Hospital Costs:

Cost Control Efforts at 17 Texas Hospitals

AIMD-95-21: Published: Dec 9, 1994. Publicly Released: Jan 12, 1995.

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Pursuant to a congressional request, GAO provided information on how managed care plans have influenced cost control efforts at 17 urban hospitals in Texas.

GAO found that: (1) the increase in managed care health plans has shifted commercial reimbursements at the 17 Texas hospitals from fee-for-service payments to negotiated discounts and fixed payments; (2) these managed care reimbursement methods lower the margins on patients covered by fixed-rate payments, limit the hospitals' abilities to cover losses, and increase the hospitals' financial risk if they exceed preestablished payment rates; (3) managed care health plans generally seek to contract with less costly hospitals in service networks that offer both inpatient and outpatient services across wide geographic areas; (4) most of the 17 hospitals reviewed have entered into service networks to attract managed care business and stay competitive; (5) in an effort to remain profitable under negotiated discount and fixed-rate reimbursement systems, the 17 hospitals have standardized physician practice patterns to eliminate unnecessary procedures, acquired medical technology through joint ventures, reduced capital outlays, and increased efficiencies; and (6) medical profession liability and the inability to obtain discounts on sole-source drugs and medical supplies have limited the hospitals' cost control efforts.

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