Medicare will launch a demonstration to determine if cash incentives will improve the quality of care in nursing homes.

Nursing homes in Arizona, Mississippi, New York and Wisconsin will be asked to take part.

Facilities joining the Nursing Home Value-Based Purcahsing demonstration will be awarded points for performance on quality measures in four areas: nurse staffing, avoidable hospitalizations, resident outcomes, and the scope and severity of deficiency citations the home has received during inspections. Nursing homes with the highest score or the greatest improvement in their score will be eligible for a performance payment.

The payments will be funded by state pools. Money that was previously used for events, such as avoidable hospitalizations, will now be used to fund the pool.

Medicare officials anticipate that at least 100 nursing facilities in each state will apply to be part of the demonstration which runs from July 2009 through June 2012.