the best way for a hospital to make money shouldn’t be perverse incentives

UNLIKE MOST DEVELOPED NATIONS, the US healthcare system is not necessarily in the business of improving community health. Instead, it looks at marketing private services to treat disease. The more disease there is, the greater the revenue for private companies. 

In 2014, the Feds gave Maryland the opportunity to experiment with placing global reimbursement caps on the state’s hospitals. Maryland no longer bill patients for each service provided, as it is an incentive for doctors to order more tests and treatments. Instead, the care-providers will be paid to keep people well.

“That is how healthcare is offered in most developed nations, but in the US the current incentives are for waiting for disease to develop and then billing for longterm treatment of the disease—as well as the latest costly technological testing and medication.

Furthermore, one of the larger causes of death in the United States is the number of people who acquire incurable infections due to hospital-borne pathogens. In short, many hospitals are not aggressively attempting to limit the transfer of disease while someone is in a hospital for the treatment of another illness!” 1

The best way not to create incentives

A fundamental notion of traditional Chinese medicine (now referred to as TCM) was preventing disease and maintaining a patient’s health over doctors treating illnesses. In ancient China, a doctor was paid a regular (often monthly) stipend to keep patients healthy.

If a patient became ill, the doctor was not paid until he had assisted the patient back to good health. In fact, families with a good doctor rarely underwent any kind of surgery! This is, of course, the very opposite of the way in which medicine has long been practiced in the Western nations.

“Since the mid-1970s, [Maryland] has been the only state to set the prices that hospitals charge patients. Typically, hospitals negotiate with each health insurer individually, leading to disparate rates. In Maryland, all customers pay the same price. Researchers estimate the system has saved $45 billion for consumers over four decades and prices have grown more slowly in the state.

Under the old system, prices in Maryland couldn’t grow faster than the prices set by the Medicare program. But as the cost of health care rose rapidly in recent years, the state struggled to hit that target.

State officials also worried about the old system creating perverse incentives: the best way for a hospital to make money was to provide the highest volume of services, regardless of whether that care made patients healthier. That meant payers would simply sign checks for as many treatments as the hospitals recommended. The new system intends to end that revenue strategy by capping total spending.

‘We need to shift away from our near exclusive focus on treating illness, and move to a balanced approach that encourages prevention and wellness. Such a shift will reduce costs for families and small businesses and will simultaneously keep many Americans from dying of preventable causes.’ (Maryland Governor Martin O’Malley)

Currently, medical care is provided in the US almost entirely based on billing that has no relationship to the results of the service provided. True, one cannot hold the medical profession accountable for not being able to halt a virulent cancer, for example. However, there are many other medical conditions in which appropriate care and prevention (given patient compliance) can be assessed for reimbursement based on quality.

If Maryland succeeds in this innovative undertaking, its system could become a model for the nation in boosting prevention over the predominating financial model of treatment of disease after the fact.

In many other developed nations, this strategy has driven down the cost of healthcare to boot.

It makes a lot of sense and helps create healthy communities.” 2

Best way: photo of a Traditional Chinese Medicine specialist shop in Hong Kong.

FEATURED IMAGE: The photo at the top of this page is of a shop in Hong Kong that specializes in Traditional Chinese Medicine. TCM is alive and well in Honk Kong, which has a broad selection of shops catering to their customers’ needs. These speciality shops sell ginseng, bird’s nest, and similar ingredients.


1   From an article titled “Hospitals and Doctors Make Money Off of Illness: Maryland Wants Them to Make People Healthier” by Mark Karlin for BuzzFlash (January 24, 2014).

2   From an article titled “Maryland’s plan to upend health care spending” by Sarah Kliff for the Wonkblog website (January 10, 2014).