How one hospital broke its inflation fever

The Johns Hopkins Hospital has demonstrated that hospital costs can be decreased without governmental intervention (controls). From 1975 to 1978, the hospital inflation rate was cut by half. One key factor, according to Solomon, was a move to decentralize management which was accompanied by a detailed system for monitoring costs. Also instrumental were administration's consistent reminders to physicians and managers about keeping costs down. The hospital was reorganized from a system of clinical departments that behaved, says Solomon, like "fiefdoms" into 14 autonomous departments that function under their own budgets. Each department controls about 85% of its costs (up from 30%), and is set up to function "like a small business." A breakdown of where cost reductions took place shows a savings of $5 million in overhead and $1.5 million in malpractice claims (Hopkins self-insured). Individual departments have also achieved some dramatic reductions: the Department of Medicine decreased the number of laboratory tests ordered; and the Department of Gynecology and Obstetrics built a new facility with fewer beds than the old one.