A Community Hospital Payment Experiment Outperforms National Experience

Since January 1980, the hospitals in the Rochester, NY, area have been operating under a community-wide revenue cap. This prospective payment system features local administration and control and is the first time a group of hospitals have committed themselves to a comprehensive regional financing system. This system differs from other prospective payment programs in that it covers both inpatient and outpatient care and offers incentives for ambulatory treatment whenever clinically appropriate. In the first five years of this program, the increase in Rochester area hospital expenses was 46%, compared with 52% for New York State hospitals and 68% for US hospitals at large. Further, the financial position of the Rochester hospitals improved, showing an operating margin of 2.6%, compared with a figure of-15.8% for New York State hospitals at large. A community-wide assessment showed no evidence of a reduction in the quality of or access to care. This community system for hospital payment and planning merits serious consideration for areas wishing to realize high-quality care at an affordable cost through a balanced combination of self-regulation, cooperation, and competition.