A community hospital payment experiment outperforms national experience. The Hospital Experimental Payment program in...

Area of Science:

• Health Services Research
• Healthcare Economics
• Public Health Policy

Background:

• Hospitals in Rochester, NY, adopted a community-wide revenue cap in January 1980.
• This marked the first regional financing system managed locally by a group of hospitals.

Purpose of the Study:

• To evaluate the impact of a community-wide prospective payment system on hospital costs, financial performance, and care quality.
• To assess the effectiveness of a regional financing model integrating inpatient and outpatient services with incentives for ambulatory care.

Main Methods:

• Prospective payment system implementation with local administration and control.
• Inclusion of both inpatient and outpatient care within the payment system.
• Incentivization of ambulatory treatment when clinically appropriate.

Main Results:

• Rochester hospitals experienced a 46% increase in expenses over five years, lower than New York State (52%) and US hospitals (68%).
• The financial position of Rochester hospitals improved, with a 2.6% operating margin versus -15.8% for NY State hospitals.
• Community assessments found no adverse impact on the quality of or access to care.

Conclusions:

• The Rochester community-wide hospital payment system demonstrates success in cost containment and financial stability.
• The model offers a balanced approach to self-regulation, cooperation, and competition for affordable, high-quality healthcare.
• This regional financing system serves as a viable model for other areas seeking cost-effective healthcare solutions.