U.S. academic medical centers (AMCs) are facing new challenges to their financial well-being. As payers seek to control health care costs, teaching hospitals and their medical staffs can anticipate continued payment reductions. Under the fee-for-service system, hospitals respond to payment cuts by increasing their volumes of admissions and ambulatory services while improving efficiency. Although costs per case may decline, overall costs do not. The inevitable result is a further reduction in per-case payments, and the cycle continues — with many undesirable consequences. Costs are inflated, and the quality and safety of care are eroded as the result of unnecessary or inappropriate tests and procedures.
Rather than perpetuating this cycle, AMCs stand to gain by exploring payment reforms that promote evidence-based, rather than income-driven, care. Several such reforms are being proposed or tested, including payment per episode of illness, various forms of capitation, and an annual payment for the care of a defined population. Any of these approaches may include extra payments for meeting or exceeding quality standards. Commonly referred to as bundled payment, these approaches reflect the principle that health care providers should be reimbursed on the basis of the outcomes of care, not the inputs used to achieve them. Bundled-payment programs thus prioritize the discriminating use of health care resources, and the evidence shows that they can achieve cost savings while preserving hospitals’ revenues and physicians’ incomes. Despite concern that bundled payment may cause underutilization of services, experiments have shown that it does not have this effect. Some experts therefore predict that health care organizations will increasingly embrace bundled payments.
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