Physicians practice in a climate of cost containment mandated by both private insurance carriers and the federal government. Large employer groups, wielding vast numbers of employee patients, exert considerable influence in the health care market. These companies seek to limit their out-of-pocket expense and yet provide their employees with the maximum amount of health coverage for the dollar. This stimulates intense competition to provide the best medical care at the least cost. Unfortunately, this tends to adversely affect physicians and hospitals. Private insurance carriers attempt to control health care costs in today's medical practice through managed care, restricted formularies, preauthorization for outpatient services, and limited reimbursement. Managed care plans use capitated payments as a mechanism to control rising health care costs with varying degrees of success—and failure. The federal government (through Medicare in the outpatient setting) controls costs in similar ways by limiting covered services, mandating reduced fees for health care providers, and encouraging Medicare enrollees to join managed care plans.1- 3 Hospitals are not immune to this and face reduced reimbursement for the services they provide. Private insurance companies mandate cost containment in the inpatient setting by forcing preauthorization for admission and services as well as contracting "preferred" hospitals.4- 7 Hospitals listed as "preferred" must often discount bed days, laboratory tests, procedures, and pharmaceutical charges. In a similar manner, the federal government through Medicare exerts an influence in the inpatient setting with diagnosis related groups (DRGs), a form of capitated payment, which may result in a net financial loss to the hospital.8 Arguably, this influences hospital behavior in patient care.
Costopoulos MG, Mikhail MA, Wennberg PW, Rooke TW, Ewoldt Moulton LL. A New Hospital Patient Care Model for the New Millennium: Preliminary Mayo Clinic Experience. Arch Intern Med. 2002;162(6):716–718. doi:10.1001/archinte.162.6.716