As this week the FTAC was all about budget I thought it may be useful to have a short intro to global budgets.
What is a global budget?
Hospitals with global budgets get paid a set amount to treat a group of patients over a certain time period, rather than being paid for each individual service they provide.
There are two types of global budgets:
- Fixed global budget: The amount is set, no matter how many patients the hospital treats, with no flexibility.
- Flexible global budget: The hospital gets a set amount, but this can change based on how many patients they treat or the costs they face, offering some flexibility.
Fixed global budgets
Pros
- Stability: Fixed budgets provide a steady revenue stream, which can help hospitals when they don't know how many patients they’ll have or how much care they’ll need to provide.
- Easier to budget: Fixed costs don't change from one period to the next.
- Better savings: Fixed budgets can help hospitals save money.
Cons
- Financial hardship: If a fixed budget is based on wrong or outdated data, the hospital might not have enough money to cover costs, especially if the number of patients or the care needed is higher than expected.
- Reduced flexibility: Fixed budgets don't allow for changes in the type of care or service that are given.
Flexible global budgets
Pros
- Adjust to volume: Flexible budgets can change based on how many patients the hospital treats and the level of care needed.
- Remove fee-for-service incentives: With flexible budgets, hospitals are less likely to provide unnecessary care since they’re not paid for each individual service.
- Improve efficiency: Flexible budgets give hospitals more control, allowing them to find ways to improve efficiency and save money.
Cons
- May not meet quality standards: If a flexible budget doesn't have mechanisms to ensure quality standards are met, hospitals may not provide needed services
Implications and tradeoffs
Global budgets in healthcare help control spending by setting limits on both prices and the amount of care provided. This flexibility avoids issues with price regulation but could risk not providing enough care. Hospitals and providers are encouraged to reduce unnecessary spending, but this could also lead to cutting both helpful and unhelpful care unless quality goals are included in the agreements. To make sure quality isn't lost, pay-for-performance rules are often used.
Global budgets shift financial risk to healthcare providers, but they also offer some protection against things like reduced patient numbers, such as during the COVID-19 pandemic, when extra support helped prevent big financial losses. Still, unexpected costs, like those from public health emergencies, can lead to big financial challenges, sometimes causing hospitals to cut services or close.
Research from programs like Medicare ACOs and Massachusetts's AQC shows that global budgets can save money without hurting quality. They often do this by reducing the amount of care or sending patients to cheaper facilities.
In general, global budgets can control costs and maintain quality, as long as they are carefully designed with plans for sharing risk and rewarding good performance.
References to learn more
Strategies to Lower Health Care Prices from KFF, Jul 6, 2022 Health Care
Join us as we track the next meeting of the UHCC this Thursday, February 13 from 2–5 p.m.
We encourage you to:
- Sign up to provide public comment by 5 p.m. the day before the meeting occurs.
- We urge our members to push for a single payer plan in their public comments.
- Read our take on past UHCC and FTAC meetings