Hospitals that improve medical care for elderly patients, and reduce deadly errors, will get millions of dollars under an incentive program launched on Friday that aims to cut overall Medicare costs.
The government healthcare program for seniors spent about $4.4 billion in 2009 to care for patients who were harmed in the hospital, according to the Centers for Medicare and Medicaid Services (CMS).
Hospital readmissions because of faulty care cost Medicare, which is being targeted for budget cuts by both Democrats and Republicans, another $26 billion.
Hospitals that meet the quality performance standards in 2012 will receive a share of some $850 million the following year. The funds will come from what Medicare otherwise would have spent for extra hospital stays.
"It's a historic change," CMS Administrator Donald Berwick told reporters on a telephone conference.
"For the first time hospitals around the country are going to be paid for in-patient acute services based on healthcare quality not just on the quantity of services they provide."
The initiative to improve care quality was called for in President Barack Obama's healthcare overhaul.
It aims to reduce costly errors and repeated hospital stays and to improve follow-up with patients to make sure they are following treatment instructions.
"It is the most important answer to the healthcare sustainability issue, achieving lower costs through high quality is the right way to do it," Berwick said.
Medicare spending is expected to balloon over the next few decades as the 77-million-strong baby boom generation retires and draws on the benefits.
Studies have shown that hospital errors are behind as many as 98,000 deaths a year in the United States.