This is a rush transcript from "On the Record," February 15, 2010. This copy may not be in its final form and may be updated.

GRETA VAN SUSTEREN, FOX NEWS HOST: President Obama issued a challenge and Minnesota governor Tim Pawlenty is taking him on! The president wants Republicans to bring ideas to the February 25th bipartisan health care summit. Governor Pawlenty has some ideas. He joins us live. Good evening, Governor.

GOV. TIM PAWLENTY, R - MINN.: Good evening, Greta.

VAN SUSTEREN: Governor, you have an op-ed piece giving five ideas in terms of how to improve our health care system. I want to start with one of them, which is this pay for performance idea. What is that?

PAWLENTY: Well, in short, instead of paying doctors and clinics and hospitals and providers for the volumes of procedures they perform, which is how we pay now, we want to pay them for better health care outcomes, or at the very least, using procedures that work better. We started that in Minnesota with some of the expensive procedures, the chronic conditions, and it's working. It's a start, but it makes common sense. If you pay people for better health, that's better than paying them for volumes of procedures.

VAN SUSTEREN: All right, let me ask you worst-case scenario -- two people walk in, one has a cancer that responds to chemotherapy, one has a cancer that does not. If we look for sort of results, the one who has a cancer that's sort of -- or doesn't respond very well to chemotherapy -- is that person going to get treatment?

PAWLENTY: Well, what we've done in Minnesota through a program called Q-Care, Greta, is to say this. We know what the hoped-for outcomes are in the treatments of diabetes. We're able to benchmark against places like the Mayo Clinic. There's not much argument about whether those are world- class standards or best treatment standards. And we still pay providers if they have unfortunate outcomes or average outcomes. But we pay them more if they have better outcomes, so it's a bonus system. And it's working.

VAN SUSTEREN: What about the idea that you put forth in your op-ed about making patients be smarter consumers? How do you do that, and what's the advantage?

Watch Greta's interview with Gov. Pawlenty

PAWLENTY: Well, the advantage is this. We all know it's simply common sense that people spend money differently if at least some it is their own money. So we said to our state employees, for example, You can go to any clinic that you'd like, but if you choose one that's really expensive and not as good with quality or outcomes, you're going to pay more. And if you go to one that's more efficient and has better outcomes, you'll pay less. Ninety percent of our state employees have migrated to higher-quality, more efficient clinics. And our premiums over five years, Greta, have been almost zero percent cumulatively over five years. It's quite extraordinary, and it's because people now have some financial skin in the game. It's incentivizing consumers to make good choices.

VAN SUSTEREN: OK, Governor, you have at least -- you have five ideas in this op-ed. Have you heard from the White House? Has anyone said, you know, We'd like to talk more about your ideas? Or have you made any gesture, like, you know, like you'd like to go talk to them?

PAWLENTY: Well, the op-ed just got published, but we are sending the president a formal letter with these ideas and others in it. It is time for a national do-over. Let's face it, the health care system is broken. It's what's financially pressuring so many families and businesses and governments. So I applaud the president for trying to invite president -- Republicans in. But I think he should expand the circle, not just talk to members of Congress. If you want to fix the health care system, talk to people who've done it, including practitioners, but also including governors from both parties. We're the ones on the ground with these programs, with lots of costs (ph), fixing them and learning from that and making reforms. So I would expand the circle beyond just politicians or members of Congress in Washington.

VAN SUSTEREN: Well, you know, it certainly makes a lot of sense to bring in the governors because you're the ones who have to balance your state budgets. And the senators have a much different -- and members of Congress have a much different agenda. Are there no governors, as you know, the ones who are actually going to have to implement what happens -- no governors invited to this February 25th summit?

PAWLENTY: Not that I'm aware of. Now, we do have a National Governors Association summit this coming weekend in Washington, D.C., so I'll have a chance to talk to the president there. But it would be nice to have a concentrated time just to focus on health care. And again, this is a time for the country to come together. We need a national do-over on it. Republicans have a lot of good ideas. Set aside the stuff we can't agree on. I'm sure there's a bunch of things we can agree on and move this forward. It's time.

VAN SUSTEREN: Governor, thank you. And I look forward to both the Democrats and Republicans talking about this, and I certainly look forward to February 25th. Thank you, Governor.

PAWLENTY: Thank you, Greta.

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