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, irrespec tive of the number of services). The amount of capi tation is dependent upon their quality assessment rat ing and their ability to manage the cost of care effec tively. In January of 1992 USHC implemented its current, third-generation incentive model and signif icantly altered its Quality Care Compensation Sys tem. The evolution of this model is presented to dem onstrate that this third-generation Quality Care Com pensation 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 mecha nisms in a systematic fashion with quality improve ment as the outcome.
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