COST-CONTROL EFFORTS
Hospitals have become the mainstay of medical care largely because their expansion has been paid
for out of private and government insurance. In recent years, employers, who provide most of the private insurance, and the government both have balked at exploding hospital costs and have sought ways to cut back.
Cost-based reimbursement has been the predominant mode of hospital payment, both from private and from government insurance plans, but two major legislative changes affecting reimbursement policy have recently been enacted. The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) limited the amount that the government would pay per inpatient case, and a 1983 Social Security Amendment established fixed prices for Medicare treatment of medical conditions categorized into a system called Diagnosis Related Groups (DRG). The fixed payment system is viewed as cost-effective because it offers
hospitals incentives to decrease the services provided to patients and to shorten the length of inpatient stays. By knowing in advance what payment will be received for an illness that falls within a predefined DRG, hospitals are encouraged to be more efficient in their allocation of resources. In an attempt to reduce unnecessary hospitalization, many hospitals are shifting preoperative diagnostic testingÑsuch as laboratory work, EKGs, and chest X raysÑfrom inpatient to
outpatient preadmission services. Such preadmission testing is reimbursed separately from DRG payments.
A growing emphasis on outpatient care in general has motivated many hospitals to become affiliated with health maintenance organizations (HMOs), which offer clients medical and hospital services for a flat yearly fee and strive to reduce their costs by using more outpatient care. Hospitals themselves have enlarged their outpatient functions to include increased outpatient surgical and clinical services. Total hospital outpatient visits numbered over 350 million annually in the midÐ1990s, and the number of outpatient surgeries soared. Emergency rooms in general hospitals, which now give what amounts to outpatient medical care to large numbers of uninsured patients, received an additional 100 million annual visits.
Other cost-control efforts have involved hospitals in arranging at-home care for chronic conditions like Alzheimer disease and for other diseases, such as AIDS, that require specialized, long-term care.
In the ten years from 1983 to 1993, hospital admissions shrank by almost 15 percent and average length of stay by 7 percent. The decline continues and has left hospitals with excess inpatient capacity, underutilized infrastructures, and rapidly increasing deficits. Many seek other ways to produce income. Some have succeeded in cutting costs substantially, largely by reducing staffing. A few voluntary medical centers have embarked on profit-making ventures such as retirement housing and hospice care for the terminally ill. (These are also areas in which for-profit hospitals are beginning to invest.) Other hospitals are merging in an attempt to introduce cost efficiencies through resource sharing. Hard-pressed urban hospitals, in particular, are beginning to rely on Medicaid as a major revenue source. In New York City, for example, Medicaid paid for 38 percent of general hospital cases in 1996 and nearly two-thirds of outpatient visits. If the state adopts mandatory enrollment of Medicaid patients in HMOs, however, these revenues will diminish considerably.
Since the mid-1970s, hospital chains have proliferated, often through buying or leasing financially pressed municipal or county facilities and university-attached teaching hospitals. These conversions, from nonprofit voluntary and community hospitals to profit-making institutions, have raised serious questions: primarily whether the care of uninsured patients will be provided; and whether the responsibility to provide top-quality medical careÑand, at teaching hospitals, medicaleducationÑwill be maintained despite the need to make sufficient profits.
A case in point: In 1997 executives of the largest hospital chain, Columbia/HCA Hospital Corp., were charged with fraudulently overbilling Medicare, Medicaid, and other federal programs. Since its beginnings in 1980, Columbia had expanded to 343 hospitals and 148 outpatient centers, growing almost entirely through buying existing facilities. The firm had a reputation for ruthlessly forcing institutions to sell and for massive cost-cutting throughout its acquisitions. Columbia offered cash incentives to its executives as a reward for increasing profits, andÑin addition to overbillingÑadministrators often made staffing reductions. While Columbia promised to change its ways, the pressure to produce profits tends to compromise patient care and encourage aggressive, competitive hospital operations.
At the end of the 1990s, the Columbia case remained far from resolution. The issues were complex, as were the federal rules governing hospital reimbursements. Nevertheless, the investigationÑwhich received broad media attentionÑemphasized the government's continuing efforts to discover and eliminate health-care fraud from federal health-insurance programs.