BOOKS OF RtfiDIfGS - PAHO/WHO

fioned or tested 1[7 and the cost-based
reimbursement adopted by Medicare
and Medicaid programs," .. created
an unprecedented opportunity for physicians
and hospital administrators to
do what they always wanted to d'.improve
the quality of care as they see
it. This means more equipment, more
personnel, more tests, more x-rays, and
so on" [8, p. 94]. This natural tendency
of health care providers and administrators
received both moral and fiscal
support from the federally financed
Regional Medical Program created in
1965. As a result, no hospital wanted to
be technologically inferior and sought
to provide a wide range of services
regardless of the impact (or lack
thereof) on the health status of its
service population or the resultant duplication
of services.
Production Efficiency. The hospital
industry is often characterized as having
few inherent incentives for efficiency.
The profit motive is generally
lacking, contributions have historically
allowed many hospitals to operate at a
loss, health insurance programs have
insulated the consumer from the provider,
and the guaranteed payment of
cost-based reimbursement have created
an environment in which managers
have had little need or incentive to
strive for efficient production of services
[8]. In addition, cost-based reimbursement
even provides disincentives
to reduce costs through improved efficiency
[9, pp. 165-1671. As a result,
hospital management has generally
failed to introduce efficiency-minded
styles of management and similarly
failed to develop information systems
necessary for proper control.
Production Effectiveness. Historically,
hospitals have had little concern
about providing the right number and
right types of health services to their
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service populations. Until recently, few
people have questioned medical judgments
regarding admcissions, length of
stay, and surgery rates. As a result, the
incentives inherent in the fee-for-service,
litigation-prone health care system
have dictated the modus operandi,
and increasing evidence of excessive
utilization is surfacing l10,11].
Capacity. While the medical profession
operated on the "more is better"
philosophy described above, hospital
administrators developed a "bigger is
better" philosophy toward facility
planning. The availability of donations,
the guaranteed reimbursemcnt of depreciation
and interest expense by
Medicare, Medicaid, and many Blue
Cros: programs, and the availability of
debt financing provided hospitals with
sufficient means to add to their bed
complement and replace existing facilities.
Even though regional planning
was an intended feature of the iiill-
Burton Program, the Regional Medical
Program, and later the Comprehensive
Health Planning Act, large numbers of
unused hospital beds are found in mosi
regions of the couiry. rhe depreciation,
interest, and ope:ating expenses
associated with these facilities and subsequent
replacement costs are all considered
legitimate expenses and reimbulrsed
ur.der cost-based reimbursement.
As a .result, there have been few
financial constraints or penalties
linked to excessive capacity.
While many other forces and activities
were at play prior to 1970, those
cited above were instrumental in shaping
the hospital industry as it is currently
operating. Programming decisions
were made based on the "more is
better" and "bigger is better" philosophies
adopted by the medical staff,
administration, and trustees. There was
apparently little concern for the efficient
allocation of resources since there