Almost 60% of U.S. hospitals report losing 20 cents on the dollar for every elderly patient that comes through their doors. They make up the difference by charging the under-65s a far higher fee. But Providence breaks even on the elderly, even though Medicare pays about $1,000 less per enrollee in the hospital’s region than the national average. The hospital accomplishes this feat while winning a doctor’s satchel full of national awards for top-notch care, placing it among the elite 5% of all U.S. hospitals.
High quality at a low price. Every other industry strives for that combination, but a hospital that does both is all too rare. Providence and its cost-efficient brethren demonstrate that quality care can be delivered at an affordable price, provided hospitals can be persuaded to rethink decades-old practices.
The crazy world of hospital economics does not offer a lot of incentives to change. Both Medicare and private insurers reimburse on a piecework basis—known as fee-for-service—that encourages hospitals to treat more, prescribe more, and test more. Economists refer to this arrangement as a «value-blind» payment system since no premium is paid for quality.
Consequently, hospitals have no financial motivation to invest in productivity-enhancing computer technology, management experts, or efficiency research—and by and large, they don’t. Columbia University economist Frank Lichtenberg calculates that productivity growth for the hospital industry has increased at less than half the rate of the general economy. see more