early returns from a groundbreaking demonstration project on pay for performance involving more than 270 hospitals in 38 states. The Committee begins hearings today regarding proposed pay for performance legislation, S.1356, the "Medicare Value Purchasing Act of 2005."

"Pay for performance, if thoughtfully implemented, has great potential to improve quality of care," said Richard Norling, president and chief executive officer, Premier, Inc.

A leader in helping hospitals improve clinical outcomes while lowering costs, Premier is partnering with Center for Medicare and Medicaid Services (CMS) in a three-year project to determine whether financial incentives can drive quality improvement.

As part of the project, which began in October of 2003, Medicare will reward high performers with bonuses totaling $7 million per year for a total of $21 million. Poorly performing hospitals may face financial penalties.

The project tracks hospital-specific performance on a set of standardized and widely accepted quality indicators for five key clinical areas, including heart attack (acute myocardial infarction), congestive heart failure, pneumonia, coronary artery bypass graft, and hip and knee replacements.

In May, Premier released results from the project's first four quarters showing a trend toward significantly improved quality among all participants. The median performance composite score for all hospitals went up 7.5 percent in the project's first year.

Fifth quarter results released in today's report show even greater improvement in patient care quality, with the median performance composite score increasing more than 10 percent across all 34 measures tracked. Several metrics, such as aspirin prescription for open heart surgery patients, are reaching a compliance rate of nearly 100 percent.

The improvement in quality is even more significant given the diversity of hospitals participating in the project, according to Stephanie Alexander, senior vice president and general manager of Premier Healthcare Informatics, a division of Premier. Participating hospitals represent the full spectrum of American healthcare, with 30 percent serving rural communities and 70 percent urban. The vast majority of participants - 73 percent - are non-teaching hospitals.

"The renewed focus on standard processes and clinical consistency, coupled with financial incentives for outstanding performance, is yielding terrific results," said Alexander. "The improvement we're seeing across the board simply underscores why we need to measure quality at both the national and provider levels."

Performance scores on patient care indicators for heart failure have improved by 13.8 percentage points since the demonstration began, while pneumonia has improved 12.5 percentage points. Hip and knee replacement has gained 7.9 percentage points. Followed by coronary artery bypass graft, which has improved 6.8 percentage points. Heart attack measures have increased 3.6 percentage points.

In addition to overall improvement in quality scores, the variation in quality of care among hospitals participating in the demonstration project is narrowing, Alexander said. This means the gap between top performers and lower performers is growing smaller.

"Closing the gap between our top performers and those lagging behind is critical if we're going to dramatically improve the quality of healthcare overall," said Alexander, noting that one hospital that had ranked in the 10th decile in the first quarter of the project improved their overall quality score by 54 percent across the five quarters to reach the top decile.

In its newly released Quality Improvement Roadmap, CMS officials said they expect to use lessons from the Premier demonstration project "to shape further progress in hospital pay for performance implementation."

The Premier demonstration project is significant because it shows that "effective performance-based payment systems can be achieved even if only a modest portion of provider payments are involved," according to the CMS Roadmap.

"Through these and related programs, CMS will continue to work with healthcare providers and the private sector to identify and support effective ways to provide more financial support for improving quality and reducing avoidable costs," the CMS Roadmap stated.

Comprehensive information about the CMS/Premier Hospital Quality Incentive Demonstration Project is available at www.qualitydemo.com and on the CMS Web site at www.cms.hhs.gov/quality/hospital.

About Premier

Premier Inc., is a healthcare alliance entirely owned by more than 200 of the nation's leading not-for-profit hospital and healthcare systems. These systems operate or are affiliated with nearly 1,500 hospital facilities and thousands of other healthcare sites. Premier provides an array of resources including group purchasing for more than $21 billion annually in supplies and equipment. Premier also offers supply chain, clinical, and operational performance improvement products and services and insurance programs. A leader in helping hospitals improve clinical outcomes while lowering costs, Premier maintains the nation's largest database for hospital quality benchmarking with more than three billion patient charge records and 2.8 terabytes of data. Premier has offices in Charlotte, NC; Chicago, IL; San Diego, CA.; and Washington, D.C.