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

Es­ti­mated reading time is 3 min­utes.

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).


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