Rep. Tim Walz, DFL-Minn., on Thursday announced a deal he says may solidify his support for federal health care reform.

In a conference call with reporters, Walz and Rep. Ron Kind, D-Wis., hailed a "monumental breakthrough" in health care reform talks: a pact to link Medicare payments to health care providers for quality of care, rather than quantity.

The proposal is especially significant for providers in states such as Minnesota and Wisconsin, which often receive lower reimbursements from the government for the same procedures that receive higher reimbursements in other states.

Local health providers like Mayo Clinic more guardedly endorsed the pact, calling it a first step to reform the formula for Medicare reimbursements to providers, which Minnesota and Wisconsin providers say shortchanges them. Winona Health President Rachelle Schultz has called Medicare reimbursement reform especially important in the health care debate.

Walz has touted the need for health care reform but has hedged on supporting a public option, perhaps the biggest flash point in the national debate over health care reform. Walz's reluctance stems from the prospect of a public plan reimbursing providers through the current Medicare formula, which pays based on volume of procedures rather than value - an arrangement Walz says hurts high-value providers like Mayo.

Walz said the agreement announced Thursday addresses that concern and may enable him to support a public option - though he offered no commitments.

"This is a deal breaker for me," Walz said. "It makes that potential option much more feasible."

Health care reform also must prevent insurers from denying those with pre-existing conditions, expand coverage and not add to the federal deficit, Walz said.

House leaders have pledged to include Thursday's agreement in their health care reform bill; it's not clear when or if the Senate may include a similar provision. The measure would commission federal studies to recommend ways to remove geographic inequities in Medicare payments, and to reward providers for producing good outcomes at lower costs. Federal health officials would adopt the study's recommendations by 2012, prior to the enactment of a public option.

Local providers including Franciscan Skemp Healthcare in La Crosse, Wis., praised the Institute of Medicine - an independent nonprofit agency linked to the National Academy of Sciences - that would oversee the Medicare-payment reform under Thursday's agreement.

"I believe (the institute) is a credible group to do this study," Franciscan Skemp CEO Robert Nesse said. "I have good confidence that we'll start seeing some changes."