Managing care, incentives, and information: an exploratory look inside the "black box" of hospital efficiency

We sought to estimate the impact of individual dimensions of hospitals' managed care strategies on the cost per hospital discharge.

Thirty-seven member hospitals of seven health systems in the Pacific, Rocky Mountain, and Southwest regions of the United States were studied.

Separate cross-sectional regression analyses of 21,135 inpatient discharges were performed in 1991 and 23,262 discharges in 1992. The multivariate model was estimated with hospital cost per discharge as the dependent variable. Model robustness was checked by comparing regression results at the individual discharge level with those at the level of the hospital/clinical condition pair.

Information on hospitals' managed care strategies was provided by mail and phone survey of key informants in 1991 and 1992. Other hospital characteristics were collected from AHA Annual Survey data, and discharge data from hospital abstracting systems.

The pooled discharge analysis indicated three dimensions of hospital managed care strategy that consistently related to lower costs per hospital discharge: the proportion of hospital revenues derived from per case or capitation payment, the hospital's mechanisms for sharing information on resource consumption with clinicians, and the use of formalized, systematic care coordination mechanisms.

Three strategies appear to hold promise for enhancing the efficiency of inpatient resource use: (1) "fixed price" hospital payment incentives, (2) hospital approaches to sharing resource use information with clinicians, and (3) the application of formal care management mechanisms for specific clinical conditions.