The effectiveness of a regulatory strategy in containing hospital costs. The Ontario experience, 1967-1981

Impact of Global Budget Payments on Cardiovascular Care in Maryland: An Interrupted Time Series Analysis

Background Global budget payments (GBP) are considered effective in containing health care expenditures; however, information on their impact on quality of cardiovascular care is limited. We aimed to evaluate the effects of GBP on utilization, outcomes, and costs for 3 major cardiovascular conditions. Methods We analyzed claims data of hospital admissions in Maryland from fiscal year 2013 to 2018. Using segmented regression, we evaluated temporal trends in hospitalizations, length of stay, percutaneous coronary intervention and coronary artery bypass grafting volumes, case mix-adjusted 30-day readmission rates, risk-standardized mortality rates, and hospitalization charges in patients with principal diagnosis of heart failure, acute ischemic stroke, and acute myocardial infarction (AMI) in relation to GBP implementation. Trends in global cardiovascular procedure charges/volumes were also studied. Results Hospitalization rates for congestive heart failure and AMI remained unaffected by GBP, while the gradient of ischemic stroke admissions decreased (P_trend <0.0001). Length of stay slightly increased for patients with congestive heart failure (P_trend=0.03). Inpatient coronary artery bypass grafting surgeries decreased (P_trend <0.0001). We observed a significant decrease in casemix-adjusted 30-day readmission rate in the AMI cohort beyond the prepolicy trend (P_trend=0.0069). There were no significant changes in mortality for any of the 3 conditions. Hospitalization charges increased for ischemic stroke (P_trend <0.0001), remained constant for congestive heart failure (P_trend=0.1), and decreased for AMI (P_trend=0.0005). We observed a significant increase in electrocardiography rate charges (P_trend <0.0001), coincidentally with a reduction in volumes (P_trend=0.0003). Conclusions Introducing GBP in Maryland had no perceivable adverse effects on inpatient outcomes and quality indicators for 3 major cardiovascular conditions. Savings were observed in the AMI cohort, possibly due to reduced unnecessary readmissions, efficiency improvements, or shifts to outpatient care. Reduced cardiovascular procedure volumes were counterbalanced by a proportional rise in charges. State-level adoption of GBP with pay-for-performance incentives may be effective for cost containment without adversely impacting quality of cardiovascular care.

Global budget versus cost ceiling: a natural experiment in hospital payment reform in the Netherlands

Global budget (GB) arrangements have become a popular method worldwide to control the rise in healthcare expenditures. By guaranteeing hospital funding, payers hope to eliminate the drive for increased production, and incentivize providers to deliver more efficient care and lower utilization. We evaluated the introduction of GB contracts by certain large insurers in Dutch hospital care in 2012 and compared health care utilization to those insurers who continued with more traditional production-based contracts, i.e., cost ceiling (CC) contracts. We used the share of GB hospital funding per postal code region to study the effect of contract types. Our findings show that having higher share of GB financing was associated with lower growth in treatment intensity, but it was also associated with higher growth in the probability of having at least one hospital visit. While the former finding is in line with our expectation, the latter is not and suggests that hospital visits may take longer to respond to contract incentives. Our study covers the years of 2010-2013 (2 years before and 2 years following the introduction of the new contracts). Therefore, our results capture only short-term effects.

Global Budget Payment: Proposing the CAP Framework

To control ever-increasing costs, global budget payment has gained attention but has unclear impacts on health care systems. We propose the CAP framework that helps navigate 3 domains of difficult design choices in global budget payment: Constraints in resources (capitation vs facility-based budgeting; hard vs soft budget constraints), Agent-principal in resource allocation (individual vs group providers in resource allocation; single vs multiple pipes), and Price adjustment. We illustrate the framework with empirical examples and draw implications for policy makers.

Strategic Provider Behavior Under Global Budget Payment with Price Adjustment in Taiwan

Global budget payment is one of the most effective strategies for cost containment, but its impacts on provider behavior have not been explored in detail. This study examines the theoretical and empirical role of global budget payment on provider behavior. The study proposes that global budget payment with price adjustment is a form of common-pool resources. A two-product game theoretic model is derived, and simulations demonstrate that hospitals are expected to expand service volumes, with an emphasis on products with higher price-marginal cost ratios. Next, the study examines the early effects of Taiwan's global budget payment system using a difference-in-difference strategy and finds that Taiwanese hospitals exhibited such behavior, where the pursuit of individual interests led to an increase in treatment intensities. Furthermore, hospitals significantly increased inpatient service volume for regional hospitals and medical centers. In contrast, local hospitals, particularly for those without teaching status designation, faced a negative impact on service volume, as larger hospitals were better positioned to induce demand and pulled volume away from their smaller counterparts through more profitable services and products such as radiology and pharmaceuticals.

Effects of global budgeting on the distribution of dentists and use of dental care in Taiwan

OBJECTIVE

To examine the effects of global budgeting on the distribution of dentists and the use and cost of dental care in Taiwan.

DATA SOURCES

(1) Monthly dental claim data from January 1996 to December 2001 for the entire insured population in Taiwan. (2) The 1996-2001 population information for the cities, counties and townships in Taiwan, abstracted from the Taiwan-Fukien Demographic Fact Book.

STUDY DESIGN

Longitudinal, using the autocorrelation model.

PRINCIPAL FINDINGS

Results indicated decline in dental care utilization, particularly after the implementation of dental global budgeting. With few exceptions, dental global budgeting did not improve the distribution of dental care and dentist supply.

CONCLUSIONS

The experience of the dental global budget program in Taiwan suggested that dental global budgeting might contain dental care utilization and that several conditions might have to be met in order for the reimbursement system to have effective redistributive impact on dental care and dentist supply.

Who administers? Who cares? Medical administrative and clinical employment in the United States and Canada

OBJECTIVES

We compared US and Canadian health administration costs using national medical care employment data for both countries.

METHODS

Data from census surveys on hospital, nursing home, and outpatient employment in the United States (1968 to 1993) and Canada (1971 and 1986) were analyzed.

RESULTS

Between 1968 and 1993, US medical care employment grew from 3.976 to 10.308 million full-time equivalents. Administration grew from 0.719 to 2.792 million full-time equivalents, or from 18.1% to 27.1% of the total employment. In 1986, the United States deployed 33,666 health care full-time equivalent personnel per million population, and Canada deployed 31,529. The US excess was all administrative; Canada employed more clinical personnel, especially registered nurses. Between 1971 and 1986, hospital employment per capita grew 29% in the United States (mostly because of administrative growth) and fell 14% in Canada. In 1986, Canadian hospitals still employed more clinical staff per million. Outpatient employment was larger and grew faster in the United States. Per capita nursing home employment was substantially higher in Canada.

CONCLUSIONS

If US hospitals and outpatient facilities adopted Canada's staffing patterns, 1,407,000 fewer managers and clerks would be necessary. Despite lower medical spending, Canadians receive slightly more nursing and other clinical care than Americans, as measured by labor inputs.

Reconciling two solitudes: the example of physicians and managers in Ontario's hospitals

This paper describes five aspects of the traditional relationship of physicians to hospitals and their administrators which fail to facilitate cost control or quality assurance. Several significant obstacles to changing this relationship are described, including the inertia of tradition, the fallacy of costless care and the chasm between medical and management cultures. It argues that to achieve care which is both cost-efficient and of high quality, physicians and hospital managers must unite to pursue common goals in a well-integrated management structure. Five suggestions for developing an effective new relationship are made, including the adoption of a "social contract" for all hospitals, the integration of physicians into hospital management and quality assurance programs, improved patient-level data collection and obligatory cost-awareness programs for hospital physicians.

A Canadian study of the total medical costs for patients with systemic lupus erythematosus and the predictors of costs

OBJECTIVE

We conducted a cost identification analysis on 164 consecutive patients with systemic lupus erythematosus (SLE) who entered the Montreal General Hospital Lupus Registry between January 1977 and January 1990, compared their costs to the population of Quebec, and determined the predictors of cost.

METHODS

In January 1990 and 1991, participants completed questionnaires on health services utilization and on employment history over the preceding 6 months, as well as on functional, psychological, and social well-being. The societal burden of SLE was determined in terms of direct costs (all resources consumed in patient care) and indirect costs (wages lost due to lack of work force participation because of morbidity).

RESULTS

The mean total annual cost for 1989, as assessed in January 1990 and expressed in 1990 Canadian dollars, was $13,094. Although only 44% of the patients were fully employed, indirect costs were responsible for 54% of this total ($7,071). Ambulatory costs, primarily diagnostic procedures, medications, and visits to health care professionals, comprised 55% of direct costs ($3,331). The results of the 1990 cost determination were similar. On average, hospitalizations among SLE patients were 4 times more frequent than among the general population of Quebec (matched for age and sex), and the number of ambulatory visits to physicians was double that for the average resident of Quebec. Higher 1989 values of creatinine and a poorer level of physical functioning were the best predictors of higher 1990 direct costs (R2 = 0.29). A poorer SLE well-being score, a combination of education and employment status, and a weaker level of social support were the best predictors of higher indirect costs (R2 = 0.29).

CONCLUSION

The direct and indirect costs for patients with SLE are substantial, and their respective predictors are distinct. Direct costs arise from organic complications which induce functional disability. Predictors of indirect costs are potentially amenable to psychological or social interventions and may be more easily modified than the determinants of direct costs, thereby improving patient outcome while simultaneously reducing disease costs.

A comparison of management patterns after acute myocardial infarction in Canada and the United States. The SAVE investigators

BACKGROUND

There are major differences in the organization of the health care systems in Canada and the United States. We hypothesized that these differences may be accompanied by differences in patient care.

METHODS

To test our hypothesis, we compared the treatment patterns for patients with acute myocardial infarction in 19 Canadian and 93 United States hospitals participating in the Survival and Ventricular Enlargement (SAVE) study, which tested the effectiveness of captopril in this population of patients after a myocardial infarction.

RESULTS

In Canada, 51 percent of the patients admitted to a participating coronary care unit had acute myocardial infarctions, as compared with only 35 percent in the United States (P < 0.001). Despite the similar clinical characteristics of the 1573 U.S. patients and 658 Canadian patients participating in the study, coronary arteriography was more commonly performed in the United States than in Canada (in 68 percent vs. 35 percent, P < 0.001), as were revascularization procedures before randomization (31 percent vs. 12 percent, P < 0.001). During an average follow-up of 42 months, these procedures were also performed more commonly in the United States than in Canada. These differences were not associated with any apparent difference in mortality (22 percent in Canada and 23 percent in the United States) or rate of reinfarction (14 percent in Canada and 13 percent in the United States), but there was a higher incidence of activity-limiting angina in Canada than in the United States (33 percent vs. 27 percent, P < 0.007).

CONCLUSIONS

The threshold for the admission of patients to a coronary care unit or for the use of invasive diagnostic and therapeutic interventions in the early and late periods after an infarction is higher in Canada than in the United States. This is not associated with any apparent difference in the rate of reinfarction or survival, but is associated with a higher frequency of activity-limiting angina.

Hospital expenditures in the United States and Canada

BACKGROUND

Expenditures per capita for hospitals are higher in the United States than in Canada. If the United States had the same spending pattern as Canada, the annual savings in 1985 would have exceeded $30 billion.

METHODS

We used data from published sources, computer files, and institutional reports to compare 1987 costs for acute care hospitals on three levels: national (the United States vs. Canada), regional (California vs. Ontario), and institutional (two California hospitals vs. two Ontario hospitals). Expenditures per admission were adjusted for the case mix of patients, prices of labor and other resources, and outpatients visits.

RESULTS

The United States had proportionately fewer hospital beds than Canada (3.9 vs. 5.4 per 1000 population), fewer admissions (129 vs. 142 per 1000 population), and shorter mean stays (7.2 vs. 11.2 days). Higher costs per admission in the United States were explained in part by a case mix that was more complex by 14 percent and by prices for labor, supplies, and other hospital resources that were higher by 4 percent. Hospitals in the United States provided relatively less outpatient care, particularly in emergency departments (320 vs. 677 visits per 1000 population). After all adjustments, the estimate of resources used for inpatient care per admission was 24 percent higher in the United States than in Canada and 46 percent higher in California than in Ontario. The estimated differences between the two pairs of California and Ontario hospitals were 20 and 15 percent.

CONCLUSIONS

Canadian acute care hospitals have more admissions, more outpatient visits, and more inpatient days per capita than hospitals in the United States, but they spend appreciably less. The reasons include higher administrative costs in the United States and more use of centralized equipment and personnel in Canada.

Medicare: the Canadian experience

In the 1940s Canada and the United States had similar lack of structure and reimbursement for diagnostic, hospital, and physician services. In Canada over the next 40 years there evolved a complex system mandated and partially funded by the federal government, but administered and delivered through 10 provincial and 2 territorial jurisdictions. Each must negotiate with federal government on cost sharing and deal with hospital budgets and physician compensation at the provincial or territorial level. The Medical Care Act of 1966 enshrined in law the five principles of public administration, universality, comprehensiveness, portability, and accessibility, converting all medical services in Canada from a privilege to a right. Any patient participation in hospital or physician charges came under increasing political attack. In 1984 the Canada Health Act specified financial penalties in federal transfer payments to provinces that permitted any direct patient charges. While Canada has "contained" health expenditures at 8.7% of gross national product, universal access to quality care is increasingly subject to rationing. The relationship between the profession and governments hard pressed to fund escalating costs in a deteriorating economy has been one of increasingly bitter confrontations. There have been four acrimonious doctors' strikes. More optimistically, there is now an emerging recognition of society's need to have physicians actively participating with other providers and governments to create a balance between access to quality health services and both public and private funding.

Ontario's hospital transitional funding initiative: an overview and assessment

In 1989, the hospital transitional funding initiative, which incorporates case mix measurement into the hospital funding process, was started in Ontario. This initiative is the beginning of a new, more objective basis for determining hospital funding. In its initial stages, incremental growth and interhospital equity adjustments are made to the global budgets. In this paper, we describe the launching of this initiative and the funding formulas that emerged from its first phase. The issue of incentive effects is then discussed and, as this is an evolving or "transitional" undertaking, we comment on several economic issues arising as a result of this new venture.

Predictors of successful aging: a twelve-year study of Manitoba elderly

In Manitoba, Canada, a representative cohort of elderly individuals ages 65 to 84 (n = 3,573) were interviewed in 1971 and the survivors of this cohort were reinterviewed in 1983. This analysis assesses the determinants of successful aging--whether or not an individual will live to an advanced age, continue to function well at home, and remain mentally alert. Over 100 separate indicators of demographic and socio-economic status, social supports, health and mental status in 1971 were available as potential predictors of successful aging. Indicators of access to health care over the period 1970-82 and indicators of diseases over this period were also available as predictors. Those who aged successfully were shown to have greater satisfaction with life in 1983 and to have made fewer demands on the health care system than those who aged less well. Despite the large number of potential predictors of successful aging which were examined, only age, four measures of health status, two measures of mental status, and not having one's spouse die or enter a nursing home were shown to be predictive of successful aging.

How does Canada do it? A comparison of expenditures for physicians' services in the United States and Canada

As a percentage of the gross national product, expenditures for health care in the United States are considerably larger than in Canada, even though one in seven Americans is uninsured whereas all Canadians have comprehensive health insurance. Among the sectors of health care, the difference in spending is especially large for physicians' services. In 1985, per capita expenditure was $347 in the United States and only $202 (in U.S. dollars) in Canada, a ratio of 1.72. We undertook a quantitative analysis of this ratio. We found that the higher expenditures per capita in the United States are explained entirely by higher fees; the quantity of physicians' services per capita is actually lower in the United States than in Canada. U.S. fees for procedures are more than three times as high as Canadian fees; the difference in fees for evaluation and management services is about 80 percent. Despite the large difference in fees, physicians' net incomes in the United States are only about one-third higher than in Canada. A parallel analysis of Iowa and Manitoba yielded results similar to those for the United States and Canada, except that physicians' net incomes in Iowa are about 60 percent higher than in Manitoba. Updating the analysis to 1987 on the basis of changes in each country between 1985 and 1987 yielded results similar to those obtained for 1985. We suggest that increased use of physicians' services in Canada may result from universal insurance coverage and from encouragement of use by the larger number of physicians who are paid lower fees per service. U.S. physicians' net income is not increased as much as the higher U.S. fees would predict, probably because of greater overhead expenses and the lower workloads of America's procedure-oriented physicians.

Regulation, retrenchment--the DRG experience: problems from changing reimbursement practice

A study of 227,771 discharge abstracts from one U.S. state's short-term, acute care hospitals compares changes in the inpatient market available to the oldest old Medicare patients (85 and older) with those less than 70 and those 70-84 between 1981, the last year when all hospitals were under cost-based reimbursement, and 1984, the first year in which all hospitals were under a prospective payment system based on diagnosis related groups (DRGs). All three populations experienced retrenchment in services as hospitals pursued practice changes to enhance revenue potential. An older, sicker client was admitted as hospitals implemented changes in admission patterns to avoid denial of reimbursement for an admission deemed inappropriate by the Peer Review Organization (PRO). Evidence demonstrates compression in service markets and retrenchment in services for less profitable DRGs and/or cohorts. Inpatient services were reduced the most for the oldest old population although this cohort was the sickest. Changes were observed in utilization of special care units, such as in coronary and intensive care units. Large increases in readmissions in all three cohorts suggests that DRG incentives to reduce length of hospital stay may have promoted premature discharge. Or, perhaps these readmissions resulted from 'unbundling', a practice of splitting patient problems into multiple admissions, as hospitals sought ways to enhance revenue instead of practicing cost-containment. Policy, perceived to be economically stringent, can affect hospital practice and produce undesired results with long-reaching untoward effects on certain segments of the population.

Controlling health expenditures--the Canadian reality

Canada and the United States have conducted a large-scale social experiment on the effects of alternative ways of funding expenditures for health care. Two very similar societies, with (until recently) very similar systems of providing health care, have adopted radically different systems of reimbursement. The results of this experiment are of increasing interest to Americans, because the Canadian approach has avoided or solved several of the more intractable problems facing the United States. In particular, overall health expenditures have been constrained to a stable share of national income, and universality of coverage (without user charges) eliminates the problems of uncompensated care, individual burdens of catastrophic illness, and uninsured populations. The combination of cost control with universal, comprehensive coverage has surprised some American observers, who have questioned its reality, its sustainability, or both. We present a comparison of the Canadian and American data on expenditures, identifying the sectors in which the experience of the two nations diverges most, and describing the processes of control. In any system, cost control involves conflict between providers and payers. Political processes focus this conflict, whereas market processes diffuse it. But the stylized political combat in Canada may result in less intrusion on the professional autonomy of the individual physician than is occurring in the United States.

A national health program for the United States. A physicians' proposal

Our health care system is failing. Tens of millions of people are uninsured, costs are skyrocketing, and the bureaucracy is expanding. Patchwork reforms succeed only in exchanging old problems for new ones. It is time for basic change in American medicine. We propose a national health program that would (1) fully cover everyone under a single, comprehensive public insurance program; (2) pay hospitals and nursing homes a total (global) annual amount to cover all operating expenses; (3) fund capital costs through separate appropriations; (4) pay for physicians' services and ambulatory services in any of three ways: through fee-for-service payments with a simplified fee schedule and mandatory acceptance of the national health program payment as the total payment for a service or procedure (assignment), through global budgets for hospitals and clinics employing salaried physicians, or on a per capita basis (capitation); (5) be funded, at least initially, from the same sources as at present, but with all payments disbursed from a single pool; and (6) contain costs through savings on billing and bureaucracy, improved health planning, and the ability of the national health program, as the single payer for services, to establish overall spending limits. Through this proposal, we hope to provide a pragmatic framework for public debate of fundamental health-policy reform.

Innovation and diffusion of health-related technologies. A conceptual framework

The development and diffusion of health-related technologies constitute an extremely complex process. This article examines the phenomenon of technological innovation; discusses the factors determining the diffusion of high, medium, and low technologies; and suggests strategies for controlling the diffusion of these technologies. A research program is also proposed that should improve our understanding of the process of development and diffusion of health-related technologies.

Monitoring the diffusion of a technology: coronary artery bypass surgery in Ontario

Technology assessment involves not only examining technologies before they are released but also their diffusion into practice once they have been released. In this study we show how basic analysis of a large administrative data set, combined with a review of evidence on effectiveness, can be used as the first step in technology assessment. We analyze the use of coronary artery bypass surgery (CABS) in the province of Ontario, Canada. The annual number of procedures increased 52 per cent over a seven-year period between 1979 and 1985. Large increases in CABS rates in the over-65 population accounted for more than half of this increase in procedures. Increased rates of surgery in the over-65 population are unlikely to be caused by increased prevalence of coronary artery disease and may be the result of a change in clinical attitude toward the use of CABS. This change is discussed in the context of the evidence on the effectiveness and cost-effectiveness of CABS. We conclude that there is a need to carefully monitor and evaluate the use of technologies especially in the elderly.

Technology acquisition in Canada. Control in a regulated market

The authors provide a detailed overview of how the national and provincial health systems of Canada exercise control over the diffusion of medical technology. In particular, they examine the diffusion of CT scanning and the adoption of non-ionic radio contrast media. While the nature of the parliamentary system theoretically allows the government, especially the executive, to exert more control over its policy agenda than in the United States, the authors believe that effective control is hampered by a lack of political will and insufficient "teeth" in the Ministry of Health's mandate and policy. The authors also conclude that the manipulation of reimbursement systems to encourage or discourage the diffusion of various medical technologies is not always effective, and that political clout often triumphs over rational decision making.

Corporatization and deprivatization of health services in Canada

Canada's system of health services has been shaped by the forces and values in the Canadian political, cultural, social, and economic environment; these forces continue to place constraints on future changes. We distinguish between "corporatization" and "privatization", and the implications of each for improved efficiency of the system. Although the organization of health services is, in certain provinces, undergoing significant structural changes, there is evidence that rather than privatizing, the system may actually be continuing to experience what we have termed deprivatization, as the scope of government involvement expands to include a more comprehensive definition of health care. Trends in Canada differ considerably from those in the United States; universal health insurance has curbed the ability and desire of institutions to exclude members of some socioeconomic groups from receiving care. U.S.-based models, if applied to Canada, could lead to both higher costs and lower quality of care. Considerable efficiencies can be realized within Canada's current system.

Public health insurance: the collective purchase of individual care

Health insurance does not insure health. It reimburses the costs of health care, and enables potential users of care to pool their risks. But public health insurance is qualitatively different from private, in that risk pooling is not its only or even its primary function. Public systems also redistribute, deliberately, from low to high risk individuals. Perhaps even more important, public insurance is a mechanism for the collective purchase of care. It enables buyers, through their political representatives, to bargain with providers over both price and quantity of care, and thus to control overall system costs, in a way that individual patients cannot. This paper contrasts the experience of public insurance in Canada with private coverage in the U.S., to show how universal public coverage, used as a 'collective purchasing agency', has led to both better coverage and lower costs. Current policy changes in the U.S., described as 'competitive', are in fact efforts to create private collective purchasing agencies to bargain with providers on behalf of individuals. Yet economic analysis has been largely incapable of grasping this process, continuing to treat public and private insurance alike as simply reductions in the price of care faced by individual consumers, and thus generating erroneous predictions and analyses of the behaviour of public systems. It has encouraged a fruitless concern with the prices faced by patients, while ignoring the overwhelming significance of the structure and objectives of the insurer. This failure may be traceable to fundamental flaws in the concept of a transactor in economic theory.

Health care delivery models: emerging trends in the delivery of health services

Rising costs, a higher proportion of elderly in the population, proliferation of high technology and increased knowledge about efficient and effective service provision have all led to increased cost-consciousness in the health system. Historically, regulatory approaches have provided equity of access and funding, but for controlling costs they have now become inappropriate because they leave the mix of services untouched. In the future, regulatory approaches may make more use of guidelines and algorithms for care (the "soft" regulatory route), or they may directly control the supply of providers and other resources in the health system (the "hard" regulatory route). An alternative is the competition approach which allows choices by consumers on where to obtain health care based on the efficiency with which those services are provided. The danger in this approach is the potential for equity to be compromised; this may be addressed by combining the regulatory and competitive approaches.

Socialized medicine: a solution to the cost crisis in health care in the United States

Despite growing concern with cost containment, most health policy analysts have ignored vast potential savings on medically irrelevant spending for excess administration, profits, high physician incomes, marketing, and legal involvement in medicine. Indeed, many recent reforms encourage administrative hypertrophy, entrepreneurialism and litigation. A universal national health program could abolish billing and consequently the need for much of the administrative apparatus of health care, and decrease spending for profits and marketing. In this article we analyze the administrative savings that could be realized from instituting a Canadian-style national health insurance program or a national health service similar to that in Britain, and the potential savings from additional reforms to curtail profits, marketing and litigation. Our calculations based on 1983 data suggest that national health insurance would save $42.6 billion annually: $29.2 billion on health administration and insurance overhead, $4.9 billion on profits, $3.9 billion on marketing, and $4.6 billion on physician's incomes. A national health service would save $65.8 billion: $38.4 billion on health administration and insurance overhead, $4.9 billion on profits, $3.9 billion on marketing, and $18.6 billion on physician's incomes. Complete nationalization of all health related industries and reform of the malpractice system would save at least $87.2 billion per year. We conclude that a national health program, in addition to improving access to health care for the oppressed, could achieve cost containment without rationing of care.

A cost-utility analysis of the home parenteral nutrition program at Toronto General Hospital: 1970-1982

We performed an economic evaluation of a home parenteral nutrition (HPN) program by measuring the incremental costs and health outcomes for a cohort of 73 patients treated at our institution from November 1970 to July 1982. Over a 12-year time frame, we estimate that HPN resulted in a net savings in health care cost of $19,232 per patient and an increase in survival, adjusted for quality of life, of 3.3 years, compared with the alternative of treating these patients in hospital with intermittent nutritional support when needed. This result was sensitive to assumptions made about the cost of the alternative treatment strategy. When these assumptions were most unfavorable to the HPN program, we estimated that HPN resulted in incremental costs of $48,180 over 12 years, $14,600 per quality-adjusted life-year gained. We conclude that the cost-utility of HPN compares favorably with other health care programs, when HPN is used to treat patients with gut failure secondary to conditions such as Crohn's disease or acute volvulus. Since only one patient with active malignancy was enrolled in our HPN program, these results should not be extrapolated to patients with active malignancy.

Will payment based on diagnosis-related groups control hospital costs?

Previous studies have shown that the admission rates for a few surgical procedures, such as hysterectomy, vary extensively among hospital market areas, apparently because of differences in physicians' practice styles. To see whether such variations occur for most causes of admission, we classified all nonobstetrical medical and surgical hospitalizations in Maine for the years 1980 through 1982 into diagnosis-related groups (DRGs) and measured the variations in admission rates among 30 hospital market areas. Hysterectomy rates varied 3.5-fold, but 90 per cent of medical and surgical admissions fell into DRGs for which admission rates were even more variable, suggesting that professional discretion plays an important part in determining hospitalization for most DRGs. Losses in hospital revenues resulting from the DRG payment system could be offset if physicians modified their admission policies to produce more profit, well within the current limits of medical appropriateness. If this occurred, the net effect of a DRG program would be to exacerbate hospital cost inflation. We conclude that, to be successful, cost-containment programs based on fixed, per-admission hospital prices will need to ensure effective control of hospitalization rates.

Selected myths guiding the Reagan Administration's health policies

This article analyzes four major assumptions that guide the Reagan Administration's health policies: 1) the Administration received an overwhelming popular mandate to reduce the federal role in the U.S. health sector; 2) the size and growth of federal social (including health) expenditures are contributing to the current economic recession; 3) the costs to business of federally imposed health and safety regulations have contributed to making the U.S. economy less competitive; and 4) market intervention is intrinsically more efficient than government intervention in regulating the costs and distribution of health resources. Based on these assumptions, the main characteristics of the Reagan Administration's health policies have been 1) a reduction of federal health expenditures and, very much in particular, expenditures to the poor, handicapped, and elderly; 2) a weakening of federal health and safety regulations to protect workers, consumers, and the environment; and 3) the further privatization and commodification of medical services. This article shows that there is no evidence to support the assumptions on which these policies are based. Quite to the contrary, all available evidence shows the opposite: 1) the majority of Americans want an expansion of federal health expenditures and a strengthening of federal health regulation; 2) U.S. government expenditures and regulations are much more limited than those of other countries whose economies are performing more satisfactorily; and 3) those countries with larger government interventions have more efficient health care systems than the American one, where the "free market" forces are primarily responsible for the allocation of resources. Thus, major Reagan Administration health policies are based on myth rather than reality.