Incentives for cost-effective behavior: a Dutch experience.

In 1983 the Dutch government introduced a system of hospital budgeting in the Netherlands to contain the increase in health care costs. The budgets were fixed at the real costs in 1983 after an assessment of these costs. A distinction is made between external budgets, which is allocation of resources by external institutions, and internal budgets, which is the allocation within the organization. External budgets should be global; internal budgets should be specific. The influence of the budgeting process on the situation and attitude of physicians is analysed. The budgeting process influences the administration as more and better data are needed to involve heads of departments and physicians in the budgeting process. Specifications of the data in departments, specialisms, and patients seems necessary. The budget process also has its impact on the hospital organization, notably on the position of the physicians and the medical staff, for it tends to integrate them more completely into the organization. There may be a difference between 'the gate specialists' and the specialist heads of service departments. Budget responsibility will be given to all specialists. Finally, the budgeting process affects the quality of patient care. With limited resources, it is necessary to link quality with efficiency in allocating resources. It will probably be necessary to provide more coordination between hospital budgets and specialists' fees. In the future more capitation and salary elements will be brought into the fee system for physicians.     

Global budgeting of hospitals in Hong Kong.

Policy-makers in industrialized countries face the dilemma of having to contain soaring hospital costs while resisting any reduction in the quality and quantity of hospital services. Among the many hospital financing systems, centralized control via global budgeting is advocated by some to be the most effective in containing hospital costs. Containing hospital costs, however, is but one aspect of the trade-off between cost containment and quality of care. The hospital financing system of Hong Kong provides some insights into the extent to which cost control can be achieved through global budgeting; and its impact on the accessibility of hospital care. The case of Hong Kong highlights three necessary conditions for effective cost control: (1) the payer must have a clear policy stance on overall public spending; (2) the payer must have a clear policy stance on the importance of hospital care relative to other goods and services; and (3) the payer must also have the will and ability to limit hospital spending within finalized global budgets. However, successful cost containment in Hong Kong affects the accessibility of hospital care. In a time of population growth and economic prosperity, new community needs seem to have preceded government plans and actions to build hospital facilities.     

Minding our Ps and Qs? Financial incentives for efficient hospital behaviour

In this paper, the empirical evidence addressing the particular issue of how hospitals may be reimbursed is reviewed. Most forthcoming is the indeterminate effect of prospective payment systems using diagnosis-related groups as a means of controlling costs. Such systems, by controlling only the price of hospital care, remain vulnerable to compensatory increase in patient throughput, cost-shifting and patient-shifting despite hospital cost per case being reduced. Health maintenance organisations have been shown to reduce hospital costs, but their effects on patients selection and patient outcome are unclear. Selective contracting in California (similar to the U.K. Government's proposed internal market) has also been shown to reduce costs by affecting both the price and quantity of hospital care. But these effects have occurred only in areas with high concentrations of hospitals. Global and clinical budgeting (which control price times quantity) seem to offer the most potential for cost reduction whilst maintaining patient outcome. By monitoring both cost and outcome within clinical budgets it should be possible to reduce wasteful variations in health care and so establish more efficient hospital practice.     

Decentralization of management responsibility: the case of Danish hospitals

This article examines a specific management reform at three hospitals in a Danish county. Management reform at the hospital level implies a decentralization of responsibility and power to the departmental level. Along with increased responsibility and power, departments get the message: keep your budgets and keep your output level. This preliminary analysis indicates that departmental budgets can be a way of containing costs in clinical departments. Non-staff expenditures especially are subjected to reductions. The system still seems to 'favour' doctors and nurses, but less than in a system with traditional budgetary institutions. The behaviour of the top-management teams shows that the output constraint is not seriously meant. Departments are allowed to reduce capacity, with declining output, with the knowledge of the top-management team. The declining output makes it easier to departments ceteris paribus to keep within their budgets. And that makes it easier for the top-management team to keep the overall hospital budget. The obligation to keep the overall hospital budget is thus an important criterion of success in the eyes of the political masters of hospitals.     

Organization and financing of mental health care in Poland

ORGANIZATION OF CARE: Health care is provided to patients with mental disorders by the state health care facilities as well as by social help agencies. Mental health care services are provided mostly by mental health facilities and partly by primary care units. Outpatient clinics, separate for psychiatric patients and substance abusers, are the most numerous mental health care units, amounting to a total of 1120. Intermediate care facilities include 110 day hospitals, 23 community mobile teams and ten hostels. The number of hospital beds amounts to 31913, i.e. 8.3 beds per 10000 population. 80% of beds are located in mental hospitals. TRENDS OF DEVELOPMENT: The trends in mental health care development are outlined in the Mental Health Programme and accompanying documents accepted by the Minister of Health and Social Welfare. The programme defines specific goals to be achieved by the year 2005 in the primary, secondary and tertiary prevention of mental disorders. In the domain of mental health care accessibility the most important goals are the following: a significant reduction in the number of beds in large mental hospitals, a marked (nearly threefold) rise in the number of beds in psychiatric wards at general hospitals and a significant increase in the number of community-based forms of care (e.g. a fourfold rise in the number of day hospitals). FINANCING OF CARE: Before 1999, the health care system was financed from the state budget and the health care spendings were subject to a political auction each year. Allocation of funds among hospitals and health care centres was based on the total previous year budgetary spendings of particular facilities and did not take into account a detailed cost analysis. Such a financing approach, although giving a feeling of a relative financial safety, did not encourage health care facilities to introduce an organizational flexibility and to expand the scope of their services. In psychiatry, it manifested itself in a very slow development of some community psychiatry forms (mostly day hospitals, mobile community teams and hostels). The Health Care Institutions Act has created a legal framework for the financial management of health care units in their new, independent form. Conditions for health care financing through regional sickness funds were thus created. The financing is currently based on contracts made by sickness funds with health care facilities for specific health services. Both the quantity and price of services should be mutually negotiated. Some simplified measures of services offered were used during the first insurance financing year. In mental hospitals and day hospitals it was a person-day; in out-patient care it was a visit. Both cost indicators were aggregated, including all the components present so far in the functioning a given unit.     

Budgeting in health care systems

During the last decade there has been a recognition that all health care systems, public and private, are characterised by perverse incentives (especially moral hazard and third party pays) which generate inefficiency in the use of scarce economic resources. Inefficiency is unethical: doctors who use resources inefficiently deprive potential patients of care from which they could benefit. To eradicate unethical and inefficient practices two economic rules have to be followed: (i) no service should be provided if its total costs exceed its total benefits; (ii) if total benefits exceed total costs, the level of provision should be at that level at which the additional input cost (marginal cost) is equal to the additional benefits (marginal benefit). This efficiency test can be applied to health care systems, their component parts and the individuals (especially doctors) who control resource allocation within them. Unfortunately, all health care systems neither generate this relevant decision making data nor are they flexible enough to use it to affect health care decisions. There are two basic varieties of budgeting system: resource based and production targeted. The former generates obsession with cash limits and too little regard of the benefits, particularly at the margins, of alternative patterns of resource allocation. The latter generates undue attention to the production of processes of care and scant regard for costs, especially at the margins. Consequently, one set of budget rules may lead to cost containment regardless of benefits and the other set of budget rules may lead to output maximization regardless of costs. To close this circle of inefficiency it is necessary to evolve market-like structures. To do this a system of client group (defined broadly across all existing activities public and private) budgets is advocated with an identification of the budget holder who has the capacity to shift resources and seek out cost effective policies. Negotiated output targets with defined budgets and incentives for decision makers to economise in their use of resources are being incorporated into experiments in the health care systems of Western Europe and the United States. Undue optimism about the success of these experiments must be avoided because these problems have existed in the West and in the Soviet bloc for decades and efficient solutions are noticeable by their absence.     

基本建设项目财务管理研究——以同济医院为例

新《医院财务制度》规定:"医院应控制工程成本,做好工程概、预算管理,工程完工后,尽快办理工程结算、竣工财务决算,提供基本建设收入支出表。"结合同济医院基本建设财务管理实践,探讨了内部控制、概预算管理、成本核算、工程结算、财务决算和预算绩效评价。     

Managing the risk of infectious disease: The context of organisational accountability

The work reported in this article is part of a larger study funded by the UK Economic and Social Research Council (ESRC). The aim of the study was to determine how risks associated with infections and the control of infectious disease were managed in the NHS quasi-market. The specific objectives included an evaluation of the effectiveness of formal contracts, regulations and informal practices; the impact of professional and managerial systems on infection control; how financial risks of infection were distributed; and perceptions of risk held by contracting agents. This article reports on case studies in five sites. An understanding of formal and informal agency relationships and networks within each site was explored by interviews with key personnel who outlined how they perceived risk and their role in contracting. Insight into the budgeting and financial arrangements for controlling infection and dealing with outbreaks and how the financial risks were distributed was also sought. This article discusses the findings concerning the financial and budgetary arrangements for dealing with infection and its control. The theoretical framework adopted was that of institutional economics and it was within this framework that the effectiveness of contracts to control infectious disease was explored. Whilst contractual difficulties were anticipated, the extent to which the contractual process did not appear to be informed by those with most knowledge was unexpected. Transaction cost minimisation involves avoidance of costs to the contracting parties, which in this case, involves some knowledge of the risks of infection and the problems that might arise. Transaction costs cannot be minimised if the risks are unknown. Yet few officers with knowledge of and responsibility for infectious disease and its control had been party to negotiations of contracts. Moreover, the formal organisational networks established to deal with infectious disease were not used appropriately. In hospitals the cash limited budgets held by directorates had impeded the management of infectious disease by failing to take the public good aspects of infection control into account. It led to under-provision of services arising from the unwillingness of individual budget holders to accept financial responsibility for infection control procedures. The present arrangements have distanced those with expert knowledge from the process of drawing up contracts, left them with tenuous access to funds and marginalised them from the budgetary process and decision making relating to prioritisation of resource use. Thus the boundaries erected by contracts and devolved budgets are proving to be inappropriate arrangements for the control of infectious disease.     

Cost containment and health care reform: a study of the European Union

This article gives a short summary of the organisation and financing of health services of the 12 Member States of the European Union. It then describes the latest developments in cost containment in each of the countries. The third section describes the new initiatives for reform in Spain, Italy, the Netherlands, Portugal and the United Kingdom. Finally, it gives a summary of the cost containment measures in the 12 countries, listing them under a set of headings. They are classified as budget control, alternatives to hospital care, cost sharing, influencing authorizing behaviour and limits on supply. The article shows the considerable convergence of policies which is developing. Overall budget control in some form is to be found in 8 of the countries. Where providers are paid by a number of different insurers, budgets are nevertheless applied to hospitals in three countries and in another only to public hospitals. Both Germany and France have used budgets to control other items of expenditure. Profits or the prices of drug companies are controlled in 8 countries and in one indirectly. Three have adopted reference price systems for drugs and another has taken powers to do so. Two have adopted or are moving towards provider markets.     

Financing reforms of public health services in China: lessons for other nations

Financing reforms of China's public health services are characterised by a reduction in government budgetary support and the introduction of charges. These reforms have changed the financing structure of public health institutions. Before the financing reforms, in 1980, government budgetary support covered the full costs of public health institutions, while after the reforms by the middle of the 1990s, the government's contribution to the institutions' revenue had fallen to 30-50%, barely covering the salaries of health workers, and the share of revenue generated from charges had increased to 50-70%. These market-oriented financing reforms improved the productivity of public health institutions, but several unintended consequences became evident. The economic incentives that were built into the financing system led to over-provision of unnecessary services, and under-provision of socially desirable services. User fees reduced the take-up of preventive services with positive externalities. The lack of government funds resulted in under-provision of services with public goods' characteristics. The Chinese experience has generated important lessons for other nations. Firstly, a decline in the role of government in financing public health services is likely to result in decreased overall efficiency of the health sector. Secondly, levying charges for public health services can reduce demand for these services and increase the risk of disease transmission. Thirdly, market-oriented financing reforms of public health services should not be considered as a policy option. Once this step is made, the unintended consequences may outweigh the intended ones. Chinese experience strongly suggests that the government should take a very active role in financing public health services.     

DRG-related prices applied in a public health care system--can Finland learn from Norway and Sweden?

In the early 1990s, DRG based hospital financing was introduced into some hospital districts in Finland. The 1993 state subsidy reform decentralising all hospital financing to municipalities, and the aim of improving productivity, were the driving forces for introducing DRG. This study addresses the pros and cons of DRG in hospital financing in the Finnish health care system and puts forward several solutions to avoid potential problems. We consider the objectives and optimal features of hospital financing systems in the context of the public health care system, where the public sector owns and finances hospitals. We analyse impacts of introducing different types of DRG based hospital financing systems, taking into account earlier experiences in countries such as Sweden and Norway, as well as Finnish system specific features. DRG could assist the Finnish municipalities to compare quality, costs and prices of services between hospitals, and related cost information might help them budget expenditure more accurately. System specific features mean that traditional uses of DRG in hospital pricing are not feasible in Finland. But some benefits of DRG could be exploited, for instance in the controlled contracts between municipalities and hospitals.     

Cost containment for the public health

The U.S. health care system has major problems with respect to patient access and cost control. Trimming excess hospital expenses and expanding public health activities are cost effective. By budgeting well, with global budgets set for the high cost sectors, the United States might emerge with lower tax hikes, a healthier population, better facilities, and enhanced access to service. Nations with global budgets have better health statistics, and lower costs, compared to the United States. With global budgets, these countries employ 75 to 85 percent fewer employees in administration and regulation, but patient satisfaction is almost double the rate in the United States. Implement a global budget for health care, or substantially raise taxes, is the basic choice faced in this country. Key words: global budget control cost containment.     

Capital equipment budgeting: changing an art to a science

In today's integrated healthcare environment, one component of financial management remains antiquated in many facilities--the budgeting process for capital equipment. Many institutions budget for capital equipment based upon individual departmental wish lists and hopeful dreams. These highly inefficient practices are being replaced with automated systems that create departmental data exchanges, utilization analyses, life-cycle cost justifications and enterprise-wide budget roll-ups. This article shows how automated capital budgeting systems help reduce capital spending by identifying utilization trends, providing for demand matching, and maintaining cost control data which enable the financial manager or asset steward to analyze and justify appropriate acquisitions.     

A hedonic prices approach to hospitalization costs. The case of Israel.

The paper suggests a hedonic prices approach to estimate the cost of hospital services. It applies this approach to Israeli data as a first approximation of hospitalization costs in that country. In the absence of accounting data, this approach enables us to estimate the relative cost of basic hospital services, how hospital characteristics affect cost and how cost changes with time. Moreover, it provides for a standardized measure to view the relative efficiency of a cross section of hospitals. Several findings based on Israeli data demonstrate the potential of the approach and may be of general interest. First, controlling for department mix, bigger hospitals, which are usually also teaching hospitals and may have a different case-mix, incur higher cost per admission than smaller hospitals. Second, by institution, General Sick Fund hospitals are more expensive, but also experience, in terms of budget allocations, less discrimination than Government hospitals. Hence, provision of equitable service may be less efficient than in services where there is budgetary discrimination to induce specialization, etc. Third, hospitals have been subject to inflationary pressures over and above the general inflation level in Israel, as may be the case in most other western countries. Fourth, a comparison of cost per admission across hospitals and over time shows that cost has been consistently increasing in particular hospitals and falling in others, beyond the average increases warranted by growth in size, changes in composition, and hospitalization-specific inflation. More research is needed in order to explain these unexplained but consistent trends.     

Hospital staffing adjustments under global budgeting

The U.S. Department of Veterans Affairs operates a hospital system that distributes a national global budget to 159 hospital units. Over recent years, cost containment and downward budgetary pressures have affected hospital performance and the quality of care delivered in unknown ways. This article examines hospital staffing levels as potential performance measures. We first develop a regression model to estimate the number and types of clinical staff required to meet current inpatient workloads at VA medical centers. We are able to improve on previous analyses by employing better data on physicians and by evaluating the behavior of hospitals in consecutive years. Our findings provide managers of hospital systems with promising new approaches for comparing hospital production processes and more information on the effects of global budgeting on individual hospital staffing within systems.     

Cost-accounting techniques for health care providers

The author reviews cost-accounting techniques and systems used by manufacturing companies. Some of the concepts and techniques used by for-profit companies can be implemented for health care institutions. Nurse executives can learn many lessons in product cost accounting from these for-profit companies. Understanding the various cost-accounting methodologies and techniques that are available can help nurse executives design, implement, and use a cost accounting system that will identify the costs associated with products and services provided. The author also reviews and explains standard costing systems. These systems can serve as valuable tools for budgeting, evaluating, and controlling departmental costs. When used in these instances, they can prove useful, and they furnish important information that is necessary for pricing products, determining alternatives or substitute services, and controlling costs.     

The costs of hospital services: a case study of Evangelical Lutheran Church hospitals in Tanzania.

The health care systems of many developing countries are facing a severe crisis. Problems of financing services leads to high patient fees which make institutions of Western health care unaffordable for the majority of the rural poor. The conflict between sustainability and affordability of the official health care system challenges both local decision-makers and health management consultants. Decisions must be made soon so that the existing health care systems can survive. However, these decisions must be based on sound data, especially on the costs of health care services. The existing accounting systems of most hospitals in developing countries do not provide decision-makers with these data. Costs are generally underestimated. The leadership of the 16 hospitals of the Evangelical Lutheran Church in Tanzania is currently analyzing how the existing health care services should be restructured. Therefore, reliable estimates of the costs of hospitals services are required. A survey on 'Costing of health services of the Evang. Luth. Church in Tanzania' was prepared, which summarizes the results of seven months of field investigations in Lutheran hospitals. The major findings are that the costs of providing adequate services are much higher than expected. The most important factors determining these costs are the administrative efficiency of the hospital and the scope of services offered. The paper closes with some recommendations on how to improve the services in order to make them both affordable for the rural poor and financially sustainable for the Church. It is concluded that even the best improvement of technical efficiency will not safeguard the survival of the hospital-based health care services of the Lutheran Church in Tanzania. These findings call for a reallocation of health care resources to lower levels of the health care pyramid.     

An econometric study of costs of teaching and research in Finnish hospitals

In this study we used stochastic frontier cost functions to estimate the teaching and research costs of Finnish hospitals. Average and marginal cost estimates were used to evaluate the current reimbursement system as well as to calculate the total expenditure on teaching and research in hospitals. The efficiency adjustment had significant impact on the marginal and average cost estimates of the teaching and research output. The main policy implication of this study is that university teaching hospitals are able to produce both teaching and research output at significantly lower marginal and average incremental costs than other hospitals. According to our results 55% of the total state reimbursement budget for teaching and research (FIM 665 million) should be allocated to teaching and 45% to research. © 1998 John Wiley & Sons, Ltd.     

Cash budgeting: an underutilized resource management tool in not-for-profit health care entities

Cash budgeting is generally considered to be an important part of resource management in all businesses. However, respondents to a survey of not-for-profit health care entities revealed that some 40 percent of the participants do not currently prepare cash budgets. Where budgeting occurred, the cash forecasts covered various time frames, and distribution of the document was inconsistent. Most budgets presented cash receipts and disbursements according to operating, investing, and financing activities--a format consistent with the year-end cash flow statement. By routinely preparing monthly cash budgets, the not-for-profit health care entity can project cash inflow/outflow or position with anticipated cash insufficiencies and surpluses. The budget should be compared each month to actual results to evaluate performance. The magnitude and timing of cash flows is much too critical to be left to chance.