EMERGING TRENDS – Class 4

Evolution of Hospital

  • Charitable Era (1900 – 1950)
  • Technological Era (1950 – 1990)
  • Focus shifts to competing for business in increasingly competitive marketplace using clinical and managerial knowledge supported by well developed management information system

In looking at the evolution of the hospital, it is clear that Health care is moving in the direction of outpatient, group practice and capitation. The modern hospital has evolved through three phases since 1900:

(1) 1900 – 1950 – hospitals were in a charitable era, they were generally non-profit organizations rarely having much of a bottom line, just looking to break even.

(2) 1950 – 1990 – hospitals were in a technological era developing comprehensive range of clinical services. Movement in medicine was away from general practice into specialty fields, ever increasing sophistication of diagnostic and treatment equipment. Hospitals making larger investments in its facilities, equipment and specialized personnel. Huge increases in cost of operation occurred year after year – requiring long-term debts to keep up with the latest technology. Clinical know-how and technology led to ability to provide increasing kinds of care on ambulatory basis. Charitable institution that primarily offered nursing care and limited surgery turned into a technologic enterprise.

(3) 1990 – to well into the 21st century – focus shifts to competing for business in an increasingly competitive marketplace using clinical and managerial knowledge supported by a well developed management information system. The issue is now one of being able to pay for health care resources. It now appears that the two eras of provider dominance are being replaced with payer dominance. Richard L. Johnson’s article states that: “The theme of the future is competition through managed care. Be it managed-care plans, corporate self-funded plans, or governmental plans, all are seeking ways to limit the annual increase in expenditures they are making for Health care. Because health care consistently has out paced the Gross Domestic Product year after year, the payers have concluded that the most effective way to restrict these increases is to make one monthly payment per individual or family, for which a patient will receive as much care as needed, putting the

By putting providers collectively at risk – assumption is this will force providers to become more efficient since the revenues they receive will be fixed, and will not vary by the amount of services provided

One way in which specialists may deal with these kinds of issues is Carve-outs. Carve-outs are products that are basically exempt from capitation such as mental health, pharmacy, vision, dental, podiatric care, ambulance care. This typically means that the PCP’s would not be responsible from their capitation for the costs of these carved-out services

Though capitation is more dominant in the primary care area, there is an emerging trend to pay specialists by capitation. Some people argue that the ideal system pays primary care physicians fee-for service and capitates specialists because independent specialists don’t have a financial incentive to train primary care doctors unless they’re capitated themselves. Minneapolis-based United Health care is moving in that direction. Lee Newcomer, the HMO’s national medical director, says it’s tough to include advanced services in primary care capitation contracts because everybody has different training. But when specialists are capitated he says, they have an incentive to start training the PCP’s if they feel the referrals are inappropriate.

Some primary care groups are taking on full-physician risk contracts which give them capitation for all specialty and ancillary services. Since they pay the specialists, these groups can decide which services they want to perform. However it’s still in their financial interest to do as much as they can themselves.

When specialists are capitated – they have incentive to train Primary Care Physicians ( PCPs) if referrals are inappropriate

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