The Case for Inclusive Rates

Abstract

Inclusive rates or flat rates are rates for hospital services which endeavor to provide complete “hospital” care at a fixed per diem charge. Inclusive rates spread the cost of probable expenses over whatever group of patients happens to be hospitalized in a given institution. The patient who does not incur extra expenses helps to pay for the patient who does. When applied to hospital services exclusively, the system may have much to recommend it; at least, numerous articles have been published in hospital journals advocating such procedure. When the system is extended to include medical and surgical services, however, some problems arise which bear analysis. What medical services should be included? Should they be limited to routine diagnostic medical services or should they include complete medical and surgical services ? It is estimated that 90 per cent of a given “hospital” bill represents routine hospital services, and approximately 10 per cent diagnostic medical services, such as radiology and pathology. By a simple extension of the hospital per diem charge, general medical and surgical services can be included in a flat rate and, indeed, such rates for tonsillectomy and obstetrical services have actually been used in some institutions. Under such a system the hospital inevitably acts as a middleman in the furnishing of medical services, and for all practical purposes a corporation practises medicine. The hospital competes with the private physician in his office—a paradox, inasmuch as the hospital owes its very existence to the physicians of the community who act on its staff. The advantages of a flat rate system are convenience in billing, partial predictability of expense, and availability of various medical and surgical services, ineluding laboratory tests, which may or may not truly be indicated. The disadvantages of an inclusive rate system are as follows: 1. Patients who do not need elaborate diagnostic services and other tests still have to pay their share for such. 2. These special services then tend to be used excessively (experience shows a 100 per cent increase in the use of x-ray and laboratory services). Provision is rarely made for additional technical personnel or supplies and the quality of the diagnostic service therefore suffers. (It is obvious that some patients will have roentgen or clinical laboratory examinations which they might not otherwise receive, but the quality of those examinations is usually so diluted that the ultimate benefit to the majority of patients is decreased.) 3. Diagnostic benefits are followed by general surgical benefits: the physicians performing these services are first paid on a fee basis, then on a salary basis. When physicians are on a salary basis (outside of research or special teaching institutions), the hospital usually controls the practice.