Mr. Miller said today that changing the base year would reward hospitals that had done little to control costs.

The Cuomo administration argues that the bill would have rewarded hospitals that charged too much and penalized those charging lower rates.

It's really worth noting though that the current funding system effectively rewards hospitals for keeping people ill.

Medicare might reward doctors and hospitals that received high marks from patients, officials said.

"Just as individuals earn bonuses for high-quality work on the job, we are going to reward hospitals that excel," Mr. Thompson said.

The current fee-for-service system also rewards bad hospitals for bad service.

Bundled payment programs that will reward doctors and hospitals for working together to provide higher quality care to patients rather than bill for each individual procedure or test.

But if one wishes to try to reward hospitals that provide higher quality for lower cost, one needs to be able to distinguish between high- and low-efficiency hospitals.

The state should find a way to reward hospitals for investing, for example, in social workers who guide patients after discharge, he said.

The answer is to build a system that rewards hospitals that provide high-quality, efficient care.