By NextBestFitGlobal budgets for hospitals
Each hospital receives an annual budget for operations, negotiated with the payer, instead of per-service billing; capital is funded separately.
Hospital budgets end most hospital billing and stabilize rural hospitals.
To review: Main risk is rationing and under-treatment; see the subpaths chosen for those.
Review ledgerHow this path connects
Concrete changes if chosen
What would actually have to change in law, agencies, payment rules, or systems.
- Negotiate annual operating budgets with each hospital
- Fund capital separately
- Adjust budgets for population, age, and service mix
- Remove per-claim billing for inpatient and outpatient hospital care
Effects
Each effect has its own page: the evidence, the case that it is or isn't a real cost, and whom it affects.
- U.S. prices are far higher than in other countries
Negotiated annual operating budgets make hospital spending predictable, replace most hospital billing, and remove the incentive to provide extra services simply to earn more.
- About $1 trillion a year in administrative cost
Annual hospital budgets replace per-service billing and require very little hospital billing.
- Rural hospital closures
An annual operating budget replaces payment per service, making hospital spending predictable rather than dependent on service billing.
- Low-value care and overtreatment
An annual operating budget removes the incentive to provide extra services to earn more revenue.
- Simplifying billing would displace hundreds of thousands of workers
Replacing per-service hospital payments with annual budgets removes much of the hospital billing work, displacing the staff who do it.
- Fixed budgets can ration care
Annual hospital budgets create an incentive to do less or delay elective care, and the budgets can become outdated.
- Paying a fixed amount per patient rewards doing less
An annual operating budget creates an incentive to do less care or delay elective services.
3 paths soften this
Risk adjustment plus outcome monitoringPaying a fixed amount per patient rewards doing lessChosenBlended payment: part capitation, part fee-for-servicePaying a fixed amount per patient rewards doing lessChosenSalaried clinicians in public or non-profit groupsPaying a fixed amount per patient rewards doing lessRejected
Who's affected
- People with employer coverage
- U.S. prices are far higher than in other countries: Private plans pay the highest prices, passed on through premiums.
- About $1 trillion a year in administrative cost: Premiums pay for the administration.
- Taxpayers and public budgets
- U.S. prices are far higher than in other countries: Public programs pay more than peer countries too.
- About $1 trillion a year in administrative cost: Public programs pay for it too.
- Low-value care and overtreatment: They pay for tests and treatments with little benefit.
- Fixed budgets can ration care: Global budgets cap spending.
- Doctors, nurses, and other clinicians
- About $1 trillion a year in administrative cost: Time goes to billing and insurer rules instead of patients.
- Rural residents
- Rural hospital closures: Hospital closures reduce local access to care.
- People needing emergency or trauma care
- Rural hospital closures: Closures require longer emergency and trauma transport.
- People with ongoing or specialist care needs
- Low-value care and overtreatment: Low-benefit tests and treatments expose them to harm.
- Health insurers, brokers, and their shareholders
- Low-value care and overtreatment: They pay for tests and treatments with little benefit.
- Paying a fixed amount per patient rewards doing less: They keep the difference when care costs less than fixed payments.
- Hospitals, clinics, and care organizations
- Paying a fixed amount per patient rewards doing less: They keep the difference when care costs less than fixed payments.
- Hospitals and specialist groups with high private prices
- U.S. prices are far higher than in other countries: Providers with pricing power earn more per service.
- Drug and device makers
- U.S. prices are far higher than in other countries: U.S. prices are well above those in peer countries.
- Low-value care and overtreatment: They sell devices and tests used in low-value care.
- Health insurers, brokers, and their shareholders
- About $1 trillion a year in administrative cost: Insurers, billing firms, and clearinghouses earn from the complexity.
- Insurance and billing workers
- About $1 trillion a year in administrative cost: Their jobs exist because of the complexity.
- Simplifying billing would displace hundreds of thousands of workers: Workers lose jobs if billing is simplified without a transition plan.
- Hospitals, clinics, and care organizations
- Rural hospital closures: Urban systems sometimes gain patients from rural hospital closures.
- Low-value care and overtreatment: Per-service payments reward additional low-value care.
- People with ongoing or specialist care needs
- Fixed budgets can ration care: Hospitals may slow elective procedures when demand exceeds fixed budgets.
- Paying a fixed amount per patient rewards doing less: Fixed payments encourage avoiding sick patients or providing less care.
- Add volume adjustments and wait-time guarantees
Where it has been tried
- Maryland: Hospital global budgets since 2014 lowered spending growth.Sources: CMS Innovation Center / RTI (2023)
- Canada: Most hospitals funded by global budgets.