Evaluation of an incentive reimbursement experiment.

Abstract

This is an analysis of a demonstration contract which combined the placement of industrial engineers in three urban short-term general hospitals, with an incentive that was based on implemented cost savings projects. The demonstration evaluation focuses on quantification of cost savings, obstacles to full implementation, the incentive calculations and their effect and how the involvement in the program affected Blue Cross and the participating hospitals. The total implemented cost savings for the one-year program was approximately $156,000 or 43 per cent of the total savings of $365,000. The incentive payment made by Blue Cross to the hospitals for implemented studies was $26,000. One of the major conclusions is that in order for a hospital industrial engineering program to be effective, it must be introduced at and have the full support of the organization's highest management level. In addition, the authors make recommendations for continuing similar programs but with more powerful incentive payments. Two results are evident from the evaluation of this experiment. The first is that an industrial engineering program does have a significant impact on the operating costs of departments within a hospital even though the industrial engineering arrangement is short-term. Second is that in order for an incentive to be effective, it must have considerable dollar power. This can only be achieved through the involvement of all third-party agencies which reimburse hospitals on a cost basis. It seems quite feasible that incentive-based industrial engineering combines could be established on a non-profit basis to implement cost reduction programs through methods improvement and other management science techniques in order to aid the administration of hospitals in controlling accelerating costs. Only implemented recommendations of these combines would be eligible for incentive payment.