Health maintenance organizations, financial incentives, and physicians' judgments

Article Abstract:

Health maintenance organizations (HMOs) are a type of group health care practice that provides health maintenance and treatment services to people who prepay a set fee. In this system, physicians work for a flat fee and are not paid on the basis of the number of tests that they perform. This system is intended to curb the use of needless diagnostic tests and reduce medical costs. Recently, it has been questioned whether the financial incentives HMOs give to physicians to cut costs affect their decisions regarding the appropriate medical care a patient receives. Physicians who are paid a flat fee hospitalize patients less often than physicians who are paid by a fee for service. In most HMOs, a certain percentage of the physician's salary is withheld until the final financial outcome of funds designated to pay hospitals for their services is determined. A physician who overutilizes tests and exceeds his budget is financially penalized, whereas those who are more frugal may receive a bonus. Almost 40 percent of physicians who are capitated, or who are paid a fixed amount to see a number of patients, are required to pay for outpatient laboratory tests from their own pay. There is a risk that physicians may fail to order certain tests that are required to come to an accurate diagnosis, in an attempt to boost their income. The Physician Payment Review Commission, the General Accounting Office, and Congress have all recommended that a physician's withheld income not be tied to the financial outcome of the HMO. Conversely, these panels have not recommended changes in the older fee-for service system of payments, which tends to overutilize rather than underutilize diagnostic tests. Recently, the Clinical Subcommittee of the American College of Physicians has formed task force to inform physicians about the choices, including the financial obligations, they have to make when joining an HMO. Most physicians act in their patients' best interest, especially when the diagnosis is clear, but when it is not, financial incentives may influence the patient's diagnosis, treatment and care. (Consumer Summary produced by Reliance Medical Information, Inc.)

Ethical aspects, Health maintenance organizations, editorial, Social health maintenance organizations

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Reasons for increasing administrative costs in hospitals

Article Abstract:

Administrative costs may play an important role in the increase in hospital expenditures since the early 1980s. A study examined the annual budgets of 70 hospitals for the years between 1983 and 1990. Total administrative costs increased by 90% over the eight-year period. Costs of service departments increased by 29%, of ancillary services by 30% and of professional care by 52%. Miscellaneous expenses increased by 70% and the total hospital budget increased by 45%. All the hospitals had these types of increases regardless of size. An 84% increase in administrative costs occurred in the departments with more regulatory requirements, compared with 5% for those with fewer requirements. Departments that provided patient care did not have a larger increase in costs than those that did not provide patient care.

Management, Hospitals, Hospital administration

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Competing practice guidelines: using cost-effectiveness analysis to make optimal decisions

Article Abstract:

Health care practices shown to be cost-effective for individual patients may not translate to be cost-effective practices for larger populations. It may be advisable, therefore, to allocate funds based on more comprehensive data than specific practice guidelines. A statistical model based on published practice guidelines was formulated to compare cost-effectiveness for individual hypothetical patients and a group population of 100,000 hypothetical patients. More than half of the guidelines had different cost-effectiveness results for the individual and population groups.

Usage, Practice guidelines (Medicine), Cost benefit analysis

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