The Medicare Rx: Prospective Pricing to Effect Cost Containment

This Note analyzes the impact of changing hospital reimbursement while maintaining charge-based reimbursement for physicians on hospital-physician relationships and on cost and quality of care. This Note contends that if the stated goals of redirecting incentives and containing costs are to be realized, physicians must be drawn into the revised reimbursement scheme. An indirect, aggregate approach is advocated to maintain the integrity of the physician-patient relationship and to avoid a direct financial impact upon the physician regarding patient care decisions. Part I will briefly examine the reasons for changing hospital reimbursement from retrospective cost-based reimbursement to prospective fixed rates. Part II of this Note will demonstrate that to realize the stated goals of hospital prospective payment, physicians must be drawn into the incentive structure. The necessity of incorporating physicians into this structure, however, is moderated by the desirability, indeed, necessity, of insulating the physician-patient relationship from any direct financial impact. Thus, Part III of this Note will conclude by advocating a mandatory Medicare incentive plan, administered jointly by the hospital and medical staff, that encourages physicians to share jointly in reduced cost care while forcing them to absorb any losses.