https://www.medicare.gov/hospitalcompare/readmission-reducti...

In general, Medicare pays a certain amount of money for a patient with a specific diagnosis. So if 70-year old woman X is admitted with condition Y, the hospital will receive $Z for treating her -- no matter what it costs. Hospitals don't love that since having patients in beds is expensive, so they would often times discharge patients before it was medically appropriate. They would take $Z and then when the patient came back in a few days, they could bill for follow-up services.

With the ACA we started tracking hospital readmissions to see how big of a problem that really was, and if hospitals underperformed their peers (aka they saw a lot of readmissions indicating that patients were discharged too early), they would either not pay for the followup visits or just lower the overall reimbursement for future patients.

Another good example was the Hospital-Acquired Condition reduction program. There is an enormous amount of cost associated with hosptial-acquired infections and the US was particularly bad in terms of modern systems. If patients in your hospital are consistently catching bugs, Medicare will dramatically reduce your reimbursement rate.

http://www.beckershospitalreview.com/quality/769-hospitals-s...

Since the 1990s though, Docs have been working with P4P -- whether it's increased reimbursement from insurance companies for prescribing an appropriate ratio of generics vs. brand name medicines, to the lump-sum payment per patient, to bonuses for hospitals adhering to best-practices (what % of patients with chest pain get an aspirin with 30 minutes or what % are cath'ed within 90 minutes of presenting).