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One strategy for controlling costs in university teaching hospitals.

Major teaching hospitals, because they treat a more complex mix of patients than do nonteaching hospitals, usually show higher costs per patient day or per case. As a result, teaching hospitals are particularly vulnerable to the decisions of those cost control and planning agencies that are unable or unwilling to treat the problem of case mix. Research at Yale University reported here demonstrates the effect of case mix on costs. A methodology is outlined that can be used by teaching hospitals in determining their costs of treating patients with a complex mix of diagnoses. It is not held that case mix alone explains all of the cost differences between teaching and nonteaching hospitals; but until that factor is isolated and identified, the other contributors to cost variation cannot be examined.

Costs and Cost Analysis

Physicians, cost control, and ethics.

Rising health care expenditures have led to numerous cost-control proposals. An examination of the ethical questions surrounding the role that physicians play in the control of health care costs suggests that unilateral rationing decisions by individual physicians at the bedside are morally unacceptable. Such decisions are arbitrary, ineffective in redistributing health care resources, and formally unjust. Restrictive gatekeeping (the creation of financial incentives for physicians to limit care given to individual patients) also seems unacceptable because of its morally significant effects. First, it disguises the role of those actually responsible for cost-control decisions; second, it routinely creates a "moral stress test" by forcing physicians to act in ways that are contrary to their own interests in order to serve the needs of patients; third, it undermines the trust between doctor and patient; and fourth, it rations by class of persons rather than class of technology. In contrast, a morally sound system would attempt to control costs by honestly informing patients and assigning responsibility justly, would encourage physicians to act in the interests of patients, would foster trust, and would recognize the great importance of equal treatment for all patients. Such a system would depend on input from an informed public and would apply equally to all members of society.

Beneficence

An alternate approach to hospital cost control: the Rochester project.

The rapid escalation in health care costs has demonstrated a need to control costs in general and hospital costs in particular. In New York State, efforts at control have followed one of several paths, including reduction of Medicaid program expenditures, elimination of hospital beds, and prospective reimbursement of hospital costs. Although some success has been achieved in each of these areas, hospital costs containment has not been as successful as had been hoped. A new project called MAXICAP, being developed in the Rochester region, seeks to link payment with regional hospital planning. MAXICAP represents a voluntary attempt by hospitals, third party payers, planners, consumers, and governmental agencies to devise a prospective hospital payment system. Under this system community hospital plans in the Rochester region would be integrated and a cap imposed on both revenues and expenses for acute hospital care. The principal advantage of the MAXICAP is that it offers a mechanism for linking hospital planning with payment functions on a regional basis. The principal disadvantage is that the success of the MAXICAP depends upon the voluntary cooperation of the vast majority of the acute care hospitals in the area--hospitals that may be scattered throughout a relatively large region.

Costs and Cost Analysis

Informed, involved employees aid hospital's cost control program.

A community hospital's two-part program emphasizes employees' responsibilities and participation in cost control. First, department managers were made more aware of and knowledgeable about costs and techniques for control through use of an AHA educational program. Second, an employee committee studies cost problems and recommends solutions that have effected substantial savings.

Administrative Personnel

Consumer-choice health plan (first of two parts). Inflation and inequity in health care today: alternatives for cost control and an analysis of proposals for national health insurance.

The financing system for medical costs in this country suffers from severe inflation and inequity. The tax-supported system of fee for service for doctors, third-party intermediaries and cost reimbursement for hospitals produces inflation by rewarding cost-increasing behavior and failing to provide incentives for economy. The system is inequitable because the government pays more on behalf of those who choose more costly systems of care, because tax benefits subsidize the health insurance of the well-to-do, while not helping many low-income people, and because employment health insurance does not guarantee continuity of coverage and is regressive in its financing. Analysis of previous proposals for national health insurance shows none to be capable of solving most of these problems. Direct economic regulation by government will not improve the situation. Cost controls through incentives and regulated competition in the private sector are most likely to be effective.

Costs and Cost Analysis

Application of an economic model to the study of leprosy control costs.

The effectiveness of various control methods for reducing the incidence of leprosy have been tested over 20 years and compared with predictions made using the present current control method (early diagnosis and mass treatment). Specific vaccination of the whole population, a control measure yet to be developed, has been identified as the most effective strategy in the long run. A cost-effectiveness analysis has been carried out for three indicators, annual incidence, annual prevalence and cumulative prevalence at 20 years, using cumulative costs. The analysis indicates that specific vaccination at high levels of coverage is the most effective method for controlling incidence in the long term. Provided the cost of the vaccination campaign during the first years (roughly fourfold the funds required for carrying out the current strategy) can be supported, specific vaccination is also the most cost-effective method where a high level of effectiveness is required. Specific vaccination is still the most advantageous method if prevalence or cumulative prevalence are taken to indicate the effectiveness of leprosy control. The BCG-type of vaccination is not only less effective, it is also less cost-effective. Reducing the rate of abandonment of treatment (which in the model has been simulated by increasing the rate of resuming treatment) and earlier detection both appear as useful methods under conditions of severe budgetary constraints. Their ultimate effectiveness in terms of incidence reduction is, however, very small. As expected, segregation is costly and ineffective compared with other methods. In each simulation, the cost of treating the backlog of patients already ill or infected (incubating) at the time the control measures are initiated is high. Methods aimed at reducing transmission, such as vaccination, early treatment or segregation, have long-delayed effects on the cost even if incidence is reduced. The major cost item in these control measures is the prolonged or even life-long treatment of patients. The development of fast-acting, effective treatment is likely to be the only way to reduce the cost in the short term. Thus, in addition to research aimed at developing a vaccine for leprosy, resources should also be allocated for developing new therapeutics.

BCG Vaccine