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How Long Have We Known This?
Hospitals charge on a cost basis, which places no penalty on inefficient operations. Moreover, present systems of hospital management make it very difficult to maintain effective control over hospital costs. The Commission concluded:
“If the needs for health care are to be met, the health care system must be organized to employ its resources with more wisdom and effectiveness. The two areas which appear to offer the greatest potential for improvement are (1) reducing unnecessary (or unnecessarily expensive) medical care and (2) increasing efficiency in the provision of hospital care.”
It will not be easy to carry out this recommendation.
Who said this? …and when?
President Lyndon B. Johnson, Special Message to the Congress, “Health in America” March 4, 1968
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Who said this & when: 2 areas of greatest potential 1) unnecess medical care, 2) efficiency in hospital care http://bit.ly/a2U5Mr
The reason the system was cost based, hence inefficient, is due to the passage of Medicare. The government did not know how to purchase healthcare so they patterned it after defense contracting- cost plus. This is the event that iniated out of control healthcare costs. Explain to me why the federal government is now qualified to fix this problem that they are responsible for?
The effects of cost-plus revenue generation may be even more insidious and pernicious than stated.
As a (pre-med) accountancy student I was taught that overhead costs are allocated for three reasons: to calculate the full cost of a cost object for use in financial statements, to motivate managers to manage a cost object more efficiently, and to decide between alternative potential application of resources.
When I realized that some healthcare organizations apparently base their overhead cost allocation on whichever rationale generates the largest cost-plus revenue, I was “shocked, shocked.” This completely distorts cost data, making it difficult (if not impossible) to make rational management decisions about where to invest resources.
Great blog Vince. I hereby add you to my blogroll.
–Chuck
P.S. While growing up in Idaho (Pocatello, Arco, Post Falls) I was told that Idaho is the only US state that has never flown a foreign flag. Seems like an ideally bias-free perch from which to offer your policy recommendations (the rest of the states being suspiciously subject to “foreign influence”).
P.S. Can commenters on your blog insert HTML and have it work? I don’t see any instructions to that effect. I would have liked to include a link to a quote from the movie Casablanca on IMDB.
“Those who cannot remember the past are condemned to repeat it.” George Santayana
One of the major fights during the effort to enact Medicare was the opposition by the American Medical Association and the American Hospital Association to any form of payment other than fee-for-service reimbursement.
The only way to overcome AMA and AHA opposition was for Medicare to follow the existing Blue Cross and Blue Shield methods used by employer-sponsored plans at that time. That is why we still have Part A for hospital services (“Blue Cross”) and Part B for physician services (“Blue Shield”).
In 1972 Richard Nixon proposed replacing the fee-for-service payment system with risk-adjusted vouchers to be given to each Medicare beneficiary to be used to join a pre-paid group practice. As part of the same reform he was supposedly willing to expand Medicare to cover all Americans. Wilbur Mills and Ted Kennedy held out for fee-for-service National Health Insurance. A compromise collapsed when the Watergate break-in was discovered and Fannie Foxe took a swim – at the Tidal Basin with Mills sitting in the limo.
Nearly 40 years later, the Wyden-Bennett proposal is another opportunity to enact Nixon’s model. Unfortunately, there seems to be no bipartisan willingness to reach a compromise. (And scandals seem to be a problem for whoever is the Chair of the House Committee on Ways and Means).